Retired this week...need pension advice

[MichaelB]

Quote:

Originally Posted by trishglxk Hi Michael...I did plunk a few numbers into FIREcalc. Interesting analysis...scary and exhilarating at the same time. Found it a little challenging however as an aid in making this specific decision. So I decided to fire up excel and plunk in cash flow scenarios for options 2, 3, and 4 above-- by year-- so that I can compare them after discounting for the effects of inflation over time. I used a 4% inflation rate, instead of the historical 3% rate, as the costs I will encounter as a retiree (healthcare, food & entertainment, etc.) seem to be outpacing the average inflation rate of 3% (which is favorably impacted by the costs of housing, clothes, etc.) Net net, if I live to 90, then then options 2, 3, and 4 when adjusted for inflation are statistically identical. At age 85 and younger, the clear choice is option #3, taking the higher payment until age 67. At age 85 and younger the worst option by a sizeable margin is #2--$2400/ mo for life. Even though it yields the highest absolute payment, the ravages of inflation kick this option to the floor. So, option #3 yields the highest NPV, and since I'm opting for no survivors benefit, the front-end loaded payment presents the best opportunity to get the most value from this pension before I croak. I think I've made my decision. Thanks to the folks who responded to this post--you are awesome.

FIREcalc isn't a NPV calculator, it looks at portfolios, income streams and expenses and helps assess the likelihood that you may run out of money. You have many inputs and options so the complexity is understandable. Good luck with your decision.

[pb4uski]

Quote:

Originally Posted by MasterBlaster While option 3 may indeed be a fine choice. NPV calculations assume an interest rate that may or may not be realistic going forward. It goes without saying that your mileage may vary.

Yipper...that's why they call them assumptions...

[BigE]

Awesome position to be in. Congratulations on positioning yourself to do what many only dream of. A few years behind you, not yet retired, and not as wise as the others who have posted good advice/tips. No one knows what the future holds for SS but to me it seems that if you have a fixed second source of retirement income, it's going to be an easy target/excuse to reduce your SS benes, either thru direct reduction or increase taxes. Also, to hedge your bets against the nasty fiscal irresponsible ones in D.C. who will have to increase taxes eventually, you might consider ROTH conversions while tax rates are low for you and spouse. And if spouse or you do even a small amount of part time work, starting ROTHs might be prudent. Just some food for thought. Good luck!

[Buckeye]

Quote:

Originally Posted by trishglxk Re: survivors benefit--the above annuity payments would be reduced by about $200/month if I choose the annuity option(s) that continue to pay out after my death. We discussed it, and he thinks we should forego the survivors benefit options (the assets we have should be enough to support him). Anyone think this is outlandish?

Without a survivors benefit, your husband will lose both your pension and your social security at the same time. No concern?

[pb4uski]

Quote:

Originally Posted by BigE ....Also, to hedge your bets against the nasty fiscal irresponsible ones in D.C. who will have to increase taxes eventually, you might consider ROTH conversions while tax rates are low for you and spouse. And if spouse or you do even a small amount of part time work, starting ROTHs might be prudent. Just some food for thought. Good luck!

I agree that from ER to pension/SS streams start is a good time to ocnsider Roth conversions. However, in addition to taxes it is important to consider other effects, in particular the coming subsidies for health insurance under Obamacare which it appears will be based on 2012 tax return data. There are some scenarios where an additional $1,000 of Roth conversion could cause a $4,000 reduction in the subsidy so the economic cost of the additional $1,000 in Roth conversion would be outrageous. YMMV since you seem to have a good retiree health insurance program available to you.

[obgyn65]

I like option 4. My 2 cents only.

[nun]

If you just take the money and invest it and get say 5%, then option 3 wins, and option 2 comes in next. What you do depends on your need for income at the various stages of your retirement and whether you want a constant guaranteed income or want to rely more on your own investment skill.