lump sum analysis help

[Backpacker]

I am considering taking a lump sum from an old pension that has been sitting for 20+ years. At age 60 the lump sum offer is $55k, if I take the monthly pension at age 60, monthly amount is 248 a month. SPIA at immediatannuity.com says premium of $55k = 255 a month. So it appears that the $55k is a fair lump sum offer. (I'll be 58 this year so would need to make sure SPIA vs. lump is comparable.)

If I invest the $55k at 7% return and take monthly draws of $250; I would still have $143k left at age 90. I don't really think we'd need to take a draw off the investment at this point, so if it just sits and compounds until age 90 FV = $ 448k

My wife already has a pension that is meeting almost all our current expenses, it is 100% survivor and has a COLA feature.

I like the idea of some fixed income and some income from investment, and think that with DW pension (and SS at some point) we're fine. Feeling like I could take the market risk on the $55k and do as well or better than monthly pension.

Anyone care to review and question anything I have missed or let me know if I am off base?

 

[Luvtoride]

Backpacker, hard to say without knowing your other financial assets. I would say for a monthly benefit that low, you could do better with a lump sum invested as you suggested.
good luck.

 

[pb4uski]

Pension funds and insurance companies typically invest mostly in bonds and less in stocks, so the investment earnings rate implicit in your pension or annuity benefit is going to be less than it would be if you invested in stocks and withdrew... unless you live really long and the stock m.arket is different (like it has been in Japan).

To me, it is more a decision as to how much of your retirement income you want from guaranteed sources like SS, pension or annuities.

But I suspect that $55k/$250/month isn't going to be sufficient to make a difference, so there is no wrong answer... you could flip a coin. Is your $250 pension benefit joint-life or just for your life?

 

[savory]

I think if I were you, I would take the lump sum. I have a pension and SS that meets my needs. The rest will be for extra things. I think it would be a good investment and a great place to turn for a special occasion or larger unanticipated larger expense.

 

[Helen]

I have the same amount in a pension I earned back in the 80s and the payout is pretty close too. I will turn 65 in May and can either take it as a lump sum or as an annuity payout. I don't need the extra income and with inflation I think the payout will greatly erode over time, so I am taking the lump sum.

It might turn out to be a good year to dump a sum of money into the markets and let it ride.

 

[all4j]

I would go with the lump sum. Mainly for the flexibility, realizing I'd miss a chance at increasing my longevity insurance. Particularly if the company pension does not have cola. As another poster upthread said, without knowing other info about your situation, can't get too specific about options.

I suspect your example was chosen to illustrate you can get close to the same monthly amount & still have a tidy sum down the road. But just in case the numbers are important, I might push back a bit & ask your methodology for calculating that. It might be in the neighborhood of what I'd expect without a tax drag. I'm assuming you can, & will, roll into an IRA when it is distributed. So, RMDs will mean not getting an even withdrawal over the 30 years, etc

Good luck with your decision & congrats on being in a no-lose situation

 

[SevenUp]

At age 60 the lump sum offer is $55k, if I take the monthly pension at age 60, monthly amount is 248 a month.

The pure math look is below. Take your best guess at your personal horizontal and vertical axis values, and act accordingly.

See ~row 100 on the 'Misc. calcs' tab of the case study spreadsheet in Excel to use different inputs.

 

[Backpacker]

The pure math look is below. Take your best guess at your personal horizontal and vertical axis values, and act accordingly.

See ~row 100 on the 'Misc. calcs' tab of the case study spreadsheet in Excel to use different inputs.

I like the spreadsheet, I did similar but it took me two different graphs.

pb4uski in response to your question, it is single life.

Approximate investment totals are 1.1M in tIRA, 400k in rIRA, and 400k in rental houses. Plus about 100k in easy access money market accounts. We've been retired almost 3 years and have not touched investment accounts yet.

DW pension after tax nets 30k a year. I have withholding from her pension to cover tax hit from rentals. The rentals net about 20k a year depending on repairs. Neither of us have SS yet, lowest amount if we both took at 62 would be about 3400 a month combined.

Our annual spend was 60k last year (a "normal" year would be 52k). We added a 20 x 16 porch on our house so extra for that came out of regular savings.

I'm trying to get my brain to switch from saving to BTD, but it's not easy for me.