Offered lump sum payout of pension

[Bram]

I was notified last week of a one time offer to take a lump sum payout of my defined benefit, non-cola pension in lieu of lifetime monthly payments. We retirees have until Dec 6, 2019 to make this election. I took all of about 10 seconds to decide on that. I will have the money rolled over to a traditional IRA with Vanguard. I did attend an informational meeting, but there really was nothing added to what was available to read in the several page packet that had been sent.

One of my friends told me that she planned to just keep the monthly pension payments. She’s single but has adult children & grandchildren. I asked her if she understood that if she dies next month those thousands of $’s just disappear, no one gets it. I urged her to explore her options before she decided.

Another couple of friends are going take the lump sum, & plan to talk to someone at the local Edward Jones office. I suspect EJ is going to see a big influx of money into their coffers.

I feel grateful that I found this forum ~ 13 years ago For those who had little knowledge, expertise, nor interest in the topic it would be difficult to now get up to speed in this short time frame to make an informed decision about what to do & where to put the money. I don’t feel like I’m any sort of an expert, but it seems I have a leg up on several who are wrestling with this.

 

[Henry Lili]

I was notified last week of a one time offer to take a lump sum payout of my defined benefit, non-cola pension in lieu of lifetime monthly payments. We retirees have until Dec 6, 2019 to make this election. I took all of about 10 seconds to decide on that. I will have the money rolled over to a traditional IRA with Vanguard. I did attend an informational meeting, but there really was nothing added to what was available to read in the several page packet that had been sent.

One of my friends told me that she planned to just keep the monthly pension payments. She’s single but has adult children & grandchildren. I asked her if she understood that if she dies next month those thousands of $’s just disappear, no one gets it. I urged her to explore her options before she decided.

Another couple of friends are going take the lump sum, & plan to talk to someone at the local Edward Jones office. I suspect EJ is going to see a big influx of money into their coffers.

I feel grateful that I found this forum ~ 13 years ago For those who had little knowledge, expertise, nor interest in the topic it would be difficult to now get up to speed in this short time frame to make an informed decision about what to do & where to put the money. I don’t feel like I’m any sort of an expert, but it seems I have a leg up on several who are wrestling with this.

Im 53 got the offer 4 years ago and again this year (roughly 10%more), took a pass. Ran the numbers and the offer was a joke. Not talking about real money in either scenario, but just the same, was an insult. Lol

 

[stepford]

Im 53 got the offer 4 years ago and again this year (roughly 10%more), took a pass. Ran the numbers and the offer was a joke. Not talking about real money in either scenario, but just the same, was an insult. Lol

Just curious how much of a joke. I've been offered lump sums on non-COLA'd pensions from two different Megacorps. Both times the offer was 60-70% of the estimated value of the equivalent annuity and both times I declined.

 

[Alexi]

I had that option when I retired early. I took the lump sum because I preferred to have control over my money and whatever is leftover to go to my heirs. A decade later, it continues to grow.

 

[njhowie]

I was notified last week of a one time offer to take a lump sum payout of my defined benefit, non-cola pension in lieu of lifetime monthly payments. We retirees have until Dec 6, 2019 to make this election. I took all of about 10 seconds to decide on that. I will have the money rolled over to a traditional IRA with Vanguard.

Excellent decision.

Congrats!

 

[njhowie]

Just curious how much of a joke. I've been offered lump sums on non-COLA'd pensions from two different Megacorps. Both times the offer was 60-70% of the estimated value of the equivalent annuity and both times I declined.

We've just gone through this with DW and rolling over her pension.

I have the paperwork right here in front of me and am quoting:

Lump Sum Payment

I elect to receive the present value of my accrued benefit equal to $XX,XXXX.XX in one lump sum payment. No further payments will be due and payable to me from the Plan. If I am married, my spouse has consented to this election by completing Section G. The relative value of this benefit to the Single Life Annuity is 100%.

 

[ckelly78z]

What do you all consider to be an acceptable % percentage of the equivalent annuity, to accept a lump sum payout from a non-cola pension, rather than taking the monthly payments ?

I understand the desire to invest it yourself for more control, and have a secure (not disappearing upon death) investment, but if the percentage is too low, it's not a good deal.

I had planned on taking a full survivorship for a reduced amount when I was eligible, and may change my mind if a lump sum is available.

 

[street]

Always an interesting topic. To me there is more positives then negatives when taking lump sum. You have control of that money and the options in case of death (you or spouse) don't favor you.

 

[folivier]

My offer, 10 years ago, had different options for the pension. My lifetime, mine + spouse survivorship, mine + spouse + portion left to kids. Or the lump sum which I chose.

 

[CRLLS]

Always an interesting topic. To me there is more positives then negatives when taking lump sum. You have control of that money and the options in case of death (you or spouse) don't favor you.

^+1

For married couples, compare this against the pension with a 100% survivors benefit, which is usually quoted as the higher, single life payout rate. This is how I compared the lump sum vs pension.

Historically, if one rolls the money into an IRA, then , turn it into monthly payments at an annual rate of say 4%, that monthly benefit can grow with the cost of living. At some time, it will meet and exceed the fixed, non-cola'd pension.

 

[Car-Guy]

My first mega corp offered me a buyout when I was in my mid 50's and ~20 years after I had quit working for them. It wasn't much (~45k) but my main concerned was the long term viability of the company and it's pension fund. The company that owned my pension "at that time" had been spun off from the parent company some years before and was later merged with another company and was now based in a foreign country. It wast clear to me who owned my pension and what "protections" I may or may not have. Anyway I decided it was better to take the bird in the hand rather than the two that "may be" in the bush in the future.

 

[breger1]

I was just in a similar situation. Offered a lump sum from Megacorp. When I went to Immediateannuities and compared is was about 11.5% lower than if I took the pension.

I took the lump sum anyways for a number of reasons. In addition to wanting control I have a low confidence Megacorp will be around in 20 years to honor the pension and I am also not real confident in the PBGC being able to support all these bankrupt pensions they will have to fund without a bailout. With my wife's current age and taking the 100% survivor option I estimate that we need it to be funded for at least the next 40 - 50 years.

Planning so far out is certainly fraught with unknown risks but you make the best decisions with the informaiton you have today.

 

[Big_Hitter]

Always an interesting topic. To me there is more positives then negatives when taking lump sum. You have control of that money and the options in case of death (you or spouse) don't favor you.

what if the lump sum is only worth half of your monthly pension?

 

[Bir48die]

So just curious. I have not been in this situation so this is just a matter of curiosity. It's a given that we've been in an extended period of time with great returns. Let's say you take that lump sum and do your rollover. Then about a year in you have a market contraction of let's say 35% or so that runs about a 2-3 year cycle. Now I'm a market believer so really just looking at the emotional aspect of potentially second guessing your choice.

 

[Big_Hitter]

"
Lump Sum Payment

I elect to receive the present value of my accrued benefit equal to $XX,XXXX.XX in one lump sum payment. No further payments will be due and payable to me from the Plan. If I am married, my spouse has consented to this election by completing Section G. The relative value of this benefit to the Single Life Annuity is 100%"

PSA - relative values only compare options at the annuity starting date, not at a date in the future.

 

[Big_Hitter]

So just curious. I have not been in this situation so this is just a matter of curiosity. It's a given that we've been in an extended period of time with great returns. Let's say you take that lump sum and do your rollover. Then about a year in you have a market contraction of let's say 35% or so that runs about a 2-3 year cycle. Now I'm a market believer so really just looking at the emotional aspect of potentially second guessing your choice.

yes sequence of return risk is huge, especially if that's all you have for retirement

 

[Big_Hitter]

I was notified last week of a one time offer to take a lump sum payout of my defined benefit, non-cola pension in lieu of lifetime monthly payments. We retirees have until Dec 6, 2019 to make this election. I took all of about 10 seconds to decide on that.

what interest rates were used for that lump sum calculation?

 

[Big_Hitter]

Always an interesting topic. To me there is more positives then negatives when taking lump sum. You have control of that money and the options in case of death (you or spouse) don't favor you.

it's really difficult to outlive an annuity though

 

[street]

what if the lump sum is only worth half of your monthly pension?

Good question, I still would take the lump sum for a few reasons.

1) I can't predict when I will die (or spouse) it could be today in an accident.
2) I don't need the money to live on, so investing the sum is more beneficial in my case.
3) I want total control of that money even if only half to give back to heir/charity.

 

[street]

it's really difficult to outlive an annuity though

If me I would take the lump then go buy an annuity if that works in your case. I just not in love with annuities, they cost money and the insurer in most cases come out ahead at end of life.

 

[Big_Hitter]

Good question, I still would take the lump sum for a few reasons.

1) I can't predict when I will die (or spouse) it could be today in an accident.
2) I don't need the money to live on, so investing the sum is more beneficial in my case.
3) I want total control of that money even if only half to give back to heir/charity.

If you don't need the money, then LS makes sense

 

[momoftwo]

40+ years at Megacorp, retired this year.
Choice of non-cola monthly payout with various options to include DH if I die before him.
At 63 yrs old, I hope I have a decade or two left but who knows?

Chose lump sum, $350Tish, and rolled into IRA at Fidelity. It's about 1/3 of our retirement savings.
Our downsized expenses are low. Will only need 1-2% from IRA to supplement SS.
We do want to leave some to adult children/grandchildren so this seems right for us.

Hope your friends reconsider using EJ.

 

[RunningBum]

One of my friends told me that she planned to just keep the monthly pension payments. She’s single but has adult children & grandchildren. I asked her if she understood that if she dies next month those thousands of $’s just disappear, no one gets it. I urged her to explore her options before she decided.

She probably also understands that if she lives a long time, she keeps collecting the monthly payment even after it surpasses what she could gotten with a lump sum.

You didn't give any indication of what the PV of the pension is compared to the lump sum. Another way of looking at it, could you buy an annuity (SPIA) with the lump sum amount that pays out the monthly pension amount?

Just because the money is now under your control, doesn't mean the buyout is a good deal.

There are other factors, of course, like whether the pension plan is well funded and whether the company is in good shape to keep those payments coming.

Maybe you've considered all the math and other factors and figure the buyout is a good deal. If not, I wouldn't be so quick to urge someone else to do what you did.

 

[conversationalphrase]

I had the same decision to make a couple months ago, did the math, and decided to not accept the buy out offer.

Much of the decision depends on how long you think you and your spouse will live. Tax/ACA planning are other considerations.

 

[marko]

My pension was a significant amount (mid-six figures). When our company was acquired I was offered and elected to take the money and run.

Glad I did; heard all kinds of horror stories from those who opted to stay in; reduced pay-outs, reduced buy-outs, underfunded etc.

Not sure how it all works but I do know that there were about 50-100 folks like me who chose to take large pay-outs from the fully funded fund at the time...maybe we cleaned it out?