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Pension-Lump sum, COLA/Non-COLA annuity
Old 02-08-2020, 01:00 PM   #1
Confused about dryer sheets
Join Date: Jun 2009
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Pension-Lump sum, COLA/Non-COLA annuity

I am facing a pension decision and looking for opinions. My choices will be to take a Lump sum, COLA(cpi based) or Non-COLA annuity, or combination. I am leaning toward taking 60% in a Lump and 40% in a COLA annuity.

The Lump would be rolled into my 401k and that total amount used to fund a 4% withdrawal rate. The 4% withdrawal added to the COLA annuity would hit my targeted minimum income. I would like to work part-time until SS kicks in, hopefully at 70 since I am 55 now. Then I could take a raise, or cut back on withdrawals in order to leave some behind. If circumstances changed, I could always take SS earlier. I have a decent deal on health insurance that should continue until 65.
This seems to be a pretty conservative way to go. Maybe it is too conservative. Would I be better off taking a different percentage in a Non-Cola annuity? Using a "normal" lifespan seems to favor a non-COLA. I would have more to invest in the market under the non-COLA plan.

I have pretty much ruled out 100% Lump or 100% annuity. My 401k allocation is a 60/40 Boglehead type portfolio.The annuity rates are pretty close to 5% of amount for COLA and 7% for Non-COLA. This seems o be a little better than It is a pretty solid pension plan although anything can happen.
I want to play it pretty safe, but hopefully not way overboard. I just want to find a balance with a high level of certainty for baseline expenses and a good chance of having a little extra.
I hope I have enough details here to start a discussion. If not, I can fill in the holes. Thank you for your time!
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Old 02-08-2020, 01:26 PM   #2
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You need to share what percentage the lump sum or annuity is of your total spend. Sounds like the rest of you investments will cover you but it would be better to know if this lump sum or annuity is a big percentage of your spend. For example, if things were kinda tight, I might recommend the COLA’d annuity, but if your other investments will give you a good lifestyle then I might prefer the lump sum.
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Old 02-08-2020, 01:51 PM   #3
Confused about dryer sheets
Join Date: Jun 2009
Posts: 8
Thanks Jerry,
The lump represents about 60% of my total retirement dollars. To put things another way, if I rolled the whole pile together, I would have to withdraw about 4.5% to get my target. Also, there isnt much slack, so yes, it is kinda tight. Does that help?
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