Join Early Retirement Today
Reply
 
Thread Tools Display Modes
Lump Sum Vs. Monthly Pension
Old 07-30-2020, 11:54 AM   #1
Confused about dryer sheets
 
Join Date: Jul 2020
Location: Bronx
Posts: 4
Lump Sum Vs. Monthly Pension

If we can assume you have no other savings or equity and can retire at 50, which option would you suggest?

A) Lump Sum of $680,000
B) Monthly Pension of $2200
verizon1990 is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 07-30-2020, 11:58 AM   #2
Thinks s/he gets paid by the post
gauss's Avatar
 
Join Date: Aug 2011
Posts: 3,587
How secure should we assume the monthly pension is?
gauss is online now   Reply With Quote
Old 07-30-2020, 12:04 PM   #3
Confused about dryer sheets
 
Join Date: Jul 2020
Location: Bronx
Posts: 4
A Verizon pension. Pretty secure (as of now) It is funded at 90%.
verizon1990 is offline   Reply With Quote
Old 07-30-2020, 12:19 PM   #4
Full time employment: Posting here.
Whisper66's Avatar
 
Join Date: Apr 2014
Location: Houston
Posts: 957
https://www.calculatorsoup.com/calcu...calculator.php

Determine the present value of the annuity using online calculators such as above. Vary assumptions to meet your comfort zone. I’d probably take the lump sum and invest it ... that’s what I did when I retired. Our annuity was quite reasonable vs the lump sum (IMO) but it wasn’t adjusted for inflation and I couldn’t leave any of it for our kids when I died. Long term investor so that’s well within my comfort zone.
__________________
"Learn everyday, but especially from the experiences of others. It's cheaper! " - John Bogle
Whisper66 is offline   Reply With Quote
Old 07-30-2020, 12:19 PM   #5
Thinks s/he gets paid by the post
njhowie's Avatar
 
Join Date: Mar 2012
Posts: 3,925
$2200/month with $680,000 principal comes to an annual withdrawal rate of about 3.88%. If you could generate 3.88% annually, when you pass on, you'd still have the $680,000, whereas you'd have nothing from the pension. There's also the possibility that you pass early, possibly even before the breakeven point at about 76 years old.

Also, do they include annual COLA adjustment or is it just $2200/month until you expire?
njhowie is offline   Reply With Quote
Old 07-30-2020, 12:34 PM   #6
Dryer sheet wannabe
 
Join Date: Jun 2020
Posts: 17
I'd be inclined to say, it depends.

How comfortable are you with managing your investments?
What is your tolerance for risk?
Will the $2,200 per month be sufficient for your retirement plan?

Answers to those questions will probably guide you to your answer.
SenorDave is offline   Reply With Quote
Old 07-30-2020, 12:51 PM   #7
Thinks s/he gets paid by the post
 
Join Date: Apr 2008
Posts: 1,992
Quote:
Originally Posted by verizon1990 View Post
If we can assume you have no other savings or equity and can retire at 50, which option would you suggest?

A) Lump Sum of $680,000
B) Monthly Pension of $2200
Nice lump sum. If the pension starts at 50 instead of the typical 55+, that makes it tougher to decide.

When I was offered a pension buyout, I was offered $249,000 for a pension (50% survivor) that paid out $2,300+/mo starting at age 55 (maxing at $2,600 by age 60). The buyout would have been paid at age 53.

As you might imagine, I took the pension. If I had been offered at least $400,000, I would have taken the lump sum, even if the pension was still more attractive, for reasons stated by @njhowie. Then again, we had cash on hand to balance out not having the monthly pension.
statsman is offline   Reply With Quote
Old 07-30-2020, 01:42 PM   #8
Thinks s/he gets paid by the post
gauss's Avatar
 
Join Date: Aug 2011
Posts: 3,587
Quote:
Originally Posted by verizon1990 View Post
If we can assume you have no other savings or equity and can retire at 50, which option would you suggest?

A) Lump Sum of $680,000
B) Monthly Pension of $2200
Given those assumptions, I would say take the pension.

The folks I know who had good corporate jobs and are now near poverty in retirement all cashed in their pensions for lump sums.

I think they were not very financially sophisticated and let financial advisors do what they wanted with the money because they thought the advisors knew best.

-gauss
gauss is online now   Reply With Quote
Old 07-30-2020, 06:12 PM   #9
Thinks s/he gets paid by the post
 
Join Date: Aug 2017
Posts: 2,040
I would advise a person with nothing else to take a pension. Not sure they have the ability to invest on their own if that is the ONLY thing they have. But will you (eventually) get Social Secuirty? Married? Kids? Lot of considerations.
badatmath is offline   Reply With Quote
Old 07-30-2020, 06:33 PM   #10
Thinks s/he gets paid by the post
 
Join Date: Aug 2014
Location: Chicago West Burbs
Posts: 2,996
Immediateannuities.com says $2,340 per mo for joint life at age 50.

In Illinois, pensions are not taxed. I am not sure about annuities. Something to consider. I would check how your state taxes the two.
CRLLS is offline   Reply With Quote
Old 07-30-2020, 06:59 PM   #11
Thinks s/he gets paid by the post
rk911's Avatar
 
Join Date: Dec 2018
Location: DuPage County IL
Posts: 2,697
what happens to the pension when you cast off the mortal shell? if it disappears then it's a no brainer...take the lump sum. i myself might take the lump sum anyway as you can likely get a better ROI.
__________________
Rich
Ham Radio, Sport Pilot, RVer
FIRE: 8/11/2005, age 55y,1d
Dispatcher, then shift supv, then administrator for a regional 9-1-1 call center
rk911 is offline   Reply With Quote
Old 07-30-2020, 07:40 PM   #12
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
jollystomper's Avatar
 
Join Date: Apr 2012
Posts: 6,098
If you have no other savings, are willing to put the bulk of it into equities, and are disciplined enough to not panic when the market acts as it has during the pandemic, the lump sum would be a better choice.


edited to add: The pension ending when you die would also be a reason to consider the ump sum.
__________________
FIREd date: June 26, 2018 - "This Happy Feeling, Going Round and Round!" (GQ)
jollystomper is offline   Reply With Quote
Old 07-30-2020, 07:58 PM   #13
Recycles dryer sheets
lauradrops's Avatar
 
Join Date: Jan 2012
Location: LI
Posts: 100
My husband (retired Verizon guy) and I had to make that choice in 2010. We took the lump sum, rolled it over into the market and pretty much haven't touched it since. (excluding a small 72t we were forced to take to show income for a small mortgage) We will probably start tapping into it when he is 61 or 62.
He was 48 and the pension was just around 30k. It was a no brainer for us and has grown very well. We can easily generate the pension amount at around 2% and still not get into the principal.
We also know other guys who blew through the money and would have been better off with the pension.
I think the answer financially is take the lump sum, but only if you're a person who is disciplined and can tolerate some volatility. If you can't be both of those things, then take the pension.
Also look into your retiree medical insurance and see what it will cost you. The guys who retired in 2010 were some of the last ones to retire with fully paid for medical, dental and vision coverage. Not sure how much they have to contribute now.
Best of luck!!
lauradrops is online now   Reply With Quote
Old 07-31-2020, 12:39 AM   #14
Full time employment: Posting here.
 
Join Date: Jul 2014
Posts: 859
Quote:
Originally Posted by lauradrops View Post
I think the answer financially is take the lump sum, but only if you're a person who is disciplined and can tolerate some volatility. If you can't be both of those things, then take the pension.
+1

Unless the OP expects to fall in the top left section of the chart below, the lump sum - if properly invested and managed - is highly likely to be the better choice.


See row 101, etc., in the case study spreadsheet to verify.
SevenUp is offline   Reply With Quote
Old 07-31-2020, 05:47 AM   #15
Full time employment: Posting here.
racy's Avatar
 
Join Date: May 2007
Posts: 880
Like others have said, I think it depends on whether or not you can manage the lump sum. If you enjoy personal finance, can invest wisely, keeping cost low (e.g. Vanguard, Schwab or Fidelity) and control spending then take the lump.
If don't enjoy personal finance and plan on hooking up with Edward Jones then take the monthly payments.
__________________
"It is better to have a permanent income than to be fascinating". Oscar Wilde
racy is offline   Reply With Quote
Old 08-03-2020, 07:24 AM   #16
Confused about dryer sheets
 
Join Date: Sep 2018
Posts: 7
For me this would be an easy pick -- lump sump without a doubt. Roll it to an IRA, select something in the stable value investments area that traditionally gets in the 4-6% range and take the same withdrawals as the pension would have given you.
CyPlainsDrifter is offline   Reply With Quote
Old 08-03-2020, 07:39 AM   #17
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Big_Hitter's Avatar
 
Join Date: May 2013
Location: Les Bois
Posts: 5,761
Quote:
Originally Posted by gauss View Post

The folks I know who had good corporate jobs and are now near poverty in retirement all cashed in their pensions for lump sums.


-gauss
corporate pension plans that allow for unlimited lump sums have very high take rates; that's one reason why there is a positive correlation between lump sum distributions and poverty, as I've posted before

the OP needs to make a personal decision, and we must assume that the $2200 a month is an annuity equivalent of $660,000, whether a deferred or immediate - OP what is the "relative value" of the lump sum to the immediate annuity - is that annuity for your life only or a joint and survivor pension with your spouse? Is the $2200 a month, immediate or deferred? I assume immediate.
__________________
You can't be a retirement plan actuary without a retirement plan, otherwise you lose all credibility...
Big_Hitter is offline   Reply With Quote
Old 08-03-2020, 08:32 AM   #18
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Chuckanut's Avatar
 
Join Date: Aug 2011
Location: West of the Mississippi
Posts: 17,134
Quote:
Originally Posted by Big_Hitter View Post
corporate pension plans that allow for unlimited lump sums have very high take rates; that's one reason why there is a positive correlation between lump sum distributions and poverty, as I've posted before
Is that because the lump sum was not reflective of the actual value of the pension? Or did the lump sum folk give into the temptation to spend the money on things like a new boat, motor home, fancier liquor cabinet with fancier liquor, etc?

Or, perhaps, both?
__________________
Comparison is the thief of joy

The worst decisions are usually made in times of anger and impatience.
Chuckanut is offline   Reply With Quote
Old 08-03-2020, 09:50 AM   #19
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Big_Hitter's Avatar
 
Join Date: May 2013
Location: Les Bois
Posts: 5,761
Quote:
Originally Posted by Chuckanut View Post
Is that because the lump sum was not reflective of the actual value of the pension? Or did the lump sum folk give into the temptation to spend the money on things like a new boat, motor home, fancier liquor cabinet with fancier liquor, etc?

Or, perhaps, both?
I believe it is due to mortality salience

no one wants to think about his or her own death although we all die - taking the lump sum avoids it

https://www.plansponsor.com/thoughts...pany.%E2%80%9D
__________________
You can't be a retirement plan actuary without a retirement plan, otherwise you lose all credibility...
Big_Hitter is offline   Reply With Quote
Old 08-03-2020, 09:52 AM   #20
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Big_Hitter's Avatar
 
Join Date: May 2013
Location: Les Bois
Posts: 5,761
Quote:
Originally Posted by Chuckanut View Post
Is that because the lump sum was not reflective of the actual value of the pension? Or did the lump sum folk give into the temptation to spend the money on things like a new boat, motor home, fancier liquor cabinet with fancier liquor, etc?

Or, perhaps, both?
https://www.early-retirement.org/for...ums-82584.html
__________________
You can't be a retirement plan actuary without a retirement plan, otherwise you lose all credibility...
Big_Hitter is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Lump sum versus monthly pension? Andy Sr Hi, I am... 20 06-26-2016 05:24 AM
Another pension lump sum vs. monthly payment question robls FIRE and Money 11 02-08-2011 03:52 PM
Monthly Pension or Lump Sum? bob boag Hi, I am... 17 08-06-2010 10:14 AM
monthly pension vs. lump sum kbst FIRE and Money 25 11-20-2007 04:31 PM
Pension: Lump Sum or Monthly Payment ? Helena FIRE and Money 12 09-07-2006 09:00 AM

» Quick Links

 
All times are GMT -6. The time now is 05:30 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2024, vBulletin Solutions, Inc.