Offered lump sum payout of pension

[lauradrops]

My husband took the buyout in 2010 at the age of 48. We rolled it into an IRA and let it grow. We were forced to take a 72T ($588 per month) to qualify for a small mortgage which we no longer have, but other than that didn't touch it.
It has more than doubled in the market and can produce his pension amount withdrawing only 2% per year. He is still only 58, so not planning to touch it until probably about 60. I imagine by then it will grow some more.
Without a doubt that was the better choice for us. And if the both of us should pass, the 3 kids inherit a nice sum, but if we took the pension that would die with us.
I think the pension is a better choice for people who can't or don't want to manage their money. We know a coworker who blew through his buy out with lavish purchases who would have been better served with the pension.

 

[GravitySucks]

Never even ran the numbers. Took the money and run.
Grandfather was screwed on his pension. When I told the Fido advisor I was taking it lump sum he said ERISA made that a moot point. Two months later, the Central States Teamster rule change reaffirmed my decision. Megacorp has multiple ex Senators and Congressmen on the payroll and board. I have none.
It was invested in the market in 2013, so it worked out quite well.
Full disclosure - I did know most of the people I trusted that ran the numbers took the lump sum. Also, thought I had a good chance of dieing soon back then.

 

[Big_Hitter]

Of course. But in other cases the beneficiary lasts longer than the insurance company expected. It nets out. That is what @pb4 is trying to tell you. Of course he is only an expert; he is not some random FA who obviously would know more.

+1

 

[kgtest]

MC currently offers a modest pension, that can be lump sum if I want when I leave...

Currently MC is in the middle of a hostile board takeover. What to do...what to do...

Board is split on selling MC.

I am not emotionally attached to MC, but I am emotionally attached to my $

 

[pb4uski]

But the sale or not of MC doesn't affect your $... those are cast in concrete in the plan documents.... besides, depending on who the buyer is it might make the safety of your $ even better.

 

[RunningBum]

But the sale or not of MC doesn't affect your $... those are cast in concrete in the plan documents.... besides, depending on who the buyer is it might make the safety of your $ even better.

I'm unsure and confused about how cast in concrete they are. I hear people talk about pensions being cut. Are they saying they can cut pensions even for retirees currently collecting, or just future retirees? Or is it like SS benefits. In black and white they tell you how much you are going to get at what age, according to the formulas they have. But we all know that if the money starts drying up they'll have to do something, and one of those things might be across the board cuts for all. And megacorp doens't have to worry about alienating voters like politicians do. Can they just change the pension structure, and tell everyone they are getting half, and justify if they don't do that the company will go out of business and not be able to pay any pensions, much less salary?

 

[breger1]

Retired 5 years ago with many options for pension payout. Lump sum was $560k. Chose monthly pension payout that equals $50k/yr. with 100% for surviving spouse. Quick and dirty after 5 years is I have collected right at $250k, almost half of lump sum (w/o gains on hypothetical investmt). It was a no brainer for us. It has enabled not touching investments, even whilst putting child thru top tier University.

This sure demonstrates the imporatnce of calculating the numbers. My lump sum was also $560K but the pension with 100% survivor was only $29K.

 

[ckelly78z]

I contacted HR today about a pension payout option in the future. They said "nat at this time".

I am set up to get roughly $1500 a month, around $18,000 a year, so it could be sizeable if allowed.

 

[pb4uski]

I'm unsure and confused about how cast in concrete they are. I hear people talk about pensions being cut. Are they saying they can cut pensions even for retirees currently collecting, or just future retirees? Or is it like SS benefits. In black and white they tell you how much you are going to get at what age, according to the formulas they have. But we all know that if the money starts drying up they'll have to do something, and one of those things might be across the board cuts for all. And megacorp doens't have to worry about alienating voters like politicians do. Can they just change the pension structure, and tell everyone they are getting half, and justify if they don't do that the company will go out of business and not be able to pay any pensions, much less salary?

The can't just declare that everyone will get half... but they can freeze the plan.

Current law generally allows companies to change, freeze or eliminate altogether, their pension plans, so long as the benefits that employees have already earned are protected.

If the plan is underfunded then usually the employer's future annual contributions would increase to improve the funding over time.

 

[Big_Hitter]

If the plan is underfunded then usually the employer's future annual contributions would increase to improve the funding over time.

multiemployer plans can also reduce retiree benefits if necessary

 

[pb4uski]

Yes, I understand that but I'm guessing that kgtest's plan is more likely than not a single employer plan since multi-employer plans are more rare than single employer plan.... in any event if kgtest's MC is bought then if it is a multi-employer plan it would probably be relatively unaffected, right?

My whole point is that just because your company is being bought and your employer has a pension plan is not cause to open the window and get out on the ledge.

 

[Sunset]

We had a choice of pension or payout or 50% pension and 50% payout.

Taking the 50% choice seemed to us best as nobody knows the future investment returns.

 

[kgtest]

Yes single company plan. I agree if the company buying MC has a stronger balance sheet it could be a win. For now its a waiting game to see how things shake out. I might be gone before any merger happens.

 

[target2019]

Upcoming pension decision for us in a year or so. Rounded-off actual numbers...

Lump-sum: 250K
Monthly (single): 2,600 non-COLA
Immediate Annuity from LumpSum: $1,190

This is a private pension from non-profit, 60-65% funded. I haven't found a reference to PBGC in summary documents, so that is an unknown, although I assume it is a crap-shoot of sorts.

What I gather from the numbers, is that the non-profit would rather pensioner take the monthly, and it helps them kick the can down the road.

 

[pb4uski]

Upcoming pension decision for us in a year or so. Rounded-off actual numbers...

Lump-sum: 250K
Monthly (single): 2,600 non-COLA
Immediate Annuity from LumpSum: $1,190

This is a private pension from non-profit, 60-65% funded. I haven't found a reference to PBGC in summary documents, so that is an unknown, although I assume it is a crap-shoot of sorts.

What I gather from the numbers, is that the non-profit would rather pensioner take the monthly, and it helps them kick the can down the road.

I would not necessarily assume that... the $2,600 monthly benefit is based on a plethora of assumptions and they are just different from similar assumptions used by the insurer in calculating the $1,190. I would expect the SPIA to be lower, but not 55% lower.

 

[Canoesmith]

50/50

I’m going to retire at the end of 2019 and have chosen to take half of my DB benefit in a New York Life annuity (company buys it for me) and half in a lump sum, which my plan allows. $47k/yr and $750k lump. It was perfect for me as I couldn’t make a decision one way or the other. With other assets and income to come, I believe it is the best of both worlds.

 

[target2019]

I would not necessarily assume that... the $2,600 monthly benefit is based on a plethora of assumptions and they are just different from similar assumptions used by the insurer in calculating the $1,190. I would expect the SPIA to be lower, but not 55% lower.

The 2,600 monthly is from year-end plan document.

 

[RunningBum]

I’m going to retire at the end of 2019 and have chosen to take half of my DB benefit in a New York Life annuity (company buys it for me) and half in a lump sum, which my plan allows. $49k/yr and $750k lump. It was perfect for me as I couldn’t make a decision one way or the other. With other assets and income to come, I believe it is the best of both worlds.

Assume the numbers are reasonably comparable, that seems like a great compromise to me. A nice cash flow, and also a nice chunk of money guaranteed to your heirs if you pass early, or to use for large occasional outlays.

 

[Love This Community]

Instead of starting a new thread on the same topic, I am posting my case here. Thanks in advance for your inputs / guidance.

1 am 40 years old and the ex mega corp that I worked for, gave an one-time option to take the non-cola'd pension without penalty. Below are the details

Option 1: Lump sum equal to: The present value of my age 65 Company-provided benefit $49,000 out of which $6,000 was my voluntary contribution to the pension and do not incur taxes on this portion. So the taxable / roll-over amount would be $43,000

Option 2: Benefit beginning at age 60 is $660 per month or $874 at age 65 till I pass away.

I would appreciate any guidance as to whether I should take the lump sum and roll it into an IRA or just leave it with the mega corp.

Additional info that might be helpful in providing your inputs:
I do not have an immediate / near term need for this money whichever option I end up going with.
I need to make a decision by 11/25 if I chose to take the lump sum.
We expect our incomes to rise next year. So there might be some advantage of taking lump sum pension this year that would be paid out in first week of December

 

[pb4uski]

I was leaning towards advising you to take the lump sum given the 20-25 year time horizon and the relatively small amounts involved.

But then I went to immediateannuities.com and input a $49,000 premium paid today for a life annuity starting in 20 years for a 40 yo male in IL and the monthly benefit was only $425 for 60 and $571 for 65... so $660 and $874 look pretty good.

 

[imoldernu]

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.

+1
jeanie and I are there @age 84... important.

 

[ziggy29]

I think if you can find a buyout that actually gives you the fair annuity value of the pension, it can be OK. In my experience, when Megacorp #1 wanted to buy out my tiny future pension -- about $630 a month at age 65 in 2030 with 100% survivor benefit -- I priced out an SPIA with that income stream putting in our particulars, and it would have cost almost 3x what Megacorp offered, suggesting to me it was an insulting, low ball offer. Now if you are offered close to what an SPIA would cost, depending on your situation and preferences, it might be a decent or even a good idea.

That said, in my case it's the only DB pension we'll have (and likely to be about 10% of our total income in full retirement) and most of our income will come from our own investments and SS, so I like to remain diversified in income sources so I suspect I'll keep the pension unless they are so desperate to get it off the books that they give me an offer I can't refuse.

 

[GrayHare]

The monthly or lump sum decision involves many factors. One I did not see mentioned is that by taking the lump sum you assume the risk of managing that money, and as one ages the risk of being scammed out of it increases. By contrast, taking monthly payments means someone else has the management risk. Monthly payments are more difficult to scam from an older person because the scam needs to be repeated monthly.

 

[CRLLS]

The monthly or lump sum decision involves many factors. One I did not see mentioned is that by taking the lump sum you assume the risk of managing that money, and as one ages the risk of being scammed out of it increases. By contrast, taking monthly payments means someone else has the management risk. Monthly payments are more difficult to scam from an older person because the scam needs to be repeated monthly.

Not to be argumentative, but what is the risk that they take as managers? The risk as I see it is they screwed up somehow, and you don't get what they "projected" that you will get 20 - 25 years from now. That is not much of a risk that they take IMO. However, your comment about self controlled and being scammed as one ages is real.

pg4uski, If I assume 20 years at a real rate of return of 5% on 49K, that yields 130K. If I use that 130K at immediate annuities.com in 20 years I get 608 per month. not far from 660 per month. Similarly if I use 25 years and 65 years of age, I get 871 per month right on par with the 874 at age 65. Given that this give love This Community more flexibility in the future with his money. I don't know if 5% is a fair number to use or not. It is close, no?

 

[pb4uski]

^^^ The pension plan is separate from the company and typically is not run by the company so your comment about risk they take doesn't make sense... if the plan's assets underperform then the company's annual contribution would increase and given the numbers quoted that would seem that the company will need to put up more dough... so if the company can get people to accept lump sums then they are ahead because they don't need to put up the additional dough needed to fund the promised benefits.

It is hard to assess whether the 5% (nominal, not real) is reasonable without knowing what AA would be used... but if using 100% equities then 5% is likely but there is a lot of risk that he would be taking on.... OTOH, pretty clear that bonds won't be close to 5% over the next 20 years so in order to get the same numbers as the pension plan he would need to take a lot of risk.... so I think I would lean against the lump sum and keep the pension and take my chances.

How lucky is Love This Community feeling?