Join Early Retirement Today
Reply
 
Thread Tools Display Modes
lump sum or annuity payout on rule of 85
Old 02-24-2006, 12:48 PM   #1
Recycles dryer sheets
 
Join Date: Feb 2006
Location: Pensacola
Posts: 53
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?
scubamonkey is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Re: lump sum or annuity payout on rule of 85
Old 02-24-2006, 12:53 PM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Mar 2003
Posts: 18,085
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.
__________________
"All animals are equal, but some animals are more equal than others."

- George Orwell

Ezekiel 23:20
brewer12345 is offline   Reply With Quote
Re: lump sum or annuity payout on rule of 85
Old 02-24-2006, 12:59 PM   #3
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.
setab is offline   Reply With Quote
Re: lump sum or annuity payout on rule of 85
Old 02-24-2006, 01:25 PM   #4
Recycles dryer sheets
 
Join Date: Feb 2006
Location: Pensacola
Posts: 53
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.
scubamonkey is offline   Reply With Quote
Re: lump sum or annuity payout on rule of 85
Old 02-24-2006, 01:35 PM   #5
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Mar 2003
Posts: 18,085
Re: lump sum or annuity payout on rule of 85

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).
__________________
"All animals are equal, but some animals are more equal than others."

- George Orwell

Ezekiel 23:20
brewer12345 is offline   Reply With Quote
Re: lump sum or annuity payout on rule of 85
Old 02-24-2006, 02:44 PM   #6
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
twincity is offline   Reply With Quote
Re: lump sum or annuity payout on rule of 85
Old 02-24-2006, 02:59 PM   #7
Moderator Emeritus
Nords's Avatar
 
Join Date: Dec 2002
Location: Oahu
Posts: 26,855
Re: lump sum or annuity payout on rule of 85

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.
__________________
*

Co-author (with my daughter) of “Raising Your Money-Savvy Family For Next Generation Financial Independence.”
Author of the book written on E-R.org: "The Military Guide to Financial Independence and Retirement."

I don't spend much time here— please send a PM.
Nords is offline   Reply With Quote
Re: lump sum or annuity payout on rule of 85
Old 02-24-2006, 03:44 PM   #8
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
mickeyd's Avatar
 
Join Date: Apr 2004
Location: South Texas~29N/98W Just West of Woman Hollering Creek
Posts: 6,668
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?

__________________
Part-Owner of Texas

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.
mickeyd is offline   Reply With Quote
Re: lump sum or annuity payout on rule of 85
Old 02-24-2006, 04:07 PM   #9
Thinks s/he gets paid by the post
JPatrick's Avatar
 
Join Date: Jun 2005
Posts: 2,610
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.
JPatrick is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Lump sum or annuity? Tawney FIRE and Money 4 12-14-2006 10:04 PM
Lump Sum vs. Annuity Pension zaqxsw Other topics 3 10-20-2006 05:24 AM
Take a lump sum or pension payout Rollie FIRE and Money 45 06-11-2006 06:54 PM
Lump sum or annuity runnerr FIRE and Money 17 07-01-2005 02:39 PM
Annuity vs Lump Sum Pension moguls FIRE and Money 5 05-26-2003 02:09 PM

» Quick Links

 
All times are GMT -6. The time now is 09:55 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2024, vBulletin Solutions, Inc.