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Opinions on pension amt vs lump sum
Old 10-01-2019, 09:34 AM   #1
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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.
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Old 10-01-2019, 09:56 AM   #2
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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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Old 10-01-2019, 11:09 AM   #3
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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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Old 10-01-2019, 12:26 PM   #4
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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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Old 10-01-2019, 12:38 PM   #5
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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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Old 10-01-2019, 12:43 PM   #6
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Quote:
Originally Posted by spncity View Post
$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.
need age, spouse age and form of payment, 50J&S?
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Old 10-01-2019, 10:13 PM   #7
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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.
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Old 10-04-2019, 12:06 PM   #8
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Thank you for all the comments. Much appreciated.
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Old 10-04-2019, 03:05 PM   #9
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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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