Ok Taking Pension Now Options

[bpgdeg1234]

Thanking you all in advance once again as this is part 2 of earlier post from a few weeks back of "Take Pension Now or Defer and Continue Roth Conversions for 5 years". Based on prior perspectives and iOrp/Retiree Calculator results we will be taking our pension now and doing Roth conversions into the 24% tax bracket for the next 4 years.

Now though we have several pension options of consideration:

Lump Sum $1,153K
Life Only $5,401/month
50% J&S $5,027/month
75% J&S $4,858/month
100% J&S $4,701/month

As a reminder I recently turned 60 and DW 57. Also, we have a smaller pension of $1,646/month that I was required to take at 55 which I chose 50% J&S option. Truly appreciate any perspectives on which option to choose.

Thanks

 

[njhowie]

Lump sum. It's a guarantee. Choosing one of the annuity options, it's just for your/spouses life - no assurance how much that may come to.

 

[pacergal]

Spouse and I took 100% J/S option for ours. So that and SS is enough to more than cover our expenses, so investments are primarily for future medical expenses/LTC, if needed, gifts and kids inheritance.

 

[savory]

Spouse and I took 100% J/S option for ours. So that and SS is enough to more than cover our expenses, so investments are primarily for future medical expenses/LTC, if needed, gifts and kids inheritance.

This is what we did. I know the pension has PBGC but I still pay close attention to my former employer's contribution. I also think, given the last 10 years, I would have been in a better situation with the lump sum i.e. total net worth.

Having said that, I really like knowing that I cover most/all of my expenses (depending on the year) with pension and SS and I do not worry about the market. I might even be at a point that I do not need to worry about my pension for most of my daily living needs, if something should happen to the pension. It provides comfort for me.

 

[finnski1]

Look on the bright side.
My wife's pension didn't even offer a lump sum option. Therefore we just went with the 100% J&S.
I don't have any wisdom on your choice of annuity vs lump sum, but that lump sum looks pretty enticing if you can manage it wisely once you have it

 

[jollystomper]

We took the 75% J&S option (actually a 75% J&S restore option from our Megacorp). We looked at the numbers for 75% of pension plus my SS spousal benefits and that would cover regular expenses for DW.

We did not choose the lump sum primarily because I wanted a simpler retirement financial life, and did not want to deal with lump sum taxes, adding that amount to our investment portfolio, more to allocate/rebalance, "sleep well at night" factor, etc. Also, I liked the idea of having an annuity stream in addition to investment income and SS. The Megacorp is still doing very well and the pension fund is fully funded, so the risk should be minimal.The simple approach works for us.

 

[njhowie]

We did not choose the lump sum primarily because I wanted a simpler retirement financial life, and did not want to deal with lump sum taxes,...

There are no lump sum taxes if you roll over into IRA.

If you choose any of the annuity options, you're going to pay taxes on the payments every year.

 

[bpgdeg1234]

Thanks all for your responses to date. We knew this wouldn't be an easy one. We do like the idea of monthly pension annuity deposits without much thought and the megaCorp is really solid so pension likely low risk tier.

Regarding the lump sum this indeed is enticing and we would likely just roll it over to our existing tIRA but that would make our tIRA roughly $2.5M which would have other tax headaches when reaching RMD stage in 12 years. As such, we would likely do significant Roth conversions over the next several years to get these RMDs down to reasonable amounts so we would likely still be paying a decent amount of taxes in the short term.

 

[jollystomper]

There are no lump sum taxes if you roll over into IRA.

If you choose any of the annuity options, you're going to pay taxes on the payments every year.

But then I need to deal with taxes when I take it out of the IRA. My IRA and 401K accounts are plenty large enough already, it would push me into a higher RMD bracket. Another reason for choosing simple.

 

[pb4uski]

I had a lump sum option but it was not at all an attractive value.... probably designed to catch those whose eyes light up when they see a six-figure lump sum without thinking it through.

For me, the monthly payments were a much better value than a joint life annuity for the lump sum. We ended up taking the joint life annuity. No regrets at all. It makes about 18% of our spending secure...plus SS.

 

[bpgdeg1234]

I had a lump sum option but it was not at all an attractive value.... probably designed to catch those whose eyes light up when they see a six-figure lump sum without thinking it through.

For me, the monthly payments were a much better value than a joint life annuity for the lump sum. We ended up taking the joint life annuity. No regrets at all. It makes about 18% of our spending secure...plus SS.

Thanks for your perspective pb4uski. So do you think this lump sum offer is a better value than the other annuity options?

 

[pb4uski]

Thanks for your perspective pb4uski. So do you think this lump sum offer is a better value than the other annuity options?

It's very situational. Sometimes the pension payments are a good value and sometimes they are not. For individual and joint life options for fixed pensions you can use immediateannuities.com to back into a market lump sum... the premium that you would have to pay an annuity company to replicate your pension benefit.

It looks to me like the pension is a better value in that your pension provides more monthly income than an immediate annuity would for $1.153 million.

 

[bpgdeg1234]

It's very situational. Sometimes the pension payments are a good value and sometimes they are not. For individual and joint life options for fixed pensions you can use immediateannuities.com to back into a market lump sum... the premium that you would have to pay an annuity company to replicate your pension benefit.

It looks to me like the pension is a better value in that your pension provides more monthly income than an immediate annuity would for $1.153 million.

Thanks for your perspective. I checked on immediateannuties.com and the pension is a better value although in looking at some other calculations taking the lump sum and making more than 2.75% would make that a better option with less concern over pension plan viability long term. Of course in today's environment getting more than 2.75% comes with it's own set of market, interest rate risks.

 

[IMATERP]

I just had to make a similar decision. Wife and I are both 59 and I turn 60 next month. Both of us are in very good health, but I was a former smoker (30 years worth.). I selected the J&S because that would provide the greatest amount of income - assuming one of us lived past 80-82ish.

The important factor is estimating your life expectancies and making the decision based on your best guesstimate.

 

[bpgdeg1234]

I just had to make a similar decision. Wife and I are both 59 and I turn 60 next month. Both of us are in very good health, but I was a former smoker (30 years worth.). I selected the J&S because that would provide the greatest amount of income - assuming one of us lived past 80-82ish.

The important factor is estimating your life expectancies and making the decision based on your best guesstimate.

Yeah that's the rub. Decision would be so much easier if we knew the end dates lol. BTW, did you go with 50%, 75% or 100%?

 

[CRLLS]

For those who thinking J & S, Are you considering the legacy value? Or, the loss of protection against inflation?

When we were faced with the decision of lump sum vs life payments, the decision at the time was easily to take the J & S option. However, we took the cash. By the time we are in our mid/late 70's, the breakeven point, the cash will have won out when considering a 4% annual increase. Another reason we went with the cash, if we both died in a car crash at age 65 (in the past now), there would be a benefit left to our children. That had some value in our decision too. It is hard to put a number to it. Quantitative analysis goes out the door with that consideration.

I know others have different situations and different values. This was ours. It really is good to have these choices to make.

 

[IMATERP]

Yeah that's the rub. Decision would be so much easier if we knew the end dates lol. BTW, did you go with 50%, 75% or 100%?

100% (we have no children)

 

[bpgdeg1234]

When we were faced with the decision of lump sum vs life payments, the decision at the time was easily to take the J & S option. However, we took the cash. By the time we are in our mid/late 70's, the breakeven point, the cash will have won out when considering a 4% annual increase.

4% annual increase? Was this because of your expected stock returns or other? One of our concerns is taking too much stock risk with this relatively safe pension as we would get if taken as an annuity.

 

[gauss]

100% J&S.

Expenses will likely go up for the survivor as they will need to pay for services formerly performed by the deceased spouse.

It is unfortunate that SS does not allow such an option.

-gauss

 

[CRLLS]

Sorry. I misspoke. I meant to write starting with a 4% withdrawal and increasing at the CPI index. Just like the Trinity study. At that time I think I was assuming a 2.5% per year. Don't hold me to that number exactly. In reality we are not withdrawing that 4%. OR maybe we are. I don't really know. It depends on how you separate the dollars, track gains and calculate. To be frank, I really don't track decisions that were made years ago and what could have been . It is all one bucket now and it is all treated the same.

Like I said earlier, not everybody's situation, concerns or comfort level are the same. When we reach 70, SS will be very close to covering our basic needs. In the mean time, it covers about 2/3rds. <2% WR from retirement assets covers the rest. Trying to maximize our "safety" was not our primary goal when we were deciding. We were very concerned about dying early and leaving money on the table for our kids. Although dying early is not in our family history if you discount my GGF who died at 24 by a gunshot in a bar. Also we were concerned about the prior company AND the PBGC not fulfilling their promises. So far, the latter has been shown to be valid in a couple of cases. So cash out was our choice and it worked for us.

 

[bpgdeg1234]

100% J&S.

Expenses will likely go up for the survivor as they will need to pay for services formerly performed by the deceased spouse.

It is unfortunate that SS does not allow such an option.

-gauss

Thanks gauss, you would still go 100% J&S versus say 50 or 75% even if you have a lot of other investment assets, an existing small pension and future SS?

 

[Vacation4us]

DH pension has no cash out option. We chose 100% J&S option, with a pop up feature for DH if I should die first. We looked at the numbers and basically if I outlived DH by 1 month the decrease in the monthly payout for 100% was worth it. For us a few hundred dollars a month now is worth the cost even if with my 401k and half his pension I still would be golden.
YMMV

A pension is a really great thing to have at any amount in my book.

 

[Big_Hitter]

It looks to me like the pension is a better value in that your pension provides more monthly income than an immediate annuity would for $1.153 million.

2020 statutory lump sums can be based on Nov 2019 rates, not surprising

 

[bpgdeg1234]

DH pension has no cash out option. We chose 100% J&S option, with a pop up feature for DH if I should die first. We looked at the numbers and basically if I outlived DH by 1 month the decrease in the monthly payout for 100% was worth it. For us a few hundred dollars a month now is worth the cost even if with my 401k and half his pension I still would be golden.
YMMV

A pension is a really great thing to have at any amount in my book.

Thanks Vaction4us. Just to clarify your statement, you went with the 100% J&S which paid out a lesser monthly pension amount but you both felt it was worth it regardless of how long you outlived your DH (if indeed that were to occur)?

 

[gauss]

Thanks gauss, you would still go 100% J&S versus say 50 or 75% even if you have a lot of other investment assets, an existing small pension and future SS?

The situation you describe describes my situation quite closely. Dual earner SS to come online at age 70. A second small pension to come online at age 65 and enough other assets such that our WR is only ~ 1-2%.

As such, I wish our situation to continue after one of use dies and thus the 100% J&S.

It basically smooths our income and allow the assets to continue to grow.

Note we have no kids nor siblings that we are saving for -- charities will likely get the balance.

-gauss