Pension options

[Bigbass]

I’ve been reading many interesting posts on this site, really enjoyed all the discussions on various subject. I need some advice on a decision I need to make very soon. My company was sold to a venture capital group and because this “new company” will no longer offer a pension, that’s the bad news, the good news is that since I have 30 years with my old employer, I do have a vested pension with them. I’m can elect a non COLA pension of about $3,000 a month for the rest of my life. Or a partial lump sum of $285,000 plus $1,650 a month. I’m 52 years old and plan on working for five more years for this new employer while drawing my pension. I’m thinking the partial lump sum with lower monthly is a better option. I don’t need the monthly rather I continue to work or not, since we can live on just DH’s income. I’m thinking I would just roll the lump sum into my 401K with my new employer’s 401K. Advices?? Suggestions?? Thanks!!

 

[Meadbh]

I’m can elect a non COLA pension of about $3,000 a month for the rest of my life. Or a partial lump sum of $285,000 plus $1,650 a month.

If we assume that the partial lump sum of $285,000 would have a SWR of 4%, that would be $11,400 per annum, or $950 per month to start with. Add that to $1,650 and you get an initial income of $2,600 per month. So at the beginning the pension wins. However, if you do not need to draw on the lump sum and can invest it for five years, assuming the market grows, it will be a better inflation hedge. Given your circumstances, that's what I would do. If the pension had COLA, I would choose that.

 

[MooreBonds]

I’ve been reading many interesting posts on this site, really enjoyed all the discussions on various subject. I need some advice on a decision I need to make very soon. My company was sold to a venture capital group and because this “new company” will no longer offer a pension, that’s the bad news, the good news is that since I have 30 years with my old employer, I do have a vested pension with them. I’m can elect a non COLA pension of about $3,000 a month for the rest of my life. Or a partial lump sum of $285,000 plus $1,650 a month. I’m 52 years old and plan on working for five more years for this new employer while drawing my pension. I’m thinking the partial lump sum with lower monthly is a better option. I don’t need the monthly rather I continue to work or not, since we can live on just DH’s income. I’m thinking I would just roll the lump sum into my 401K with my new employer’s 401K. Advices?? Suggestions?? Thanks!!

+1 on the question if the Pension is COLAd or not, and how much?

Also, if you do take the partial lump sum + smaller monthly benefit, I would ***NOT*** automatically roll it over to my new 401k plan, since many 401k plans don't offer funds that are anywhere near the low-cost that you can find on your own.

 

[pb4uski]

I would suggest that you go to immediateannuities.com and look at the pricing on a lifetime SPIA with a premium of $285,000. If the annuity benefit > $1,350 a month then the lump sum/$1,650 is preferable, otherwise the $3,000 annuity is preferable.

I assume both the $3,000 or $1,650 would be non-COLA.

 

[jIMOh]

Is there a spousal benefit on the pension? what happens if you die before DH?

 

[Bigbass]

10% reduction will give him 50% of reduced amt, 15%/75% & 20%/100% of reduced amt, with pop up. But since DH is 8 years older, I'm thinking I should take the single annunity. If I do exit b/4 him, he'll have my 401K/lump sum which will give him little over 1 mil as of today. He'll also get one year of my salary ($110K) as retiree death benefits from my old employer. As long as I'm working he will also get another $110K from my new employer. I can also buy additional ins for 20 years term for about $140 which would give him $750 tax free.

 

[MichaelB]

Looking at an annuity calculator the two options seem pretty close - taking the lump sum and buying an annuity would provide about $100 per month less than the full annuity now. If you don't need the money I like the idea of taking the $285k plus lower annuity without a survivors benefit, buying a term life policy, investing the lump sum in a tax deferred account now and perhaps another annuity when you retire.

 

[2B]

Personally, you haven't told us enough for me to give you a firm opinion. If your DH has a significant pension, you definitely don't need more. Some pension/annuity income is nice to have but non-COLAd income streams decrease steadily in value. You have many years ahead of you to watch that peter away to next to nothing. Balanced investments have a much better chance of increasing in value and counteracting inflation.

If you don't have any other pension income coming, you might want to take the larger pension but only if you have significant liquid assets available for retirement. If you are broke, you definitely need to take the lump sum.

Bottom line, the annuity offer is reasonable given your age and current interest rates. These rates really have no where to go but up so you can probably get a better annuity deal later. Interest rates will have risen and you'll be older.

 

[rothlev]

Annuity options you choseSingle Life Annuity, Level Payments, No Additional FeaturesAmount used to purchase annuity$285,000When you are age of52This is the estimated monthly annuity payments based on an annuity interest rate index of: 2.125%$1052

 

[Midpack]

Looking at an annuity calculator the two options seem pretty close - taking the lump sum and buying an annuity would provide about $100 per month less than the full annuity now. If you don't need the money I like the idea of taking the $285k plus lower annuity without a survivors benefit, buying a term life policy, investing the lump sum in a tax deferred account now and perhaps another annuity when you retire.

+1. Exactly the answer I'd give. Now is a bad time to buy an annuity (unless you must) and should be a very good time to take a lump sum - getting quotes of your own should confirm (MichaelB evidently did that already, though up to you to confirm for yourself). If you take the lump sum now, you can invest it tax deferred and buy an annuity when rates are more favorable if you want to (that's what I did in the same situation, albeit my pension was frozen in 1994 and therefore pretty small). If you take the pension now, there's no turning back...taking the lump sum you can have your cake and eat it too IMO!

 

[Finance Dave]

If we assume that the partial lump sum of $285,000 would have a SWR of 4%, that would be $11,400 per annum, or $950 per month to start with. Add that to $1,650 and you get an initial income of $2,600 per month. So at the beginning the pension wins. However, if you do not need to draw on the lump sum and can invest it for five years, assuming the market grows, it will be a better inflation hedge. Given your circumstances, that's what I would do. If the pension had COLA, I would choose that.

This is also the way I'd think of it, except that using the SWR of 4%, your payment would increase each year...whereas the non-COLA pension would not. Another factor...if you take the pension at $3k, is it in a trust? In other words, what if the company goes bankrupt? Having the $285k in hand is worth something IMO...and I'd lean that way.

 

[Sirka]

... Having the $285k in hand is worth something IMO...and I'd lean that way.

+1
I would roll the lump sum into IRA and watch it grow until you need it.