A little help on my pension decision

[RockyMtn]

I FIRE'd in July 2009. Since then I have continued on the payroll as a "consultant". Didn't really do a whole lot in the last 6.5 years other than answer a few questions from lawyers. It really was more like a non compete.

Well that arrangement is coming to an end on December 31st. So now I have to decide what to do with the pension from megacorp. Sure could use some help from the pension wizards on the site with my decision.

The numbers:

Pension 1

100% joint survivor starting 1/1/2016= $3047 per month. Non cola'd.
100% joint survivor starting 1/1/2023= $3657 per month. Non cola'd.
Lump sum option= $658k. Immediateannuities.com shows a $2813 per month joint survivor payment.

Pension 2

100% joint survivor starting 1/1/2023= $1250 per month. Non cola'd.

Social Security: Roughly $60k between the two of us in 2028 (70.5).

Current 401k/TIRA: $1.25m. Projected 401k/TIRA balance at 70.5 is $1.9m (see below).

Other income: I serve as an "advisor" to a company in which I receive $120k per year in 1099 income. I put about $50k of that into a solo 401k. This will continue until at least 2028.

We live off 1099 income and dividends. No need to tap tax deferred in foreseeable future.

Schwab RMD calculator shows required withdrawals of $102k starting at 70.5. So income at 70.5 is as follows:

RMD's: $102k
SS: $60k
Pension 1 (if take at 65): $44k
Pension 2 $15k

Total: $221k

The questions:
1. Should I start pension 1 now or wait to 65?
2. Should I do Roth conversions from 401k/TIRA even if it bumps me up to 33% tax bracket? Currently in 28% bracket.
3. Should I continue putting 1099 income into solo 401k?

I am going to run these scenarios through IORP as, if I recall, it is pretty good at identifying sequence of withdrawals. At this point I am thinking take pension 1 now and continue to dump $$$ into the solo 401k.

Thanks for your help folks! If more info is needed just ask.

 

[W2R]

I tend to agree with you, since you are already retired and you seem very well set overall, with future SS and wife's pension also to be factors in this. But good idea to run it through the calculators to see what would be financially advantageous, and also to get input from other forum members; if there is any doubt then I'd re-think it.

 

[Souschef]

i will only comment on Pension 1. Just doing the simple calculation, the crossover would be at 5.8 years, or 2029. This ignores the present value of the future pensions, or the earnings on the funds during that period

 

[RockyMtn]

i will only comment on Pension 1. Just doing the simple calculation, the crossover would be at 5.8 years, or 2029. This ignores the present value of the future pensions, or the earnings on the funds during that period

Thanks Sous, but can you tell me how you come to 5.8 years? I come with something entirely different.

Taking pension at 58 instead of 65 is $36.5k x 7 years = $255k in early payments. If I take at 65 the difference in payout vs 58 is $7.3k more per year. Divide the $255k by the $7.3k and you get 35 years.

Am I doing something wrong?

 

[Souschef]

Your numbers are correct, but this is how I did it;
In the 7 years if you take it in 2016, by 2023 you will have earned $255948
If you wait until 2023, the point at which you will have earned $255948 will be in 5.8 years after 2023.
As i said, my simple calculation ignores any earnings on the money you will get for those 7 years. That would push the crossover point later than 5.8 years.

 

[DrRoy]

I think this is a good way to look at it. Here is another. The $36.5/yr over 7 years at 3% is about $280k.

Annuity of $2813/mo for $658k gives $1197/mo for $280k. Taking the pension now and saving for 7 years gives $3047 +$1197=$4244/mo which is better than waiting.

 

[Turn_the_Page]

I'd take the lump sum and invest it. If the company goes under or whatever, you don't lose anything. Yes, the annuitized pension is hard to beat, but it leaves you 'tied' to the company. The other thing is what happens (heaven forbid) if both of you die soon after starting the pension? There's nothing from the pension left for your heirs/estate.