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Opinions on pension amt vs lump sum
10-01-2019, 09:34 AM
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#1
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Thinks s/he gets paid by the post
Join Date: Jan 2007
Posts: 1,244
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Opinions on pension amt vs lump sum
$571.15 Single Life Benefit (monthly)
($ 57.12) Decrease for Joint and Survivor option
$270.70 Plus accrued pension supplement (for two people)
_______
$784.73 Total monthly benefit (Survivor benefit would be $257.02 plus $135.35 totaling $392.37 per month)
VERSUS
$131,970.67 Lump Sum Payout in lieu of pension
What are the opinions here?
Thank you in advance.
__________________
Kindest regards.
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10-01-2019, 09:56 AM
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#2
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jan 2008
Location: NC
Posts: 21,304
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Depends in part on your age, and specific terms of the pension. Best if you run it thru https://www.immediateannuities.com/ and see how the options stack up. The pure financial choice is easy - will the lump sum buy you a better pension/annuity? Row 1 in the attached.
If it’s a wash, you can always rollover the lump sum and buy a pension/annuity later - a month, a year or longer. If you grow the lump sum, you can buy an annuity with a greater payout later all else equal.
From there other considerations:
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No one agrees with other people's opinions; they merely agree with their own opinions -- expressed by somebody else. Sydney Tremayne
Retired Jun 2011 at age 57
Target AA: 50% equity funds / 45% bonds / 5% cash
Target WR: Approx 1.5% Approx 20% SI (secure income, SS only)
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10-01-2019, 11:09 AM
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#3
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Moderator
Join Date: Nov 2014
Posts: 9,179
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I’m a member of the three legged stool club. Pension, SS and my retirement savings. I felt it was best for me to take the monthly pension instead of the lump sum. I know nothing is guaranteed, but I felt that the “guaranteed” payments of the pension and SS were enough to live on and the balance can come from my savings. Your situation my be different, but for me, it hinged on the fact that the monthly payment is a pension and treated as such (backed by the PBGC - Pension Benefit Guaranty Corporation) and that the monthly payment was much better than I could purchase as an annuity on the open market. Diversity improved security in my calculation. When SS kicks in, my withdrawal rate to cover my budget (my living pretty good budget, not my what it takes to exist budget) will be under 2%.
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Every day when I open my eyes now it feels like a Saturday - David Gray
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10-01-2019, 12:26 PM
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#4
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Thinks s/he gets paid by the post
Join Date: Jul 2005
Posts: 4,366
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I've been running through this for DW and her DM. Their lump sum only buys about 75% of the monthly income when purchasing an annuity elsewhere. Could be because she's female but pooled with a bunch of males at work. The interest rates assumed by the lump sum calculation seemed pretty reasonable, and government mandated. But if you make optimistic market assumptions the Lump sum could be much better.
Given two SS incomes, I'd be willing to go lump sum, especially when the pension is not COLA'd. The lump sum would go into an IRA. It would increase RMD income, but not as much as taking the monthly pension at age 70. So we'd have a little more control over our income. And the kids could inherit any remainder. It eliminates one more set of paperwork/EFT's. No concerns over pension funding (though it must be better than 80% funded to offer lump sums). We could Roth convert it if that look beneficial, so more tax flexibility. And we weren't planning to start the pension for another 10 years, so we have some time to smooth out any market dips that might be coming.
DMIL already falls into the the other risk of lump sums, wanting to spend it now. At least for her it's a small part of her income, one she found out about only a couple of years ago. So while the income was nice, it won't be a disaster if she takes a lump sum and spends it.
No decision yet, we're still discussing and waiting to see if we think of anything else.
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10-01-2019, 12:38 PM
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#5
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Thinks s/he gets paid by the post
Join Date: Nov 2011
Posts: 3,902
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A lump sum is more liable to be lost, stolen, or scammed than is the entirety of a recurring monthly pension. Something to consider while your mind is still good and less subject to being scammed.
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10-01-2019, 12:43 PM
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#6
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: May 2013
Location: Les Bois
Posts: 5,761
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Quote:
Originally Posted by spncity
$571.15 Single Life Benefit (monthly)
($ 57.12) Decrease for Joint and Survivor option
$270.70 Plus accrued pension supplement (for two people)
_______
$784.73 Total monthly benefit (Survivor benefit would be $257.02 plus $135.35 totaling $392.37 per month)
VERSUS
$131,970.67 Lump Sum Payout in lieu of pension
What are the opinions here?
Thank you in advance.
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need age, spouse age and form of payment, 50J&S?
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You can't be a retirement plan actuary without a retirement plan, otherwise you lose all credibility...
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10-01-2019, 10:13 PM
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#7
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Thinks s/he gets paid by the post
Join Date: Dec 2018
Location: DuPage County IL
Posts: 2,730
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i would without hesitation take the lump sum assuming the pension ends with the beneficiary's death. even if it survives you can likely do better in terms of 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
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10-04-2019, 12:06 PM
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#8
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Thinks s/he gets paid by the post
Join Date: Jan 2007
Posts: 1,244
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Thank you for all the comments. Much appreciated.
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Kindest regards.
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10-04-2019, 03:05 PM
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#9
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,373
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Not much to go on (ages, health, other retirement income sources, etc)... but if you are in your 60s a 7% payout rate is pretty good.
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If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
Retired Jan 2012 at age 56
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