Another Pension Buyout
Seems to be a pattern with megacorps ridding themselves of pensions. Here's what they are offering me: $81k lump sum ($70k pre tax & $11k after tax). My pension will be $800/month at age 60; 9 years from now. Pension has no COLA and is covered by PBGC (megacorp not terribly healthy); if I wait to 65, it goes up to $1,200/month. Sooo, here's my analysis.
- Using an immediate annuity web site, it would take roughly $160k to buy an immediate annuity at age 60 paying about $800/month. To grow the $81k to $160k in 9 years would require a return of 8%/year. Although 8%/year seems achievable, 9 years is not a lot of time. Additionally, my 85% equities will be dialing back to 70% between now and then.
- If I had $160k 9 years hence, a 4% SWR would only provide $533/month.
- Using a pension benefits web site, a $800/month pension in 9 years is equivalent to $121k (using 3% interest rate).
- My guess is that megacorp is not bending over backwards to make me come out ahead; they are basically transferring the risk of generating $800/month from them to me.
Other info: Healthy, parents lived into late 80s, also have COLA'd government pension starting at 60.
Although I like the idea of adding $81k to my next egg ($70k to IRA and $11k to Roth IRA), I'm not sure it is the best idea. How say you?