Hello all! New here with a question already (lump sum or...?)

[EddieZ]

Hello all,

I am soon to be retired with a question: I have an option to take a lump sum of $383,000 (rolled over into my IRA) or an annual pension of $31,000 no COLA.
I am 50 years old and the pension/annuity will start immediately.

I am on the fence here. On the one hand, the lump sum would be nice to invest in case of a dip in in the market...but then again the monthly guaranteed income is also good.

I should note that our home is paid off, we have no children, and I have a healthy amount in my 401K.

Just curious what the ER consensus is?

[2017ish]

That's a pretty good deal on the annuity. Even if it is just single life. Immediateannuities.com gives a rough quote of non-cola'd 1715 per month for a $383,000 single life immediate annuity on a 50 year old male. (a joint life with hypothetical 49 y.o. female yields 1589).

You are looking at 2583.33. Who is backing the annuity?

[street]

That is a great annual payment and I would say that is the way to go. I say that because of your age and that you will be taking money right away from that pension. If you weren't going to need those funds right away I would take the lump sum and invest in stock/bonds and let if grow. I have increased my lump over 35% in 6 years on my lump sum. Just my two cents. There is some very knowledgeable people here that will give you great advise.

[littleb]

I took a lump sum because the financial health of my previous employer was questionable. Also, I knew how to invest the money so in my case I wanted full control of the pension money.

[EddieZ]

Thanks, all. 2017ish, the annuity/pension is guaranteed by a city agency, which in turn is guaranteed by NYS state.
I do have some concerns with solvency, but it's not really an issue here like it is in Detroit, Illinois, California, etc.

The annuity rate that they use is rather high since it was negotiated in the 80s when interest rates were high. The rate that they use is in the mid 8%.

[Midpack]

It's asked so often, I saved my answer. From the others answers, it appears you won't make it past the first comparison.

[evilanne]

Based on typical life expectancy of 77-82 sounds like the annuity is pretty good option.
It really depends on your health and the impact on your spouse if something happens to you.
Is there any survivor benefit provision on the annuity?

[2017ish]

Quote:

Originally Posted by Midpack It's asked so often, I saved my answer. From the others answers, it appears you won't make it past the first comparison.

That's a very nice decision tree/chart. I was going to ask about health--but assumed since OP is considering the annuity option, he probably doesn't have any worries. That'd be the one possible show stopper

[Just_Steve]

Quote:

Originally Posted by EddieZ Thanks, all. 2017ish, the annuity/pension is guaranteed by a city agency, which in turn is guaranteed by NYS state. I do have some concerns with solvency, but it's not really an issue here like it is in Detroit, Illinois, California, etc. The annuity rate that they use is rather high since it was negotiated in the 80s when interest rates were high. The rate that they use is in the mid 8%.

Retired MTA here, my NYCERS check comes like clockwork on the first of the month, I never considered the lump sum because I took the 75% survivor option. I took that option because it helps me sleep at night knowing that DW would be ok if I don't wake up. Just personal comfort level between lump Vs annuity.

[EddieZ]

Thanks for the chart, Midpack.
As to the other questions, I could take a survivor option but that would cost 20% of the yearly pension. I am against insuring a depreciating asset (no COL) and we have other lump sum monies plus life insurance.

[Just_Steve]

Quote:

Originally Posted by EddieZ Thanks for the chart, Midpack. As to the other questions, I could take a survivor option but that would cost 20% of the yearly pension. I am against insuring a depreciating asset (no COL) and we have other lump sum monies plus life insurance.

Is that 100% survivor?
My 75% survivor only cost 10%

[DrRoy]

+1 on keeping the monthly pension. I did the same. It is a type of diversification and is already at a good rate.

[Blue Collar Guy]

Quote:

Originally Posted by EddieZ Hello all, I am soon to be retired with a question: I have an option to take a lump sum of $383,000 (rolled over into my IRA) or an annual pension of $31,000 no COLA. I am 50 years old and the pension/annuity will start immediately. I am on the fence here. On the one hand, the lump sum would be nice to invest in case of a dip in in the market...but then again the monthly guaranteed income is also good. I should note that our home is paid off, we have no children, and I have a healthy amount in my 401K. Just curious what the ER consensus is?

EDDIE. i took the maximum lump sum, i could get. It was 172 thousand and it costs ,me 6.3 %(10 thousand) a year reduced pension). If you leave the lump sum does the pension die with u? I say take the money IF you can fund your living till ur 59.5. i took the lump had to roll it over and because it was the beginning of 2009 its really jumped in value. if your going to get hit with 401k penalties or live off of credit cards take the pension, other wise take the lump.

[marko]

OP could have 35-40 years ahead of him.

With no COLA what would $31K annual be worth 20-25 years from now? If COLA'd it would be a no-brainer but personally I'd prefer to take $383K, invest wisely and expect the market to mitigate inflation.

[Blue Collar Guy]

Quote:

Originally Posted by marko OP could have 35-40 years ahead of him. With no COLA what would $31K annual be worth 20-25 years from now? If COLA'd it would be a no-brainer but personally I'd prefer to take $383K, invest wisely and expect the market to mitigate inflation.

i agree , but its the invest wisely part thats tricky. my buddy retired a month after me, he also took the partial lump sum available to us. I asked him are you going to invest this? or blow it?. No, NO im going to invest it,yeah 4 years later he blew it ALL>. He should have taken the pension addition, instead of the reduction.

[marko]

Quote:

Originally Posted by Blue Collar Guy i agree , but its the invest wisely part thats tricky. my buddy retired a month after me, he also took the partial lump sum available to us. I asked him are you going to invest this? or blow it?. No, NO im going to invest it,yeah 4 years later he blew it ALL>. He should have taken the pension addition, instead of the reduction.

I'd guess that your buddy isn't a frequent visitor to this forum.

Everyone is different with varying degrees of sophistication. The OP mentions the possibility of taking the cash and wait for a downturn.
Now, we can debate the wisdom of waiting for a downturn but it does suggest a level of awareness with regards to investing.

I had a similar situation 13 years ago when I RE'd...I took the money and ran and in hindsight it was a very wise choice. But as noted, everyone is different with different needs.

[broadway]

Quote:

Originally Posted by marko The OP mentions the possibility of taking the cash and wait for a downturn.

If the OP is going to take the cash, waiting for a downtown would not be a wise move.

[pb4uski]

Quote:

Originally Posted by EddieZ Thanks for the chart, Midpack. As to the other questions, I could take a survivor option but that would cost 20% of the yearly pension. I am against insuring a depreciating asset (no COL) and we have other lump sum monies plus life insurance.

While I agree that a 20% discount is too much, depending on what other resources that you have you may want to consider a term life ladder to protect your spouse.

See Creating a Life Insurance Ladder — Oblivious Investor

[Blue Collar Guy]

Quote:

Originally Posted by marko I'd guess that your buddy isn't a frequent visitor to this forum. Everyone is different with varying degrees of sophistication. The OP mentions the possibility of taking the cash and wait for a downturn. Now, we can debate the wisdom of waiting for a downturn but it does suggest a level of awareness with regards to investing. I had a similar situation 13 years ago when I RE'd...I took the money and ran and in hindsight it was a very wise choice. But as noted, everyone is different with different needs.

you are correct on all points, he is not a visitor, waiting for a downturn sounds bad, and yup in hind sight it was a home run

[Blue Collar Guy]

Quote:

Originally Posted by broadway If the OP is going to take the cash, waiting for a downtown would not be a wise move.

+1