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Yearly Payout Or Lump Sum
Old 11-02-2010, 08:32 PM   #1
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Yearly Payout Or Lump Sum

Just curious what forum members would do here.

Lump sum is approx. $135,000. Yearly payout for life is $8,400 ( joint-no inflation adjustment).

Pretend you are 55 yrs old, married and ready to retire and do not necessary need the yearly payout right away (can hold out to at least 59.5).

Would you take the lump sum and roll it into a 401k (maybe put in Wellesley Fund) or would you take the yearly payout?

Golfnut
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Old 11-02-2010, 11:35 PM   #2
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Quote:
Originally Posted by golfnut View Post
Just curious what forum members would do here.

Lump sum is approx. $135,000. Yearly payout for life is $8,400 ( joint-no inflation adjustment).

Pretend you are 55 yrs old, married and ready to retire and do not necessary need the yearly payout right away (can hold out to at least 59.5).

Would you take the lump sum and roll it into a 401k (maybe put in Wellesley Fund) or would you take the yearly payout?

Golfnut
The fact of no COLA makes it kind of a judgment call rather than just numbers, given of course that the company has very high credit and is likely to keep it.

If it had a COLA, no brainer, take it. Without COLA you have to ask your self a lot of questions about what are your expectations going forward, for inflation, for equity returns, for volatility, for interest rates, etc.

Ha
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Old 11-03-2010, 12:20 AM   #3
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This is like a mortgage to me with some twist, namely, uncertainties. But now you are like the bank and someone repay you, and he can't refinance, get a second mortgage, get equity loans, or whatnot. Of course, default is always a possibility. The question is how probable it is.

There are things you need to ask yourself or estimate. For examples, your life expectancy and rate of return from investments. There may be more things to be taken into consideration. The estimated number of years you are going to live is like the numbers of years in which the mortgage is to be repaid. You can use a good online mortgage calculator to figure out what the interest rate is, with $8400 payment per year (or $700 a month for simplicity, not exactly the same) and the lump-sum amount as the loan or principal. It takes some trials and errors to get the interest rate. Okay, I think it would go like this (another but easier way is listed after this one): input the loan amount and your estimated interest rate and see what the monthly payment is; repeat until you get $700 a month or really close. Compare such interest rate to your rate of return from investments. If the former is higher, take installments (yearly or monthly payments etc). If it is lower, take the lump sum and invest. It is not a perfect way. But at least there are some numbers for you to look at.

An easier way is to use the rate of return from investments as the interest rate when using the mortgage calculator. If the monthly payment is $700 or more, take the lump-sum and invest. If less, take the installments. But in this way you don't have a good idea about the interest rate like using the previous method.

I haven't done any calculations and of course I don't have enough info. My gut feeling is that taking installments maybe a good idea if you expect you will have 25 or more years to enjoy life. To find where exactly the break-even point is, you need to do some work. It shouldn't be too hard. You can try different life expectancies and rates of return. Good luck.
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Old 11-03-2010, 03:15 AM   #4
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I would take the yearly payout, with or without COLA.

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Originally Posted by golfnut View Post

lump sum is approx. $135,000. Yearly payout for life is $8,400 ( joint-no inflation adjustment).


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Old 11-03-2010, 06:26 AM   #5
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Looking at:

Immediate Annuities - Instant Annuity Quote Calculator.

And plugging in your age/lump sum (had spouse at same age), it returns a value of $598-599/mo starting immediately.

If you take the lump sum, roll it into an IRA (in a safe investment), you could wait till later, when the monthly return would be a bit better.

The question I would have (since I went through this same exercise), is if the monthly benefit is supplied by a third party, or your company directly.

If it's from your company, you then have the risk of longetivity of your firm (yes, I know there is risk with a SPIA supplier, but it would be a bit less, IMHO)....

I retied at a later age (after 59.5), and my company had the same situation (e.g. lump or annuity). After I did some investigation on my own, I found that taking the lump sum and purchasing an SPIA from a third party, I could beat the company's annuity - at the time.

I could also get better terms for our joint SPIA. While it covers both our lifetimes, it also has the rider for a minimum amount of time. If we both pass, the remaining payments go to our estate. OTOH, if one/both live longer than the minimum time, payments continue at 100%. The company supplied annuity was life only, without any minimum term.
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Old 11-03-2010, 06:30 AM   #6
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There is another guy posting here with the EXACT same problem.
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Old 11-03-2010, 06:42 AM   #7
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There is another guy posting here with the EXACT same problem.
If there is, you might want to link this thread to that one (assuming you know where it is)...
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Old 12-16-2010, 06:42 PM   #8
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Originally Posted by rescueme View Post
Looking at:

Immediate Annuities - Instant Annuity Quote Calculator.

And plugging in your age/lump sum (had spouse at same age), it returns a value of $598-599/mo starting immediately.

If you take the lump sum, roll it into an IRA (in a safe investment), you could wait till later, when the monthly return would be a bit better.

The question I would have (since I went through this same exercise), is if the monthly benefit is supplied by a third party, or your company directly.

If it's from your company, you then have the risk of longetivity of your firm (yes, I know there is risk with a SPIA supplier, but it would be a bit less, IMHO)....

I retied at a later age (after 59.5), and my company had the same situation (e.g. lump or annuity). After I did some investigation on my own, I found that taking the lump sum and purchasing an SPIA from a third party, I could beat the company's annuity - at the time.

I could also get better terms for our joint SPIA. While it covers both our lifetimes, it also has the rider for a minimum amount of time. If we both pass, the remaining payments go to our estate. OTOH, if one/both live longer than the minimum time, payments continue at 100%. The company supplied annuity was life only, without any minimum term.
I went back into the immediate annuities site, and it returns $714 per month for joint life (100%)with a lump sum of $134,000. How can this change so much in 6 weeks?
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Old 12-16-2010, 09:15 PM   #9
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Quote:
Originally Posted by golfnut View Post
Just curious what forum members would do here.

Lump sum is approx. $135,000. Yearly payout for life is $8,400 ( joint-no inflation adjustment).

Pretend you are 55 yrs old, married and ready to retire and do not necessary need the yearly payout right away (can hold out to at least 59.5).

Would you take the lump sum and roll it into a 401k (maybe put in Wellesley Fund) or would you take the yearly payout?

Golfnut
Is this a pension lump sum? If so, are you sure you can put it in an IRA? Do you pay taxes on the lump sum? If so, what is the percentage rate?

I would tend to go with the pay out and wait for the higher amount at 59.5 in this situation. You can leave more of your investment funds working.
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Old 12-16-2010, 09:27 PM   #10
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Is this a pension lump sum? If so, are you sure you can put it in an IRA? Do you pay taxes on the lump sum? If so, what is the percentage rate?

I would tend to go with the pay out and wait for the higher amount at 59.5 in this situation. You can leave more of your investment funds working.
Yes, it is pension lump sum and I can roll it into a IRA without paying taxes.

Not sure I understand your second paragraph.
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Old 12-16-2010, 10:32 PM   #11
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I went back into the immediate annuities site, and it returns $714 per month for joint life (100%)with a lump sum of $134,000. How can this change so much in 6 weeks?

I decided to give this link a try...confused by the payouts I saw. Why are joint payouts lifetime income with installment refund paid to beneficiary greater than single male or female lifetime income with installment paid to beneficiary? That doesn't seem right to me. I used male,48 and female,47 with 100k. Joint payout is $518/mo, male only $450/mo and female only $437/mo. I understand why the male payout is higher than female, but I would think the joint payout would be the same or lower than female payout. Does anyone know?
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Old 12-17-2010, 08:09 AM   #12
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I agree with you. Does not make much sense. Just wondering how reliable this site is.
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Old 12-17-2010, 09:45 AM   #13
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Originally Posted by golfnut View Post
Just curious what forum members would do here.

Lump sum is approx. $135,000. Yearly payout for life is $8,400 ( joint-no inflation adjustment).

Pretend you are 55 yrs old, married and ready to retire and do not necessary need the yearly payout right away (can hold out to at least 59.5).

Would you take the lump sum and roll it into a 401k (maybe put in Wellesley Fund) or would you take the yearly payout?

Golfnut
Can you leave it there to earn additional value until you are ready for it? Or must you take it right away?

Are you concerned about the financial stability of the company? If yes, take it now, if you hold off you may find the value increases if you leave it there.

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Old 12-17-2010, 10:01 AM   #14
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Can you leave it there to earn additional value until you are ready for it? Or must you take it right away?

I need to either take the lump sum or monthly payout now. This is the decision I need to make.

Are you concerned about the financial stability of the company? If yes, take it now, if you hold off you may find the value increases if you leave it there.

-- Rita
Not concerned with the financial stability of the company.

Regards,
Golfnut
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Old 12-18-2010, 10:07 AM   #15
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Looking at +16 years (no growth) payouts just get the $135k that you can walk away with now. Would be +71 years old at break even from payouts starting at +55. Pays +6% annual (no cola). You might say it comes down to "Do I feel lucky?"
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Old 12-20-2010, 11:01 AM   #16
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I decided to give this link a try...confused by the payouts I saw. Why are joint payouts lifetime income with installment refund paid to beneficiary greater than single male or female lifetime income with installment paid to beneficiary? That doesn't seem right to me. I used male,48 and female,47 with 100k. Joint payout is $518/mo, male only $450/mo and female only $437/mo. I understand why the male payout is higher than female, but I would think the joint payout would be the same or lower than female payout. Does anyone know?

There must've been a bug in the calculator and they fixed it.
I just checked it again, the joint payout is now lower, $394. This makes more sense.
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Old 12-20-2010, 11:14 AM   #17
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There must've been a bug in the calculator and they fixed it.
I just checked it again, the joint payout is now lower, $394. This makes more sense.
Thanks for rechecking. Make more sense. I have pretty much decided to take the monthly payout from the pension.
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Old 01-02-2011, 01:40 PM   #18
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Take this into consideration. I retired at age 57 in 2007 with a significant lump sum buyout. Of course the market crashed and I felt stupid because I lost half of everything I worked for over 36 years. Today I am only 5% short of everything I lost and it will probably be mid 2011 before I break even. I lost 4 years of growth but still feel fortunate to have regained my losses so quick. I am a conservative investor or I could have gotten back sooner. The question is will you work part time after retirement and let your lump grow untouched? If you can do that I would definitely go with the lump sum. The worst days are over and now is a good time to invest in the market or so it looks anyway. Go for it, we are in recovery.
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Old 01-02-2011, 02:14 PM   #19
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Thanks for rechecking. Make more sense. I have pretty much decided to take the monthly payout from the pension.
No problem, something that made me consider options for our future too. I started to play around with the joint option as 2 single payouts only. You may want to look into this and see if it makes sense for you. I checked splitting the amounts between the two of you (any remainder to beneficiaries) and did single payouts for each. You get a better payout combined than a single joint payout. I need to investigate my situation to see if I can split mine using this scenario.
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Old 01-05-2011, 06:29 PM   #20
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No problem, something that made me consider options for our future too. I started to play around with the joint option as 2 single payouts only. You may want to look into this and see if it makes sense for you. I checked splitting the amounts between the two of you (any remainder to beneficiaries) and did single payouts for each. You get a better payout combined than a single joint payout. I need to investigate my situation to see if I can split mine using this scenario.
After alot of going back and forth, we've decided to go with the annual payout of approx. $8,400. Not an easy decision.

Thanks for the responses. I still have about 2 weeks to change my mind, tho.
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