Investment question...

M

MrFlish

Recycles dryer sheets
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Jan 9, 2017
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I just received a pension buyout offer consisting of the following options.

1. 200k lump sum. Which I'd roll into my Total Stock Market (VTSAX) IRA fund (current value ~1.1mm)
2. $1350 single life (non-COLA'ed) annuity that begins on 65th birthday. (I'm currently 58)

I'm interested in hearing the groups thoughts and opinions on which direction I might consider.


P.S. posted this over on the Bogleheads site as well..

Thanks in advance for the input...
 
braumeister said:
... but there are other issues to consider.
Click to expand...

IMO, inflation should be the main consideration. You've got maybe 30 years ahead of you.

(I always remember my dad, back in the 60's saying: Oh, he makes good money...maybe $10,000)
 
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Run your own numbers, but generally the lump sum favors the payer, not the payee.
 
COcheesehead said:
Run your own numbers, but generally the lump sum favors the payer, not the payee.
Click to expand...

I took a lump sum 13 years ago and invested. Pretty much doubled it since then even with withdrawals.

Again, inflation is the big killer IMO; a non-COLA'd pension or annuity seems like a short term benefit to me and OP is only 58 y.o.
 
marko said:
I took a lump sum 13 years ago and invested. Pretty much doubled it since then even with withdrawals.

Again, inflation is the big killer IMO; a non-COLA'd pension or annuity seems like a short term benefit to me and OP is only 58 y.o.
Click to expand...

I missed the non cola part. You’re probably right.
 
MrFlish said:
I just received a pension buyout offer consisting of the following options.

1. 200k lump sum. Which I'd roll into my Total Stock Market (VTSAX) IRA fund (current value ~1.1mm)
2. $1350 single life (non-COLA'ed) annuity that begins on 65th birthday. (I'm currently 58)

I'm interested in hearing the groups thoughts and opinions on which direction I might consider.


P.S. posted this over on the Bogleheads site as well..

Thanks in advance for the input...
Click to expand...

What are the terms of your current pension?
 
Another Reader said:
What are the terms of your current pension?
Click to expand...

Same as option #2, 1350 single life @ 65.

I'm leaning towards the rollover as I feel like I'd have more investment control and access to the money rather than getting locked in to an insurance annuity.
 
COcheesehead said:
I missed the non cola part. You’re probably right.
Click to expand...



I'm leaning towards the rollover as I feel like I'd have more investment control and access to the money rather than getting locked in to an insurance annuity.
 
marko said:
I took a lump sum 13 years ago and invested. Pretty much doubled it since then even with withdrawals.

Again, inflation is the big killer IMO; a non-COLA'd pension or annuity seems like a short term benefit to me and OP is only 58 y.o.
Click to expand...

I'm thinking the same way.
 
marko said:
IMO, inflation should be the main consideration. You've got maybe 30 years ahead of you.

(I always remember my dad, back in the 60's saying: Oh, he makes good money...maybe $10,000)
Click to expand...

Agree...
 
Just for kicks, I ran a few calculations. If you take the lump sum today, invest it at 3% (CD's?) for 7 years, you will have a future worth of about $246,000. If you leave this invested at 3% and take the same $1350 out each month, you will exhaust the funds in 20 years (age 85). So, assuming the insurance company has run similar numbers, they are betting you will die sooner, and they take the rest. I guess it depends on when YOU plan to die!

In all seriousness, I would take the lump sum.
 
In the very low interest environment of the last 5 years, I think I have done alright with my non-COLA pension as opposed to taking the lump sum. It pays the majority of my basic living expenses and will bridge me to 70 (two more years) when I will start SS payments on my account. After 70, until inflation goes crazy, I will probably be adding to my stash with the pension. Would I have more money when I die if I had taken the lump sum? Who knows?
 
According to immediateannuities.com, if you put the $200,000 lump sun an IRA and bought a deferred payout annuity that starts paying benefits in 7 years at age 65 then you could choose to receive $1,506/month for life beginning at age 65 or $1,367/month with a guarantee that you or your heirs receive benefits that are at least equal to the $200,000 premium.

Both beat the $1,350/month for life beginning at age 65 with no guaranteed return of the lump sum offered by your employer so I would favor the lump sum rolled into an IRA. IF you have little guaranteed income or are risk averse then you could buy an annuity with some or all of the lump sum... that would be a separate decision.
 
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CardsFan said:
Just for kicks, I ran a few calculations. If you take the lump sum today, invest it at 3% (CD's?) for 7 years, you will have a future worth of about $246,000. If you leave this invested at 3% and take the same $1350 out each month, you will exhaust the funds in 20 years (age 85). So, assuming the insurance company has run similar numbers, they are betting you will die sooner, and they take the rest. I guess it depends on when YOU plan to die!

In all seriousness, I would take the lump sum.
Click to expand...

Thanks!!!
:cool:
 
pb4uski said:
According to immediateannuities.com, if you put the $200,000 lump sun an IRA and bought a deferred payout annuity that starts paying benefits in 7 years at age 65 then you could choose to receive $1,506/month for life beginning at age 65 or $1,367/month with a guarantee that you or your heirs receive benefits that are at least equal to the $200,000 premium.

Both beat the $1,350/month for life beginning at age 65 with no guaranteed return of the lump sum offered by your employer so I would favor the lump sum rolled into an IRA. IF you have little guaranteed income or are risk averse then you could buy an annuity with some or all of the lump sum... that would be a separate decision.
Click to expand...

I'm actually drawing a non-COLAed pension (2k/month) from a previous employer so we've got a small bit of income coming from that. We were thinking we should take this lump sum and add out IRA's but wanted to get some input from others before pulling the trigger. :cool:
 
A lot depends on your appetite for risk and how much guaranteed income that you want between pensions and SS... some people want a high percentage of their spending covered by guaranteed income and others are very comfortable with a lower percentage.
 
pb4uski said:
A lot depends on your appetite for risk and how much guaranteed income that you want between pensions and SS... some people want a high percentage of their spending covered by guaranteed income and others are very comfortable with a lower percentage.
Click to expand...
It is nice to have deposits hit the checking account every month. Just like when working. :) On the other hand, I am forever stuck in the 22% tax bracket (or higher) and Roth conversions are not meaningfull to me. I have no ability to limit my income by spending from a post tax account.
 
Just a follow up to my post. I said I would take the lump sum, because I know what my other asset are, and my risk tolerance.
I really cannot comment on what the OP should do without more info.
 
I'll say there's not enough info to make an informed decision. Do you need a spousal benefit? My offer included a subsidized spousal benefit which made the numbers better than taking the lump sum or buying deferred annuity on my own. Sometimes they let you split the pension into a partial lump sum and reduced annuity but they may not explain all your options.
 
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