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What to do with previous pension
Old 11-27-2013, 10:11 PM   #1
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What to do with previous pension


I left a megacorp earlier this year for a commission only job at a local company. Megacorp had a pension for a short time before it was discontinued. Pension is held with fidelity but with zero investment choices, unlike my 401k.

I finally got around to rolling my 401 to Vanguard last week but my pension is a different story. I have to wait until after Jan 1 for any choices to be executed for some reason. I learned while I was taking to the rep that I could start taking disbursements from my pension instead of lump sum rolling it over. I will be 28 next month and didnt even know that was an option.

So while I'm all about compound interest I am not sure if there might be a reason to take a monthly payout that I'm missing.

Would there be a benefit or should I just roll into a traditional so I can move to a roth in the future?

$18,500 balance lump sum
Or $78 monthly or $77 spousal benefit.

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Old 11-28-2013, 07:04 AM   #2
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I'll be curious to see what others suggest. My initial reaction is that rolling the lump sum over to Vanguard is the best choice. It looks like it could take decades for the monthly benefit (invested each month) to exceed the lump sum (invested immediately, and left untouched). I would worry that the company itself, or the insurance company paying the annuity, may not even survive that long.


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Old 11-28-2013, 07:55 AM   #3
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Originally Posted by calichica View Post
Would there be a benefit or should I just roll into a traditional so I can move to a roth in the future?

$18,500 balance lump sum
Or $78 monthly or $77 spousal benefit.
If the rep was correct, and you interpreted what they said correctly (about being able to have the pension start paying out immediately for the rest of your life at $78/month), the approximate 'return' on this is 4.99%.

So you have to ask yourself if you would want to buy a 100 year bond with a 4.99% coupon rate given today's and future expectations.

Personally, I would roll it over into an IRA to self-direct it, since I would expect a little more growth than 5% long-term. Even if you wanted to allocate the $18k into fixed income, because many feel long-term rates will eventually be getting back (well) above 5% at some point, it would make sense to simply put it in an alternative investment for the time being until rates climb back up, at which point you could buy a 30 year bond if you really wanted to.

I'm big on international diversification, so I would put about 50%+ into foreign funds - but that's just me.
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Old 11-28-2013, 08:58 AM   #4
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Compared to a normal SPIA, that seems like a good monthly payout for your age, if that's what is being offered. With direct deposit it wouldn't be too much work to handle. On the other hand there is inflation and investment returns. I'm on the aggressive side, so I think I'd go with the lump sum. If you are a conservative investor and don't think inflation is going to go crazy I think a case could be made either way.
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Old 11-28-2013, 10:32 AM   #5
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At your young age I think you would be better off taking the lump sum and investing it. Over such a long period of time you never know what might happen to the pension plan, so there is some potential downside (plus inflation risk) and a bird in the hand is worth two in the bush.
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Old 12-05-2013, 11:00 PM   #6
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So I received my pension paperwork today for my spouse to notarize with a laundry list of instructions to roll it over. OH MY.

BUT, there was an itemized list of withdrawal options that somewhat blew me away and got me thinking and then just confused.

Pension balance is $17,383.55

I have 2 pages of options but these are the 2 that caught my eye:

$76.54 pension withdrawal starting right away (28 years old)

OR, they offer an option to roll my 401k balance into the pension for an annuity like above with 100% spousal benefits for a monthly payment starting immediately of:


Total balance if I roll in my 401k would be $152,000. So with a 60 year withdrawal that is a 5.78% rate of return. I have the check for the 401k to send to vanguard to lump sum roll over (Biggest check with my name on it ever!) but the numbers and options are so fascinating to me because I had no clue they were even a possibility. I mean, if we weren't looking at significant income growth over the next few years, $8,100 a year in income would be nice.

I am an annuity novice but I still felt like those figures were somewhat generous. Thoughts?

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