Ok Taking Pension Now Options

[bpgdeg1234]

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

Got it. We have 2 children out of college and it was my son who started questioning why we wouldn't take the lump sum just in case something were to happen to both my DW and me so there would be an additional amount in our estate that they could inherit, otherwise the pension would go to waste. So if we were to go the lump sum route we will surely be keeping our eyes on him lol

 

[gauss]

Interesting...

Do you own your house and/or have 401ks?

Wouldn't the kids inherit these assets if something were to happen to you and DW?

 

[bpgdeg1234]

Interesting...

Do you own your house and/or have 401ks?

Wouldn't the kids inherit these assets if something were to happen to you and DW?

Yes, yes and yes. The kids would be well off although would be even better with lump sum if something unfortunately happened to both of us in the short to mid-term.

 

[bpgdeg1234]

Thanks everyone who has helped mold our thinking to date. I feel we're close on taking the pension annuity but assessing whether to go 100% J&S at a cost of $4K less pension per year than 50% J&S (or maybe even 75% J&S at a cost of $2K less pension per year) since we have a paid off $600K home, $19.4K in other pension income with an additional $10K from DW pension in 3 years, as well as $3.8M portfolio conservatively invested and SS in 10 years?

Some IRR analysis indicated that the 100% J&S was the most optimal of the three scenarios but curious of thoughts whether it's truly worth it when other financial assets are considered?

 

[EdL3]

You may want to factor in your current health status as well as the life span of your parents and in-laws.

 

[Car-Guy]

Lump sum. It's a guarantee.

That is the main reason I did it... Considered the pros and cons ad nauseam. In my case the lump sum decision was an easy one.

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

Another good reason. But eventually RMD's will kick-in at 72 (if they don't change it again)... Up or down...

 

[Vacation4us]

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)?

Yes. After taxes the monthly cost to us was a few hundred dollars a month for 100% joint survivor coverage. Yes a lower monthly benefit today is worth it to us even if I only outlive spouse by a small amount of time. Peace of mind is priceless and worth the cost for us.

 

[RetireeRobert]

Thanks everyone who has helped mold our thinking to date. I feel we're close on taking the pension annuity but assessing whether to go 100% J&S at a cost of $4K less pension per year than 50% J&S (or maybe even 75% J&S at a cost of $2K less pension per year) since we have a paid off $600K home, $19.4K in other pension income with an additional $10K from DW pension in 3 years, as well as $3.8M portfolio conservatively invested and SS in 10 years?

Some IRR analysis indicated that the 100% J&S was the most optimal of the three scenarios but curious of thoughts whether it's truly worth it when other financial assets are considered?

Some considerations I would wonder about:

1) The lump sum allows you to invest to keep up with inflation. Do any of the stated available monthly annuity amounts have COLA provisions. If not, and if inflation is a worry as to purchasing power of annual income down the road, that might point to lump as perhaps the way to go.

2) As you age, will you---or your survivor if you die---be "able" to smartly and properly manage investment of a lump sum, good enough to keep it ahead of inflation? Or have the time or even inclination to want to manage the investment? If not, then monthly annuity is perhaps the way to go.

3) What debts do you have into the future, and what other income streams do you, and/or your survivor, have or will have, and what other assets do you have? You have stated those answers above. Given what you have already to leave as inheritance for your heirs, and also to serve as inflation hedges on the bulk of your assets, I myself would go for the guaranteed monthly annuity. A substantial guaranteed monthly annuity is a very nice thing to have in my book!

4) Choosing among the monthly annuity options you have available, depends on income streams your survivor would otherwise have. If survivor will have adequate income streams otherwise, then the largest monthly annuity with nothing to survivor would be my choice. But if survivor still could use "some" more income, then one of the three J&S options would be the way to go. Generally speaking, I would go for the 50% J&S option to get my survivor to a "comfortable" survivor's income, yet leave the current benefit while I was alive larger than otherwise to maximize our draw during my life expectancy. But you say some IRR analysis of your particular options shows 100%J&S would be optimal. Assuming your IRR analysis was valid and based on proper assumptions, one's gut "first choice" is always a decision you can live with and be happy.

 

[bada bing]

Given that 3 months has gone by, the OP probably has completed his decision

It was never mentioned, but a factor in deciding between hold or exercise is whether the pension was a cash balance plan or a defined benefit plan. Interest rate moves effect those types quite differently. If it was a cash balance plan, low interest rates (like now) make for low monthly annuity amounts. Currently it appears to be a particularly poor time to start an annuity from a cash balance plan if there is an option to defer. If it is a defined benefit plan, rising interest rates will reduce the lump sum offer, so I wouldn't delay too long if lump sum is the choice on a DB plan.

 

[mrfeh]

Are there online calculators to help w/ these decisions? DW is turning 55 and is now able to access her pension, with all the options mentioned in this thread available to her (including starting now or delaying).

The big difference for us, compared to the OP, is that the size of the pension is much, much smaller; only a few hundred dollars per month.

 

[pb4uski]

I think that most often folks use immediateannuity.com to assess if a pension is fair in relation to the lump sum... looking to see how much on an annuity benefit the lump sum could buy or conversely how much of a premium would be needed to by an annuity benefit equal to the pension benefit.

 

[iloveyoga]

No lump sum for us either, 100 J & S for both of us. I probably would have taken the lump sum if available, but the monthly income is very nice. We can easily live on our SS and pensions and our IRA is for the other stuff.

 

[jollystomper]

Thanks everyone who has helped mold our thinking to date. I feel we're close on taking the pension annuity but assessing whether to go 100% J&S at a cost of $4K less pension per year than 50% J&S (or maybe even 75% J&S at a cost of $2K less pension per year) since we have a paid off $600K home, $19.4K in other pension income with an additional $10K from DW pension in 3 years, as well as $3.8M portfolio conservatively invested and SS in 10 years?

Some IRR analysis indicated that the 100% J&S was the most optimal of the three scenarios but curious of thoughts whether it's truly worth it when other financial assets are considered?

Just my opinion, but given your assets, the main thing you are choosing between 75 and 100 is how much of the monthly annuity you want to have fun with . We chose 75% because we have a similar situation. At 75% the pension + SS survivor benefits will still cover expenses for DW. As I mentioned before, at our asset level keeping things simple outweighed trying to squeeze every last cent out of our options .

 

[bpgdeg1234]

OP here, we have indeed made our decision and went with the 100% J&S as we valued the income stream diversification it provides. Additionally, we have concerns of DW having to manage a lump sum if I were to pre-decease her and she was much more comfortable with knowing every month there would be X amount of dollars automatically deposited that would meet a vast majority of our/her living expenses and not tied to the performance of our invested assets.

As for choosing J&S versus lump sum, this is a defined benefit plan and we chose the 100% as the delta between that and 50 or 75% would not move the needle much in our particular case. Additionally, the math worked out where the 100% was considered most optimal.

We didn't go with the highest "single life" annuity payout with "life insurance for me route" as I have a pre-existing condition and am concerned what would happen, even if I were approved now, but say in 20 years if having to get a new policy. Just not worth the concern in our case.

Ultimately, there were and are a lot of factors for one to consider when making this choice and not always about just the financials as peace of mind counts for A LOT. It basically comes down to individual circumstances and one size surely doesn't fit all.

I wish to thank everyone once again for your valued and appreciated input in helping us mold our thinking in the decision process.

 

[kimcdougc]

Just my opinion, but given your assets, the main thing you are choosing between 75 and 100 is how much of the monthly annuity you want to have fun with . We chose 75% because we have a similar situation. At 75% the pension + SS survivor benefits will still cover expenses for DW. As I mentioned before, at our asset level keeping things simple outweighed trying to squeeze every last cent out of our options .

+1

 

[RetireeRobert]

OP here, we have indeed made our decision and went with the 100% J&S as we valued the income stream diversification it provides. Additionally, we have concerns of DW having to manage a lump sum if I were to pre-decease her and she was much more comfortable with knowing every month there would be X amount of dollars automatically deposited that would meet a vast majority of our/her living expenses and not tied to the performance of our invested assets.

Congratulations on your decision!

And welcome to retirement. Enjoy seeing that 100% J&S deposited every month!

 

[pb4uski]

OP here, we have indeed made our decision and went with the 100% J&S as we valued the income stream diversification it provides. ...

That is what we did too.

 

[ExPatKiwi]

I'll be having to make this same decision in about 3 years. I'm leaning towards the lump sum if i-rates stay low and the number adds up. My plan is to tax arbitrage by moving to FL from CT and actively convert as much as possible into a ROTH before applying for SS.



I've seen a couple of work colleagues retire and then die within a few years < 70 years old where the lump sum would have been the better option IMHO.



The problem taking the annuity is the surviving spouses income tax rate goes from "joint married" to "single" and their tax rate increases often from the 12% to 22% marginal rate, yet expenses don't actually drop that much.

 

[pb4uski]

A over 65 yo married couple with $100k of ordinary income would pay $8,320 of federal tax in 2020 (8.3% effective tax rate and 12% marginal rate).

A over 65 yo single with $75k of ordinary income would pay $9,205 in federal taxes in 2020 (12.3% effective tax rate and 22% marginal rate).

 

[Lstansbury]

A over 65 yo married couple with $100k of ordinary income would pay $8,320 of federal tax in 2020 (8.3% effective tax rate and 12% marginal rate).

A over 65 yo single with $75k of ordinary income would pay $9,205 in federal taxes in 2020 (12.3% effective tax rate and 22% marginal rate).

Indeed, single lady here and paying for it with my tax dollars.

 

[jollystomper]

The problem taking the annuity is the surviving spouses income tax rate goes from "joint married" to "single" and their tax rate increases often from the 12% to 22% marginal rate, yet expenses don't actually drop that much.

I look at this way. For 37+ years so far DW and I have enjoyed lower tax rates by married filing jointly, and even lower rates when we had children as dependents. When the unfortunate time comes when one of us has to pay taxes as a single, at least it will be at a stage in life where one of us can easily afford to do so without resorting to eating cat food .

 

[bpgdeg1234]

I look at this way. For 37+ years so far DW and I have enjoyed lower tax rates by married filing jointly, and even lower rates when we had children as dependents. When the unfortunate time comes when one of us has to pay taxes as a single, at least it will be at a stage in life where one of us can easily afford to do so without resorting to eating cat food .

True that!

 

[skyking1]

Thanks for the thread and info, everyone. My wife and I are doing the 100% option on my pension for many of the same reasons as you, OP. One thing I like about it is the predictable tax situation.