Help! Annuity or Lump Sum Decision

[flintnational]

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Originally Posted by gayl personally, I took the annuity option but mine has a 4% annual cola max whereas yours will be diminished by inflation.

My decision would be easier if you would share your COLA.

[CRLLS]

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Originally Posted by pb4uski This is a great example of a little knowledge being dangerous. What you are reffering to only applies to multi-employer plans and the OP's plan is not a multi-employer plan.

I do agree that I have little knowledge in that area. But in my defense, I did qualify my statement with "in some cases". 10 years ago, this wasn't even a consideration. Today it is multi-employer plans, what About tomorrow?

I'm not saying it is guaranteed that the payout will be less. With all other things being equal, it is something that I considered and chose the lump sum.

[Big_Hitter]

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Originally Posted by flintnational OP here. If you take the lump sum and assume a 75/25 AA with an average annual return of 8%

8%? Is that the 50th percentile of 30 year returns based on that asset allocation?

[flintnational]

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Originally Posted by Big_Hitter 8%? Is that the 50th percentile of 30 year returns based on that asset allocation?

No, it was just a random number to show that returns would need to be fairly high to achieve the $2M surplus that was mentioned by a poster earlier. It also let me look at sequence of return risk. If returns are lower, the initial WR and sequence of return risk are even higher. In other words, IMO the initial WR is fairly high even with an seemingly good return of 8% on a 75/25 allocation.

FN

[Big_Hitter]

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Originally Posted by flintnational No, it was just a random number to show that returns would need to be fairly high to achieve the $2M surplus that was mentioned by a poster earlier. It also let me look at sequence of return risk. If returns are lower, the initial WR and sequence of return risk are even higher. In other words, IMO the initial WR is fairly high even with an seemly good return of 8% on a 75/25 allocation. FN

ah understood

[Blue Collar Guy]

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Originally Posted by gayl personally, I took the annuity option but mine has a 4% annual cola max whereas yours will be diminished by inflation.

A pension that has a COLA is a way different animal.

[Huston55]

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Originally Posted by Blue Collar Guy Hitter, I put 405000 in the portfolio line , I put 36700 in the spending line and I put 30 years. Thats was on the start here tab. Then I put 0 % for the CPI as it isnt cola'd. On the "not retired tab" i put 2024 . 75/25 portfolio. thats what I got. Can you re do it? Maybe I goofed ? hahah I did it again got the same results. Im hitting a lot of tabs, so Im sure Murphys Law and me might be messed up.

You probably put "30" vs "36" yrs on the first tab; remember it's 6 yrs until getting the annuity, then 30 yrs living on it.

Also, the comparison should be risk adjusted, which means using the "probability of success" function in FIRECalc. If you select 100%, which it should be to equate to the annuity, then the OP can spend $26k/yr...funny how that seems similar to the earlier posts huh? If you want to discount that 100% a couple points to account for pension uncertainty, you can also do that.

Having said all that, I think the choice comes down to the OP's situation: his & his DW's risk tolerance, their overall portfolio/income stream makeup, and how an annuity (or LS invested 75/25) fits into their plan.

EDIT: I see some of these points were already made since I began writing this response. I stand by the two major points: (1) any comparison must be risk adjusted, and (2) the OP's situation (risk tolerance, portfolio/income mix, etc.) must be factored into the decision.

[flintnational]

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Originally Posted by Huston55 Having said all that, I think the choice comes down to the OP's situation: his & his DW's risk tolerance, their overall portfolio/income stream makeup, and how an annuity (or LS invested 75/25) fits into their plan.

Thanks Huston55. This item will probably drive my decision.

FN

[Blue Collar Guy]

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Originally Posted by Huston55 Having said all that, I think the choice comes down to the OP's situation: his & his DW's risk tolerance, their overall portfolio/income stream makeup, and how an annuity (or LS invested 75/25) fits into their plan.

I agree with this 100%.

[flintnational]

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Originally Posted by flintnational I know we have covered this before, but it seems each situation is different. Yesterday in the mail I received a lump sum pension offer............. FN

Decision update

Thank each of you for your input. We have decided to keep the annuity and decline the lump sum offer. The reason for the decision is based primarily on our specific situation. We have enough cash and short term bonds to fund our retirement until age 65 or 66. At that point, SS and the pension annuity will 100% fund our inflation adjusted budget. Accordingly, that has allowed us to maintain a relatively high (IMHO) stock allocation of 70%. If I took the lump sum, I believe I would be adding risk to our portfolio and would not be comfortable with a 70% stock allocation. The annuity also adds some diversification to our portfolio. We can fund our budget with either our savings or the SS/pension annuity combination. If one fails, we still have the other, hopefully.

Once again, thank you for your input and help.

FN

[pb4uski]

Congratulations on your decision... I think your rational makes sense.

[almost there]

I went through this last year when I turned 55. 291k lump sum or $1519/mo.
Went with the annuity. No regrets at all. Have enough trouble trying to figure out where to invest these days........ One less headache.
http://www.early-retirement.org/foru...6-a-83881.html

[Huston55]

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Originally Posted by flintnational Decision update Thank each of you for your input. We have decided to keep the annuity and decline the lump sum offer. FN

Congrats on your decision.