Lump Sum Vs. Monthly Pension

[stephenson]

Let's see - Social Security feels like a pension.

Going to get SS when the time is right, right?

Lump sum - control that part of your destiny.

[CardsFan]

OP appears to be MIA.

While I would take the lump sum, and did, OP appears to not have any savings. Which suggests, as others have noted, he/she is not an investor.

Therefore, take the pension.

[hanginthere]

Ordinarily I would too, but am I not right that if he has no savings he needs income now so would either have to wait till 59 to withdraw from traditional IRA or pay huge amount in taxes to convert to a Roth?

[hanginthere]

Couldn't agree more. Verizon stock is one on the best on the market and if the dividend payout was a little better would buy in a heart beat. But a companies finances and the safety of the pension plan are different animals. Corporate pensions are a dinosaur today. The only other thing I would suggest before making a decisions would be to make an appointment with the SS office and find out what my projected SS and medicare benefits based on what I've paid in would be at different age levels, keeping in mind that SS could be technically bankrupt by about 2033 unless changes are made including reduced benefits or longer age withdrawal levels.

[atmsmshr]

For any multi-employer pension plan (as opposed to single employer plan) take the lump sum and run away. PBGC expects multi-employer plans to become insolvent in a few years.

[target2019]

Appraising the future of the company and its pension plan might be a good idea. Then assign a risk factor of your choosing and use it as part of your calculation.

As noted by others, some lump sum amounts seem very generous, some very stingy. That gets one thinking about how the organization views its future. Do they want you taking small monthly bites? If so, then the lump sum is unattractive.

[cat4ever]

Same question with these (not as good as OP's) lump sum numbers:

Age: 56.5
Lump sum now: 403K (FWIW lump sum at 65: $457k)
50% Surviving Spouse Pension, starting immediately: $28416/year (monthly installments) NON COLA

I tried the calculator, but I don't understand what to enter for Interest Rate, and different values give very different answers.

I am comfortable doing my own investments, but the draw down rate from the lump sum works out to about 7% I think. However I wonder if the fact that the pension is non cola would still make taking the lump sum a better choice? I don't need the monthly payments now, so am looking for best long term answer. I (of course) do expect to live a long time, and my genetics and currently health back that up (knock on wood).

[pb4uski]

What people often do is to compare their lump sum and payout numbers at immediateannuity.com. However, they don't offer 50% joint life online so you would probably have to get a quote from an agent... but looking interpolating the monthly benefit for single life and 100% joint life it looks like the relationship between your lump sum and your pension benefit is pretty fair.

We took the 100% joint life monthly benefit to augment our SS for "guaranteed" income sources... however, my employer's lump sum/monthly benefit relationship was very unfair so that was part of the decision too... and my pension was only about 20% of our spending so it wasn't a big decision.

[Big_Hitter]

Quote:

Originally Posted by cat4ever Same question with these (not as good as OP's) lump sum numbers: Age: 56.5 Lump sum now: 403K (FWIW lump sum at 65: $457k) 50% Surviving Spouse Pension, starting immediately: $28416/year (monthly installments) NON COLA

We need spouse age to opine with that form of paymet

[cat4ever]

Quote:

Originally Posted by Big_Hitter We need spouse age to opine with that form of paymet

53. After some thought I'm thinking the interest rate on that form would be analogous to expected inflation, and interestingly enough the calculated value seems to track to using the expected draw down rate of 7% as well. e.g. entering an Interest Rate of 7% and a payment amount of 28k/year calculates a lump sum value of 400k. Coincidence? I think not! (sorry, movie quote, name that movie :-))

[Big_Hitter]

Quote:

Originally Posted by cat4ever 53

this site doesn't do 50% JS they quote 100% and straight life - you can interpolate those to get a reasonable estimate of what it would take to purchase the $2400 a month immediate annuity - I was getting something over $600K to purchase an equivalent annuity using 57M/53F an immediate start date - did the packet quote a relative value to the immediate annuity?

https://www.immediateannuities.com/i...es-step-1.html

[Big_Hitter]

Quote:

Originally Posted by cat4ever 53. After some thought I'm thinking the interest rate on that form would be analogous to expected inflation, and interestingly enough the calculated value seems to track to using the expected draw down rate of 7% as well. e.g. entering an Interest Rate of 7% and a payment amount of 28k/year calculates a lump sum value of 400k. Coincidence? I think not! (sorry, movie quote, name that movie :-))

there is a chance, rather large, that the lump sum is based on the accrued benefit payable at age 65 rather than actuarially equivalent to the immediate annuity - that would be apparent in the relative value disclosures. Lump sums under corporate DB plans are not required, by law, to include any early retirement subsidies

[Big_Hitter]

It may be worth calling the plan administrator and asking them, explicitly, how the lump sum is calculated. When I was offered a buyout 2 years ago, the immediate annuity I was entitled to in 3 months was worth significantly more than the lump sum I was offered. However, plan sponsors are only required to show relative values on the annuity starting date. YMMV

[Big_Hitter]

Quote:

Originally Posted by cat4ever 53. After some thought I'm thinking the interest rate on that form would be analogous to expected inflation, and interestingly enough the calculated value seems to track to using the expected draw down rate of 7% as well. e.g. entering an Interest Rate of 7% and a payment amount of 28k/year calculates a lump sum value of 400k. Coincidence? I think not! (sorry, movie quote, name that movie :-))

yes, that's a complete coincidence

lump sum values aren't calculated using a finite end to retirement, a little piece of you dies each year until you are 100% gone - the lump sum is a mathematical expectation over your lifetime

[cat4ever]

Quote:

Originally Posted by Big_Hitter there is a chance, rather large, that the lump sum is based on the accrued benefit payable at age 65 rather than actuarially equivalent to the immediate annuity

I'm not quite sure this answers your question, but the quote I gave above was for taking the lump sum at age 57. I also included above the quoted sum if I wait until 65. To me, of those two options taking it at 57 is a new brainer as the growth is only between 2 and 3% per year from 57 to 65.

[Big_Hitter]

it's the difference between an immediate annuity calculation and a deferred annuity calculation - the law only requires that the LS be at least actuarially equivalent to the annuity payable at your nrd, not what is payable immediately

[jim584672]

That seems like a generous lump for that annuity amount.

[Out-to-Lunch]

Quote:

Originally Posted by jim584672 That seems like a generous lump for that annuity amount.

Gosh, I thought just the opposite.

[jim584672]

Quote:

Originally Posted by Out-to-Lunch Gosh, I thought just the opposite.

I have a pending pension and the lump is like half of what the OPs is (relatively).

[cat4ever]

Quote:

Originally Posted by pb4uski What people often do is to compare their lump sum and payout numbers at immediateannuity.com. However, they don't offer 50% joint life online so you would probably have to get a quote from an agent...

I do have a 100% joint life option, which pays $2180. Using the above site, $403,000 only buys a $1421 100% joint life pension, so it looks like pension wins that round pretty convincingly, $2180 to $1421. Heck even for a single life annuity it only buys $1667.