Cash in Lump Sum or Leave it Until Better Rates?

[momoney]

I plan on taking the lump sum option from a non-cola pension. Rates obviously can make a huge difference in the amount. I'm not sure what to do?

Take it now:

• Get it invested and hopefully growing
• Reduce my risk and get it out of a company that is in lots of debt
• Interest rates are high, resulting in lower lump sum

Leave it:

• Wait for rates to go down and balance go up
• Rates probably won't go down this year?
• Rates might go down next year?
• Pension is still backed by PBGC
• Could lose lump sum option?
• Could lose some of pension?

What else did I miss?

 

[Aerides]

assuming it's non-cola, take it now. You can always just put it in a high yield savings account if you don't want to lock into a CD or something.

 

[Surewhitey]

What's the best taxable event scenario with lump vs over time? Will it affect ACA subsidies? More information will get you better suggestions.

DW for example has appx $100k lump option. Minimum action is take it the year after leaving the company. Spreading over 10 yrs with no survivor option would maximize the payments and spread the taxable income over 10 yrs which may be helpful with ACA subsidies.

 

[Rianne]

Can you put the lump in your tIRA? We took the lump for many reasons. We will get 4%+ on the bonds, will keep capital, and leave to beneficiaries. The company gave a lump based on 20 years. $31,500 x 20. If we die, NADA.

 

[momoney]

Can you put the lump in your tIRA? We took the lump for many reasons. We will get 4%+ on the bonds, will keep capital, and leave to beneficiaries. The company gave a lump based on 20 years. $31,500 x 20. If we die, NADA.

I would transfer it directly to an IRA.

 

[SevenUp]

What else did I miss?

The amount of the lump sum; the monthly pension amount; how long you (or surviving beneficiary, if you have that option) expect to live; your expected return on the lump sum investment?

 

[street]

I plan on taking the lump sum option from a non-cola pension. Rates obviously can make a huge difference in the amount. I'm not sure what to do?

Take it now:

• Get it invested and hopefully growing
• Reduce my risk and get it out of a company that is in lots of debt
• Interest rates are high, resulting in lower lump sum

Leave it:

• Wait for rates to go down and balance go up
• Rates probably won't go down this year?
• Rates might go down next year?
• Pension is still backed by PBGC
• Could lose lump sum option?
• Could lose some of pension?

What else did I miss?

I really can't help you with anything more than what I have experienced with taking the lump sum 7 year ago. As of yesterday when I looked over my portfolio like I do at the end of each month. I have 3X my lump sum in seven years. It went to another 7-digit number. My plan was to put the large lump sum to work as soon as I ER. For me I didn't want an annuity with a monthly check till I die.

I never planned on using the money but was planned for a legacy for my heirs.

I also never wanted the annuity because if I died the money was gone and had nothing. I could have had it setup for spouse if I died the payout was a huge gamble because you never know when your last breath will be. Payout in less amount each month takes many more years to recover the money than for just me.

I also wanted total control of the money and not some financial institution making money off the managing of the annuity for life.

I really don't believe there is a right or wrong or best or worst plan of attack. So, many things to consider and each of us have a different view/plan/mission or their future and their money.

I hope you find what fits you a lump or annuity both have pros and cons.

Is it in a 401K or an IRA? I might have missed that but didn't see if you said either way.
Good Luck.

 

[bada bing]

With a non-COLA pension, your lump sum calculation will move with 3 interest rate segments, going out to 25 year rate at the long end. For the interest rate exposure, you could invest the lump sum in an average duration somewhere around 15-20 years and capture the same moves with rates. This isn't an investment recommendation, just a demonstration of what's going on with the mechanics of a "delay for lower rates and larger lump sum" plan.

Private pensions are all unique beasts and you have to evaluate them based on the plan specifics and your own situation. Often private plans will pay a better than market annuity schedule compared to the lump sum offered. Something to investigate/consider.

I vested in 4 different private pension plans. I immediately took lump sum offers from 2 of them and would accept a lump sum offer from the 3rd, if offered. The 4th plan is better suited to an annuity for my situation and I'm currently deferring it. Probably take it as annuity starting at age 70. Until then, the lump sum is part of my estate in case I croak unexpectedly before taking the annuity or lump.

 

[jimbee]

I would immediately invest it as described in my investment policy statement.

 

[Tetto]

My pension was bought out by lump sum. I took it, cause pensions are not guaranteed and dropped it in my 401k about three years before Trump got in. Supercharged my 401k.

 

[Koolau]

I really can't help you with anything more than what I have experienced with taking the lump sum 7 year ago. As of yesterday when I looked over my portfolio like I do at the end of each month. I have 3X my lump sum in seven years. It went to another 7-digit number. My plan was to put the large lump sum to work as soon as I ER. For me I didn't want an annuity with a monthly check till I die.

I never planned on using the money but was planned for a legacy for my heirs.
I also never wanted the annuity because if I died the money was gone and had nothing. I could have had it setup for spouse if I died the payout was a huge gamble because you never know when your last breath will be. Payout in less amount each month takes many more years to recover the money than for just me.

I also wanted total control of the money and not some financial institution making money off the managing of the annuity for life.

I really don't believe there is a right or wrong or best or worst plan of attack. So, many things to consider and each of us have a different view/plan/mission or their future and their money.

I hope you find what fits you a lump or annuity both have pros and cons.

Is it in a 401K or an IRA? I might have missed that but didn't see if you said either way.
Good Luck.

Great success story street. I never had the opportunity to take my pension as a lump sum. I called and begged and pleaded but they wouldn't even tell me what the lump sum would be IF they allowed me to take it. My Megacorp was a lot of things but FLEXIBLE was NOT one of them. I saw a guy miss a major package by 3 days. He literally begged and cried to management for them to let him take it. No dice. The rules are the rules. "We never break rules here."

BUT our pensions at Megacorp were always better than 90+% funded (rules are rules!) SO, that was/is a good thing (I still get the statements "assuring" me that Megacorp has done their duty and guaranteed my pension as long as I live.) YMMV