lump sum or annuity payout on rule of 85

scubamonkey · 02-24-2006, 01:48 PM

Part of my compensation for 30 years employment is the rule of 85. This is where you add your age and years of employment together - when the sum is 85 and you are over 55 years old you can retire. I will reach my rule of 85 only two months after i reach 55.

I have two choices of payout on my pension.

The first choice is a life annuity for $65,000.
The second choice is a lump sum payout for $625,000.

How in the world can this decision be made (life expectancy, etc.)?

ALso, If the lump sume is the best option and I roll it into an IRA - do I have to wait until 59 1/2 to strat receiving annual distributions?

I should note that the annual income from this pension is necessary
to my retirment plan to retire at 55.

Can ya'll help me with some sage advice?

brewer12345 · 02-24-2006, 01:53 PM

Is the payout fixed or inflation adjusted? Single life or joint?

The way I would look at this is to price an equivalent annuity payout from a commercial insurer. If you can do better in the private market, its probably better to take the lump sum.

setab · 02-24-2006, 01:59 PM

I also think that you will have to wait until 591/2 if you role it over, so that may be a significant factor.

setab

scubamonkey · 02-24-2006, 02:25 PM

There are many options such as 5 or 10 years guaranteed, life of my wife etc. (9 options alltogether). They all decrease in value as you add guarantee options - although not a great deal.

The payment is NOT adjusted for inflation!

I would like to know more about the commercial insure option.

brewer12345 · 02-24-2006, 02:35 PM

Quote:

Originally Posted by scubamonkey

There are many options such as 5 or 10 years guaranteed, life of my wife etc. (9 options alltogether). They all decrease in value as you add guarantee options - although not a great deal.

The payment is NOT adjusted for inflation!

I would like to know more about the commercial insure option.

Just to get a ballpark, plug your particulars in here: http://www.immediateannuities.com/

You should be able to see what it costs on the open market to buy the income stream you are being offered (bear in mind that if you take the lump sum, you might not choose to actually buy an annuity).

twincity · 02-24-2006, 03:44 PM

"ALso, If the lump sume is the best option and I roll it into an IRA - do I have to wait until 59 1/2 to strat receiving annual distributions"

My situation was similar to yours. I took the lump sum. You allowed to roll your lump sum into an IRA or multiple IRA's if you wish. You can take a distribution from your IRA before your 59 1/2 - it's called a 72T distribution. The rule is you have to take the distribution for 5 years or until your 59 1/2, whichever is longer. The distribution is taxed as ordinary income. I have two IRA's and take a monthly distribution from the "big" IRA.* If you have to stop the 72T distribution, for some reason, after it starts, there are tax penaties that come into effect. Searh this board or the internet for more information. A financial adviser, can also help you with this process

Nords · 02-24-2006, 03:59 PM

Quote:

Originally Posted by scubamonkey

The first choice is a life annuity for $65,000.
The second choice is a lump sum payout for $625,000.

Is the life annuity coming from the company you worked for, or is it coming from an insurance company?

The reason I'm asking is because my FIL is very very happy and sleeps well at night because he took a lump sum from CBS.* I suspect there are a lot of employees in the steel, airline, & auto industries who also wish they'd taken a lump sum.

But a life annuity from an insurance company might have a better chance of survival than a company pension.

mickeyd · 02-24-2006, 04:44 PM

What are your living annual expanses? Will less than $65k annually allow you to live in comfort? If you rolled it over to an IRA you could spin off $25k@ a 4% rate per year. What other fiancial assets do you have? Will you be getting SS? Does your pension have a cola?

JPatrick · 02-24-2006, 05:07 PM

You said you needed the 65K to retire.* You will never (never say never) generate that amount of cash from your lump sum and still sleep at night, let alone leave any behind.*
Another real key is the options you have and how much they cost.
Given no cola, you need to figure what your 65K will be 10,15 20, or even 40 years from now.
Your other assets are important to consider also.

02-24-2006, 01:48 PM	#1
scubamonkey Dryer sheet aficionado Join Date: Feb 2006 Posts: 40	lump sum or annuity payout on rule of 85 Part of my compensation for 30 years employment is the rule of 85. This is where you add your age and years of employment together - when the sum is 85 and you are over 55 years old you can retire. I will reach my rule of 85 only two months after i reach 55. I have two choices of payout on my pension. The first choice is a life annuity for $65,000. The second choice is a lump sum payout for $625,000. How in the world can this decision be made (life expectancy, etc.)? ALso, If the lump sume is the best option and I roll it into an IRA - do I have to wait until 59 1/2 to strat receiving annual distributions? I should note that the annual income from this pension is necessary to my retirment plan to retire at 55. Can ya'll help me with some sage advice?

02-24-2006, 01:53 PM	#2
brewer12345 Give me a museum and I'll fill it. (Picasso) Give me a forum ... Join Date: Mar 2003 Posts: 9,255	Re: lump sum or annuity payout on rule of 85 Is the payout fixed or inflation adjusted? Single life or joint? The way I would look at this is to price an equivalent annuity payout from a commercial insurer. If you can do better in the private market, its probably better to take the lump sum. __________________ “When you realize that you are one of the rare few who observe moral principles in their relationships with others, there is a temptation to sink into amorality, not out of conviction or pleasure but simply to avoid further pain, because there is no greater suffering than being an angel in hell, whereas a devil feels at home wherever he goes.” – Martin Page, How I Became Stupid

02-24-2006, 01:59 PM	#3
setab Recycles dryer sheets Join Date: Dec 2005 Posts: 388	Re: lump sum or annuity payout on rule of 85 I also think that you will have to wait until 591/2 if you role it over, so that may be a significant factor. setab __________________ I told you I'd taunt you a second time.

02-24-2006, 02:25 PM	#4
scubamonkey Dryer sheet aficionado Join Date: Feb 2006 Posts: 40	Re: lump sum or annuity payout on rule of 85 There are many options such as 5 or 10 years guaranteed, life of my wife etc. (9 options alltogether). They all decrease in value as you add guarantee options - although not a great deal. The payment is NOT adjusted for inflation! I would like to know more about the commercial insure option.

02-24-2006, 03:44 PM	#6
twincity Dryer sheet wannabe Join Date: Jan 2005 Posts: 23	Re: lump sum or annuity payout on rule of 85 "ALso, If the lump sume is the best option and I roll it into an IRA - do I have to wait until 59 1/2 to strat receiving annual distributions" My situation was similar to yours. I took the lump sum. You allowed to roll your lump sum into an IRA or multiple IRA's if you wish. You can take a distribution from your IRA before your 59 1/2 - it's called a 72T distribution. The rule is you have to take the distribution for 5 years or until your 59 1/2, whichever is longer. The distribution is taxed as ordinary income. I have two IRA's and take a monthly distribution from the "big" IRA.* If you have to stop the 72T distribution, for some reason, after it starts, there are tax penaties that come into effect. Searh this board or the internet for more information. A financial adviser, can also help you with this process

02-24-2006, 04:44 PM	#8
mickeyd Thinks s/he gets paid by the post Join Date: Apr 2004 Location: South Texas~29N/98W Posts: 2,293	Re: lump sum or annuity payout on rule of 85 What are your living annual expanses? Will less than $65k annually allow you to live in comfort? If you rolled it over to an IRA you could spin off $25k@ a 4% rate per year. What other fiancial assets do you have? Will you be getting SS? Does your pension have a cola? __________________ Outside of a dog, a book is man's best friend. Inside of a dog, it's too dark to read. Groucho Marx In dire need of: faster horses, younger woman, older whiskey, more money.

02-24-2006, 05:07 PM	#9
JPatrick Thinks s/he gets paid by the post Join Date: Jun 2005 Posts: 1,503	Re: lump sum or annuity payout on rule of 85 You said you needed the 65K to retire.* You will never (never say never) generate that amount of cash from your lump sum and still sleep at night, let alone leave any behind.* Another real key is the options you have and how much they cost. Given no cola, you need to figure what your 65K will be 10,15 20, or even 40 years from now. Your other assets are important to consider also. __________________ If you do what you've already done, you'll get what you've already got- - - -<

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