A point I had not considered but if you take the 2 million and get divorced or sued you lose a lot of it but with the pension your money is safer .
...which of course you do already.But of course I would just love to have the $2m to play with!
Don't you generally lose half or more of that too, unless spouse has an equal pension? Unless this pension is like SS, where the ex-spouse's take does not diminish the chief bread winner's.
Ha
...which of course you do already.
I voted for the portfolio.
I must say, I'm surprised by the amount of risk-aversion that is present on a forum of ERs and ER wannabes. Guess that's what 10 years of a lousy stock market can do to people. I'll bet that 10 years ago, the portfolio would have won "hands down".
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But here's an important question: is this person someone capable of prudent spending and investing? If he/she might overspend or invest unwisely, the pension might be the better option.
I voted for the portfolio.
I must say, I'm surprised by the amount of risk-aversion that is present on a forum of ERs and ER wannabes. Guess that's what 10 years of a lousy stock market can do to people. I'll bet that 10 years ago, the portfolio would have won "hands down".
Umm... You would not go through the airport with all that gold and gemstones would you, Harley? When the time comes and you need to get going, perhaps I can help arrange some transportation? I might know some of these guys......I can pick up my cash (by then invested in easily transportable gold and gemstones) and head for Costa Rica or some other safer haven. If the gov't controls my pension they can always reel me back in.
If you've already forgotten what happened in 2008 then maybe you should reconsider the pension.
How does my saying the stock market has been lousy for 10 years imply that I've forgotten 2008?
I'd take the pension if I'd trust the government to keep its promises (I don't, so I take the $2M, thank you).
But here's an important question: is this person someone capable of prudent spending and investing? If he/she might overspend or invest unwisely, the pension might be the better option.
Why the portfolio? I'm just curious.
Since I keep 100% in stocks (and have since 1993), I believe I can invest the money and get more than a 4%+COLA return over the long run. Not 100% certainty of course, but good enough for me.
Interesting, but you may be the only poster that may have done the simple interest calculation. What rate of return must you earn each year on the $2,000,000 to equal $80,000 per year? Answer 4%. Can I make an investment that spins off 4% plus inflation?
So far in 2010, the average yield on investment-grade, tax free municipal mutual funds is 2.5 percent, Morningstar reports. I think 4% is pretty tough, considering you need to account for inflation too. That means you need to make 6% interest just to keep your $2million money and still get the equivalent to $80,000 per year.
On the other hand, if you want to draw down the $2 million each month (like a reverse mortgage), then you can live for 30 years for with a 2.5% interest investment. Again, you've got to account for inflation, so you need a 4.5% investment (assuming inflation is 2%)...that will give you a shade under $80,000 per year + COLA.
In short, there is no way you can beat the risk free government pension + COLA --- unless you are an investment wizard. Since this is your retirement money, I am risk adverse.
Earlier in life I would have gladly put the money into something like second mortgages (at 12% per year interest), or some other high risk investment (like starting another business). But after age 55 or so, too late to take chances. Particularly when I can live quite comfortably on $80 per year.
On the other hand, if you want to draw down the $2 million each month (like a reverse mortgage), then you can live for 30 years for with a 2.5% interest investment. Again, you've got to account for inflation, so you need a 4.5% investment (assuming inflation is 2%)...that will give you a shade under $80,000 per year + COLA.
In short, there is no way you can beat the risk free government pension + COLA --- unless you are an investment wizard. Since this is your retirement money, I am risk adverse.
Actually, the required real rate of return (after inflation) to fully amortize $2 million over 30 years by withdrawing 80K (COLA'd) annually is 1.25%. This is lower than the current yield on 30-year TIPS, which are trading at historically low yields. I hardly think this requires financial wizardry.
Come on, just to pay for inflation (which about equals COLA) you must earn 2% a year.
Plus, you've got to make some interest on the $2million, or it will pay out only $67k per year ($2,000,000/30). No way 1.25% is enough to cover COLA + a little extra to bring you up to $80k per year.
Please read what I wrote. I said 1.25% after inflation.