I'm like a deer in the headlights on this decision

[Canoesmith]

OK. I'm 58, DW is 57. Both in good health. Parents both lived to mid 80's.

I'm retiring on July 5th of this year. That decision is made (although not announced).

I've got my official Defined Benefit numbers from my actuaries - and here are the two choices I am considering.

Pension annuity of $7214/mo with 100% spouse survivorship but NO Cola or
$1,426,000 in lump sum that I can roll over into my Lincoln 403b at fixed 3.5% to start with.

One of the "draws" of the lump sum would be my ability to control taxable income for ACA subsidies - but that is for 7 - 8 years, with 30 years of retirement ahead, so it seems like that reason alone could be short-sighted.

Even with the 100% survivorship my annuity payout appears to be over 6% - so that seems a good deal. But the lump sum is very tempting.

Additional pertinent info. Have another pension that I plan to take in late 2025 that will pay $2000/mo with cola
and If I delay my SS until I'm 70 - my DW and my combined estimate for SS will be ~ $60k/yr.

I have about $1.2M in other monetary/investment assets right now - and absolutely NO debt of any kind with a retirement baseline budget of $72k.

Knowing you are all very good at this I'd love your thoughts - Annuity or Lump Sum?

I appreciate your comments. I have waffled both directions over the past few weeks.

[Gallaher]

Can’t lose either way.
I’d take the pension. Even without cola it would give you an $86.5K income for both of your lives. With SS and second pension you’ll almost double your income....in effect offering some coverage for inflation.
Then the additional $1.2 million, I’d go heavy into equities...like 70-80%.
Keep $200k in cash equivalents for 3-5 year unforseeables. Leave equities for +10 year horizon.
Of course you would cost average into the market.
Nice problem to have
My opinion is worth what you pay for it.

[gwraigty]

Lump sum: $1,426,000 x 3.5% = $49,910 annually.

Annuity: $7,214 x 12 = $86,568 annually. $86,568/$1,426,000 = 6.07% annual yield.

$1,426,000/$86,568 = 16.47 years break even point.

I can see why it's a difficult decision. That said, how secure is the pension? Do you have any heirs who would benefit from the lump sum? Are you considering investment options that might earn something between 3.5% and 6.07%?

[flintnational]

There is a fee only advisor in Atlanta, Wes Moss, that has a Sunday morning radio show. He wrote the following article in the Atlanta paper regarding this question.

"As a general guide, if your monthly pension check equals 6 percent or more of the lump-sum offer, then you may want to go for the perpetual monthly payment. If the number is below 6 percent, then you could do as well (or better) by taking the lump sum and investing it, and then paying yourself each year (like a personal pension that you control)."

Per the above, your pension comes out right at 6%. So, from an actuarial standpoint, its close to a toss up. I would look at the other factors you mention and might let them sway my decision.

Faced with a similar decision, I took the pension. But, my pension payout ratio was higher than yours, minimizing the lump sum value. And, my pension/personal savings ratio greatly favored the personal savings side. I elected the pension to provide some diversification of risk of income sources.

[EastWest Gal]

The pension security is the key.

Your pension is my current after tax, etc. take home pay. Nice problem to have. You cannot lose, either way.

[Canoesmith]

Quote:

Originally Posted by gwraigty Lump sum: $1,426,000 x 3.5% = $49,910 annually. Annuity: $7,214 x 12 = $86,568 annually. $86,568/$1,426,000 = 6.07% annual yield. $1,426,000/$86,568 = 16.47 years break even point. I can see why it's a difficult decision. That said, how secure is the pension? Do you have any heirs who would benefit from the lump sum? Are you considering investment options that might earn something between 3.5% and 6.07%?

The pension will be bought from New York Life - as the company wants to off-load the admin and liability of it. The company pay all fees acquiring the annuity up front - the cost to the company will be $1.62M to buy that $7214 annuity for me vs. the $1.426 lump sum I would get.

Heirs - yes, but there are other assets to inherit should we die early.

I tend towards conservative in my investments, but once retired and feeling comfortable I'd like to believe that I will become less risk averse in the future.

[RunningBum]

That lump sum looks about right for the cost of an annuity to bring that kind of income, so I think it's priced right. So that's a 50/50, can't go wrong decision.

Does the company look very solid? Any reasonable chance the pension could go away sometime in the next 30 years? That would lean me toward taking the lump sum.

Lump sum gives you the flexibility if you need/want to make a big purchase, like say, a motor home. OTOH if you're going to buzz through it like a drunken sailor, obviously a pension will force discipline on you. Most here aren't that way.

Can you really control income enough with the lump sum to qualify for a subsidy? I guess you could take extra income every other year and take the subsidy other years if you can't. That would also push me to lump sum.

Are you ready to invest $1.4M? If you're going to pay an FA 1% to manage it for you, I think you've lost your advantage and I'd go back to the monthly payment. But if you feel good about a basic couch potato stock/intl/bond portfolio on your own (and there's no reason you shouldn't be), I'd do it.

If you take the pension now, it's probably not possible to switch it over to a lump sum. But if you took the lump sum and later felt like you really wanted the pension, you could always buy an SPIA, perhaps splitting the difference. But if you think you're going to do that from the outset, just take the pension.

Congrats, I don't think you can lose either way. I'd take the lump sum myself, but wouldn't question it one bit if you went with the pension.

[RunningBum]

Quote:

Originally Posted by flintnational There is a fee only advisor in Atlanta, Wes Moss, that has a Sunday morning radio show. He wrote the following article in the Atlanta paper regarding this question. "As a general guide, if your monthly pension check equals 6 percent or more of the lump-sum offer, then you may want to go for the perpetual monthly payment. If the number is below 6 percent, then you could do as well (or better) by taking the lump sum and investing it, and then paying yourself each year (like a personal pension that you control)." Per the above, your pension comes out right at 6%. So, from an actuarial standpoint, its close to a toss up. I would look at the other factors you mention and might let them sway my decision. Faced with a similar decision, I took the pension. But, my pension payout ratio was higher than yours, minimizing the lump sum value. And, my pension/personal savings ratio greatly favored the personal savings side. I elected the pension to provide some diversification of risk of income sources.

The math in that example is based on a 65 year old. OP is 58, so they would seem to have more years of pension collecting, so that would skew towards the pension.

[Chapter 3]

Does company sponsored health care happen to be tied to either choice?

[Canoesmith]

Quote:

Originally Posted by Chapter 3 Does company sponsored health care happen to be tied to either choice?

Unfortunately No

[flintnational]

Does anyone know if a Corp. pension transferred to a life insurer, in this case New York Life, is backed stopped by the PBGC? If not, that would be an additional risk in taking the annuity option.

[Canoesmith]

Quote:

Originally Posted by flintnational There is a fee only advisor in Atlanta, Wes Moss, that has a Sunday morning radio show. He wrote the following article in the Atlanta paper regarding this question. "As a general guide, if your monthly pension check equals 6 percent or more of the lump-sum offer, then you may want to go for the perpetual monthly payment. If the number is below 6 percent, then you could do as well (or better) by taking the lump sum and investing it, and then paying yourself each year (like a personal pension that you control)." Per the above, your pension comes out right at 6%. So, from an actuarial standpoint, its close to a toss up. I would look at the other factors you mention and might let them sway my decision. Faced with a similar decision, I took the pension. But, my pension payout ratio was higher than yours, minimizing the lump sum value. And, my pension/personal savings ratio greatly favored the personal savings side. I elected the pension to provide some diversification of risk of income sources.

Does it matter that the pension amount is 100% spouse survival? If I was taking a single life annuity the return percentage would be nearly 7%. But even with DW it’s still a bit over 6%.

[Canoesmith]

Quote:

Originally Posted by flintnational Does anyone know if a Corp. pension transferred to a life insurer, in this case New York Life, is backed stopped by the PBGC? If not, that would be an additional risk in taking the annuity option.

It is not PBGC. Just one of the highest rated anuuity sellers with well over 100 years and billions of assets. Heck, they could go under but if they did, I’m guessing we have some huge event causing it.

[PoorOldCountryBoy]

Quote:

Originally Posted by Canoesmith OK. I'm 58, DW is 57. Both in good health. Parents both lived to mid 80's. I'm retiring on July 5th of this year. That decision is made (although not announced). I've got my official Defined Benefit numbers from my actuaries - and here are the two choices I am considering. Pension annuity of $7214/mo with 100% spouse survivorship but NO Cola or $1,426,000 in lump sum that I can roll over into my Lincoln 403b at fixed 3.5% to start with. One of the "draws" of the lump sum would be my ability to control taxable income for ACA subsidies - but that is for 7 - 8 years, with 30 years of retirement ahead, so it seems like that reason alone could be short-sighted. Even with the 100% survivorship my annuity payout appears to be over 6% - so that seems a good deal. But the lump sum is very tempting. Additional pertinent info. Have another pension that I plan to take in late 2025 that will pay $2000/mo with cola and If I delay my SS until I'm 70 - my DW and my combined estimate for SS will be ~ $60k/yr. I have about $1.2M in other monetary/investment assets right now - and absolutely NO debt of any kind with a retirement baseline budget of $72k. Knowing you are all very good at this I'd love your thoughts - Annuity or Lump Sum? I appreciate your comments. I have waffled both directions over the past few weeks.

run the numbers at immediateannuities.com to see how it compares. That said flexibility is worth a lot. Can you go 50/50?

[flintnational]

Quote:

Originally Posted by Canoesmith Does it matter that the pension amount is 100% spouse survival? If I was taking a single life annuity the return percentage would be nearly 7%. But even with DW it’s still a bit over 6%.

Yes, from an actuarial standpoint, that would probably tip the decision to the monthly annuity. But, as Moss mentions in the article, this rule of thumb is just a staring point. You then need to factor in the other aspects of your retirement situation (as you have done). As others have mentioned, you have two good options. So, we may not be being much help with your decision.

ETA: Do you have a third option as POCB mentions? Can you split the money?

[flintnational]

Quote:

Originally Posted by RunningBum The math in that example is based on a 65 year old. OP is 58, so they would seem to have more years of pension collecting, so that would skew towards the pension.

Agreed. A younger starting age and/or an expected longer life would both tip toward the annuity with these numbers.

[Cassius King]

With the OP's other assets he has, wouldn't the lump sum be better? He has another pension and over a mil in taxable. He can almost live off those alone. Taking the pension he'll be getting fixed payments that he can't control for the remainder of their lives. If he takes the lump sum, he can manage the withdrawals and invest it to his needs. IMO, he has enough resources otherwise that he can take the lump sum, control his financial future better, and the lump sum will still be in tact rather than gone like the annuity at death.

[bloom2708]

If 50/50 I would take the lump sum. The "Lincoln Financial" part would scare me a bit. Fees could take out a big bite and make the monthly payments be back in play.

Nothing like expense ratio, fees or AUM fees to invisibly (or visibly) eat at your pile.

[street]

I would take the lump sum and invest it for long term. If you pass away in a few years after retirement and your wife passes away a few years later, then what happens?

[MRG]

Quote:

Originally Posted by bloom2708 If 50/50 I would take the lump sum. The "Lincoln Financial" part would scare me a bit. Fees could take out a big bite and make the monthly payments be back in play. Nothing like expense ratio, fees or AUM fees to invisibly (or visibly) eat at your pile.

+1

I'd walk, not run, away from Lincoln. They're too expensive for me. They're one of the better, expensive fund/insurance companies, but I wouldn't leave my money there.