I am retiring soon and I am having trouble evaluating between the lump sum rollover and the fixed payment options of my pension.
Lump Sum:
As an example, the lump sum that would be taken is $30,000. I would like to assume that I could rollover that amount and realize an 8-10% annual rate of return from an investment portfolio.
Fixed Payment:
As an example, the alternative fixed payment allows $2400/yr for my life and $1800/yr (75%) for my spouse after my death. This option does have a COLA; however, the COLA doesn't kick in until after 5 years, at which point it's 3% annually.
Life Expectancy Assumptions: Let's assume that I live for 15 years after retirement, and that my wife will survive me by 20 years.
So, which is better? The one element I have the most trouble evaluating is
the 3% COLA after 5 years. I know this is of significant value, but I am
not sure what it drives the break even investment earnings point up to.
I would appreciate any ideas. Thanks for your consideration!
Lump Sum:
As an example, the lump sum that would be taken is $30,000. I would like to assume that I could rollover that amount and realize an 8-10% annual rate of return from an investment portfolio.
Fixed Payment:
As an example, the alternative fixed payment allows $2400/yr for my life and $1800/yr (75%) for my spouse after my death. This option does have a COLA; however, the COLA doesn't kick in until after 5 years, at which point it's 3% annually.
Life Expectancy Assumptions: Let's assume that I live for 15 years after retirement, and that my wife will survive me by 20 years.
So, which is better? The one element I have the most trouble evaluating is
the 3% COLA after 5 years. I know this is of significant value, but I am
not sure what it drives the break even investment earnings point up to.
I would appreciate any ideas. Thanks for your consideration!
