Pension Annuity or Lump sum?

[pb4uski]

One thing to keep in mind is, if you or your wife or you pass away earlier then expected, your remanding pension funds will be done also. If you take control of your money by taking the lump sum, in early death you have your funds to pass on to heirs. I for one want the control of that money and want to invest it rather then a monthly check. To me it is nothing more then an annuity that is betting you die early, so that investment firm can capture those remaining funds at death. JM2¢

+1

No! See post#21. In addition, the monthly pension benefit is calculated assuming that some benficiaries will die young and some will live long, but since it is unknown who that will be they are grouped and those that live long benefit from those who die early. However, since group mortality is quite predictable, it all evens out in the long run.

 

[Midpack]

I've posted this before. It may be (very) low, but there is some risk of an annuity failing, they're not absolutely bullet proof.

I faced the same decision when I retired, but the lump sum and the annuity was a wash. IOW I could have bought the annuity myself with the lump sum, so I took the lump sum. I figured I could always buy the annuity whether in a year or twenty, and I might as well grow the lump sum while waiting. Also yields were rock bottom when I retired, so annuities could only get cheaper (and yields have improved a little). The lump sum is considerably more now, so I could buy an annuity with a greater payout now (or the same payout for less $, and pocket the lump sum difference). However, I don't expect I'll ever buy any annuity.

Best of luck.

 

[Teacher Terry]

I would take the pension. We both took the 100% survivors benefit so no changes to our standard of living if one of us dies.

 

[gwraigty]

No! See post#21. In addition, the monthly pension benefit is calculated assuming that some benficiaries will die young and some will live long, but since it is unknown who that will be they are grouped and those that live long benefit from those who die early. However, since group mortality is quite predictable, it all evens out in the long run.

I was agreeing with the point about wanting the lump sum to be passed to heirs. My +1 on that stands.

Actually, these decisions are probably easier to make when you're closer to being able to collect on a pension. In our case, we had to make the decision when we were still in our 40's, on a pension my husband wouldn't have been entitled to collect until 65.

 

[Car-Guy]

Yes, you can take the lump sum distribution rolling it to an IRA and there is no tax hit. However, obviously, when you withdraw from the IRA it will be taxable. When you do this rollover, try to do a trustee-to-trustee rollover. If your plan requires the check be sent to you, be sure the check is made out to your brokerage company (Vanguard) FBO (for benefit of) you. When I did this, mine required the check come to me - and they sent it in regular US mail...I was completely shocked they did this with a check so large.

That's the way it worked for me. I took the lump sum too and my company also required "one check" to be sent to me VIA USMail. I had it made out to my primary bank (FBO me). Once I deposited in my tIRA at my primary bank, I immediately split it up and rolled chunks of it VIA trustee to trustee transfers to multiple banks in new tIRA's (for CD purchases at each bank) as well as and my brokerage firm for stocks plays. Looking back it was really pretty simple and straight forward, albeit a little stressful until I had all the "transfers" completed. Zero taxes, until I start taking it out when RMD's hit in a few years.

 

[pb4uski]

I was agreeing with the point about wanting the lump sum to be passed to heirs. My +1 on that stands....

Ah, I see. If the quote that you added the +1 to was just that part then I wouldn't have objected at all... it appeared to be +1 to the whole post.

 

[street]

I've posted this before. It may be (very) low, but there is some risk of an annuity failing, they're not absolutely bullet proof.

I faced the same decision when I retired, but the lump sum and the annuity was a wash. IOW I could have bought the annuity myself with the lump sum, so I took the lump sum. I figured I could always buy the annuity whether in a year or twenty, and I might as well grow the lump sum while waiting. Also yields were rock bottom when I retired, so annuities could only get cheaper (and yields have improved a little). The lump sum is considerably more now, so I could buy an annuity with a greater payout now (or the same payout for less $, and pocket the lump sum difference). However, I don't expect I'll ever buy any annuity.

Best of luck.

Exactly!

 

[gwraigty]

Ah, I see. If the quote that you added the +1 to was just that part then I wouldn't have objected at all... it appeared to be +1 to the whole post.

I shall try to be more careful in future.

 

[street]

Wrong on two counts.

The OP states that the pension is 50% survivor and DW is 13 years younger (47 vs 60)... so if the OP's DW dies then she continues to receive $2,800/mon for the rest of his life... if the OP dies then DW receives $1,400 for the rest of her life. To say that "if you or your wife or you pass away earlier then expected, your remanding pension funds will be done also" is wrong.

Also, there is no "investment firm" involved. This is a pension plan. Even of it were an annuity it would be an insurer and not an investment company... only a life insurer can issue an annuity. And even if it were an annuity issued by a life insurer, if an annuitant dies early the remaining funds are not profit to the life insurer, they serve to fund benefits for those who live longer.... and the same is true for the pension plan. I was the controller for an annuity line of business and our mortality gains and losses were negligible... by design... our pricing was designed to make our money on a spread... not on mortality... and this is common practice IME.

Thanks >>> The point I'm trying to make is, when deciding on either is to really look into what they want and need. I'm a believer in more sometimes means less, and better sometimes means worse. I have seen the annuity/pension thing go the wrong way for an induvial, so not a fan but the shoe doesn't fit everyone either. I like control of my money not someone else. JM2¢

 

[pb4uski]

....I have seen the annuity/pension thing go the wrong way for an induvial...

Can you elaborate?

 

[street]

Both passed early and both took pensions and had one child. I hope that helps enough said.

Thanks

 

[MarieIG]

https://www.metlife.com/content/dam...MetLifePaycheckOrPotOfGoldStudy_exp022019.pdf

MetLife study/ article discusses the pros and cons of taking the annuity option vs. the lump sum option of pensions.

 

[MarieIG]

I would take the pension. We both took the 100% survivors benefit so no changes to our standard of living if one of us dies.

Some spouses go to great lengths to protect the survivor: others - not so much.

 

[badatmath]

Double check how the survivor benefits work. My plan cuts the benefit when either dies - not just the primary holder.



I know someone who took the lump sum and kind of regrets it. Hasn't run out of money some 20 years in, but worries about managing risk and so on.

 

[target2019]

https://www.metlife.com/content/dam...MetLifePaycheckOrPotOfGoldStudy_exp022019.pdf

MetLife study/ article discusses the pros and cons of taking the annuity option vs. the lump sum option of pensions.

A study by an insurance company highlights how happy those with annuity are.
I would take it more as a sales brochure for annuities.

 

[MarieIG]

A study by an insurance company highlights how happy those with annuity are.
I would take it more as a sales brochure for annuities.

You can take it that way. Why would a company pay for a study if they had nothing to gain from it?

On the other hand, I think it has points worth considering. Did you read it all the way through?

 

[rothlev]

Double check how the survivor benefits work. My plan cuts the benefit when either dies - not just the primary holder.



I know someone who took the lump sum and kind of regrets it. Hasn't run out of money some 20 years in, but worries about managing risk and so on.

I know a couple that did run thru the lump sum - Helped their daughter etc... wound up with no money to pay for assisted living when the time for that happened.

 

[street]

A study by an insurance company highlights how happy those with annuity are.
I would take it more as a sales brochure for annuities.

True >>> I was told by an annuity sales person that they want people to buy into annuities rather then taking the lump sum. He said, annuities are setup with payouts for them (company) to win. They aren't going to pay you more then what you have coming with an annuity.

I also don't beleive a lump sum is good for everyone either.

 

[BeachOrCity]

Lots of good info in this thread. The OP and folks making the decision should understand the pluses and minuses and make the best decision based on THEIR OWN circumstances, finances, and risk tolerance. Either answer is not right for everyone.

 

[target2019]

Step by step framework for the pension vs lump-sum decision follows. Each step requires more input and introspection.

Step by step

1. Is your offer a fair deal? In other words, can your offered lump sum buy the pension?
2. Have you considered delaying your claim on Social Security, and how might this lump sum enable you to do so?
3. What is your opinion on your own mortality? Do you want to plan beyond a life expectancy of 83 years?
4. What do you think of the viability of the provider, be it your company for your pension, your insurer for your annuity, or the Federal Government for Social Security?
5. Have you considered and planned for the income streams you will need in retirement?
6. Do you think you can do better with a lump sum by investing it yourself? Better than a guaranteed income stream for the rest of your life?

https://www.bogleheads.org/wiki/Lump_sum_vs_pension

 

[Big_Hitter]

that annuity is worth a lot, especially for a spouse 17 years younger

 

[Teacher Terry]

Thankfully the spouse has to sign off on what is chosen so no ugly surprises when one person dies. When I was young I worked for Inland Steel in the benefits department. Husbands would tell their wives that they had chosen the survivors benefit and then they would become hysterical upon learning they lied. Often these women were in their 50’s or 60’s and had never worked.

 

[pb4uski]

that annuity is worth a lot, especially for a spouse 17 years younger

Actually, 13 years younger... but your point is still valid.

 

[Rianne]

Thankfully the spouse has to sign off on what is chosen so no ugly surprises when one person dies. When I was young I worked for Inland Steel in the benefits department. Husbands would tell their wives that they had chosen the survivors benefit and then they would become hysterical upon learning they lied. Often these women were in their 50’s or 60’s and had never worked.

Seriously? The wives never looked at the books? I would know in a second if numbers looked unusual. Then again, many spouses have no clue what's going on financially. It's not a partnership if one is hiding something. Downright mean.

 

[Brat]

that annuity is worth a lot, especially for a spouse 17 years younger

Yes but it has no cost of living increase. The value of the spouse annuity, given that she is 17 years younger and lives a normal lifespan, will decrease to chump change.