Roll-over or annuity

[wanaberetiree]

My DW will be eligible for a small pension at the year end.

The lump-sum would be ~59K.
She would have an option to roll-over it or take a monthly payments, e.g. monthly 100% Join and Survivor would be $261. The amounts are not COLA adjusted.

Another option is to wait 10 years, then the lump-sum would be ~83K and monthly 100% Join and Survivor would be $425.

My DW is 54 and I am 53, emotionally retired, but still w*rking.

Can you share any advice and personal experience with a decision like this?

Thanks!

 

[braumeister]

One quick way to get a feel for this is to use
immediateannuities.com
to plug in your lump sum or desired payment and see if you might do better one way or the other.
Since these are dependent on your age, gender, and state, it's hard to give you a blanket answer.

 

[heeyy_joe]

I would wait if you can. If you retire early, the pension income will be a part of gross income when determining ObamaCare subsidies.

 

[pb4uski]

The IRR implicit in 54k growing to 83k over 10 years is only 3.47%. Not bad, but I think you could do better rolling over the $59k to an IRA, putting it in Wellesley and waiting 10 years.

 

[Midpack]

Along with the replies you've gotten above, annuities are historically expensive (for the monthly income they provide) now due to low interest rates. However, low interest rates are going to be with us for a while, it not a long while...so better deals on annuities may be a long way off.

 

[Animorph]

With no COLA and growth that kinda just matches average inflation, delaying sounds bad. DW has a similar situation and we'll take it as soon as possible.

While the annuity may be bad due to interest rates, the lump sum may be worse if they assume a fantasy interest rate when calculating it. Shop around and see if the lump sum would buy something better, or break out the calculator and and see if you might do better by investing it yourself in your normal AA or something conservative.

 

[timo2]

Will the sponsoring organization still be providing the pension in 10 years, or do you need to get what you can now?. there have been a lot of shenanigans with pensions by companies and governments in the past. Just something to ponder. If the odds are it will be there, I would wait to collect it until I quit working, whatever years that is.

 

[Khufu]

With no COLA and growth that kinda just matches average inflation, delaying sounds bad.

Not correct at all. The latest 12 month CPI-U rate of inflation from the BLS was 1.5% on 4/16/2013. So, the rate of return calculated above is double that of inflation that we are currently experiencing.

 

[daylatedollarshort]

We took our pensions as annuities to have a unique income source in semi-retirement and later. We ran the numbers at immediateannuities.com and the lump sums offered were never that impressive, especially for my pension which has a COLA. And the COLA only kicks in once I start the payments.

I can take the payments at 55 and get COLA increase to age 65, but if I start the payments at 65 the payments are not increased by any COLA in the preceding years. So it seemed better to start early. And the lump sum offered was less than the lump sump required at immediateannuities.com for the same monthly benefits without any COLA increases.

We have several pensions between us and I figure the odds of the different pension funds as well as the PBGC completely going bust (and not getting bailed out) are relatively slim.

On the other side of the coin, because of historically low interest rates, the lump sum offers will probably go down in future years. So if you think you want the lump sum for your pension it might be good to take it sooner rather than later when interest rate are likely to go up.