Pension plan terminated

[Omega]

Quote:

Originally Posted by ncbill Betting the pension is not COLA. Since in the OP's case the lump sum invested into a SPIA is close to the pension (within 15%) I'd take the lump sum & invest it instead of taking the non-COLA pension.

Correct. No COLA. Sorry I was unclear about that.

[badatmath]

I'd take the pension to diversify. But I have no heirs. I have not ever seen my megacorp do anything that was not beneficial to them either LOL so I inherently distrust them.

[CRLLS]

Quote:

Originally Posted by RunningBum This works both ways. If you live longer than the breakeven, your heirs get more. You can't just look at one of the possibilities (early death) to declare the best option. Many say the best gift a retiree can give heirs is to not run out of money and become a burden on them.

Please explain. I thought we were talking just the choice of pension vs cash out monies, not a full financial plan here. How does taking the pension over the cash, leave more money?

I do agree about not being a burden. That's a big consideration in the full financial plan IMO.

[RunningBum]

Quote:

Originally Posted by CRLLS Please explain. I thought we were talking just the choice of pension vs cash out monies, not a full financial plan here. How does taking the pension over the cash, leave more money? I do agree about not being a burden. That's a big consideration in the full financial plan IMO.

Here's why it's not their full financial plan. If you assume that $223K lump sum can stay untouched and passed to the heirs whenever they die, then it is also true that the $1600 month can be saved too.

If the OP takes the lump sum and dies the next day, the heirs get the $223K more. But if they keep the annuity pension, every month that $1600 they get is $1600 they don't have to take out of their other investments. At some point that's going to add up to be a larger benefit than the lump sum. It may take 20 years or so, but the OP is 57 so that's not at all unlikely. Say the OP dies at 85; their legacy (amount the heirs inherit) is going to be larger by keeping the annuity rather than taking the lump sum.

[CRLLS]

Got it. You are assuming that neither is going to be used for expenses after age 65 and they both get invested. I think that is a big assumption. But not out of the realm of possibility I suppose.

I just ran a quick spreadsheet. Assuming your scenario and a modest 5% rate of return (for someone with no need for withdrawing) the OP would be 105 years old before reinvesting the pension starting at age 65 would be greater than investing the cash out now.

[TheWizard]

It is quite possible to have invested assets in retirement of a few Million $$$ along with pension/annuity +SS income > $100k per year.
Ask me how I know.

And my annuities had a ten year guarantee period, whereas I guess most pensions do not.

And since my aforementioned income tends to exceed my expenses most months, I'm investing thousands of $$$ each year into stock index funds rather than taking money out.

YMMV, of course...

[TheWizard]

Quote:

Originally Posted by RunningBum Here's why it's not their full financial plan. If you assume that $223K lump sum can stay untouched and passed to the heirs whenever they die, then it is also true that the $1600 month can be saved too. If the OP takes the lump sum and dies the next day, the heirs get the $223K more. But if they keep the annuity pension, every month that $1600 they get is $1600 they don't have to take out of their other investments. At some point that's going to add up to be a larger benefit than the lump sum. It may take 20 years or so, but the OP is 57 so that's not at all unlikely. Say the OP dies at 85; their legacy (amount the heirs inherit) is going to be larger by keeping the annuity rather than taking the lump sum.

Quite true, RB.

Having a decently large pension/annuity +SS income in retirement is something like setting a backfire in forest fire fighting: you tend to preserve your investment nest egg and even add to it rather than dealing with drawdown strategies.

But it depends entirely on the size of the numbers involved...

[RunningBum]

Quote:

Originally Posted by CRLLS Got it. You are assuming that neither is going to be used for expenses after age 65 and they both get invested. I think that is a big assumption. But not out of the realm of possibility I suppose.

Well, you either assume they both are used for expenses, or they both are not. You can't say they can stash the lump sum for their heirs but need the pension for expenses. That is out of the realm of possibility, IMO.

Quote:

I just ran a quick spreadsheet. Assuming your scenario and a modest 5% rate of return (for someone with no need for withdrawing) the OP would be 105 years old before reinvesting the pension starting at age 65 would be greater than investing the cash out now.

Given idea. I leave it to the OP to verify those numbers, and decide if using a 5% return is appropriate risk compared to receiving the pension. I've never been clear on whether pensions are always backed by PBGC or not. I did not read samm's link about it.

[deserat]

Quote:

Originally Posted by badatmath I'd take the pension to diversify. But I have no heirs. I have not ever seen my megacorp do anything that was not beneficial to them either LOL so I inherently distrust them.

OP - you've gotten some great advice across the board here. I will say that when I was given the option, I decided to take the non-COLA pension instead of the rollover. However, it became just one stream of income and was needed at the time in my life as a small confirmed inflow.

You can also calculate the break even point - for me it was age 83. As for rolling into my IRA, I would still be required to either take it as part of RMDs or do a Roth conversion, so tax considerations would need to be added to the financial analysis (ie, if you are single, you could calculate between 12-15% (or whatever you believe your bracket would be) of the amount would be paid in taxes) with the conversion or RMD. You will also pay taxes on the annuity now as it is income, so that could also be calculated.

In any case, I would say YMMV for this decision. There is no one-size fits all.

[RunningBum]

Something else occurred to me after thinking more about CRLLS' calculations. My first thought was that the 5% growth rate wasn't fair, compared to the cost of an SPIA to generate that income at 65 which uses a lower rate. Then it hit me that I wouldn't buy an SPIA right now with interest rates so low. So why would I take a pension annuity over a lump sum today based on low interest rates.

I verified CRLLS' calculation of a crossing point at 105 using 5% growth. At 3% the cross over is age 85. 3% guaranteed is a very nice return today, but you would lock in on a 28 year 3% CD with no option to exit early? I don't think I would.

I'd be giving it more thought than a quick spreadsheet and analysis over lunch, but I'd be leaning toward the lump sum now.

[Omega]

Thanks so much for all of the great information! I am leaning towards the lump sum, but there are a few more options to consider that I won't have details for until late March. There are joint and survivor annuities (I am currently single, not sure if that will change lol), and 10 C&C annuities, which I have no idea what they are.

[Go-NoGo]

Quote:

Originally Posted by Omega Thanks so much for all of the great information! I am leaning towards the lump sum, but there are a few more options to consider that I won't have details for until late March. There are joint and survivor annuities (I am currently single, not sure if that will change lol), and 10 C&C annuities, which I have no idea what they are.

Could that be a 10 year C&C annuity?:

https://www.pbgc.gov/glossary#:~:tex...ployer%20plans.

[iloveyoga]

Quote:

Originally Posted by Omega Thanks so much for all of the great information! I am leaning towards the lump sum, but there are a few more options to consider that I won't have details for until late March. There are joint and survivor annuities (I am currently single, not sure if that will change lol), and 10 C&C annuities, which I have no idea what they are.

That would mean you name a beneficiary and you get the annuity for your lifetime, with a minimum of ten years of payments.

[CRLLS]

Quote:

Originally Posted by RunningBum Something else occurred to me after thinking more about CRLLS' calculations. My first thought was that the 5% growth rate wasn't fair, compared to the cost of an SPIA to generate that income at 65 which uses a lower rate. Then it hit me that I wouldn't buy an SPIA right now with interest rates so low. So why would I take a pension annuity over a lump sum today based on low interest rates. I verified CRLLS' calculation of a crossing point at 105 using 5% growth. At 3% the cross over is age 85. 3% guaranteed is a very nice return today, but you would lock in on a 28 year 3% CD with no option to exit early? I don't think I would. I'd be giving it more thought than a quick spreadsheet and analysis over lunch, but I'd be leaning toward the lump sum now.

Thanks for the verification. As for the rate of return that I used, I was simply comparing the annuity reinvested vs a lump sum invested.

If one was interested in growing the nest egg for one's heirs, rather than use the monies for expenses, I chose to discount the SP500 average rate of return rather than use today's Annuities for comparisons. Over the history of the SP500 it has averaged slightly over 10.x% annual growth since 1957 and since the inception of the S&P (non 500) since 1926, I cut that in half and then rounded down to 5%. A very fair, conservative rate considering.... I would hope that somebody interested in growing this part of their nest egg without a need for the money due to their other financial situations, would be a bit more aggressive than seeking a 3% growth.

[RunningBum]

Quote:

Originally Posted by CRLLS I would hope that somebody interested in growing this part of their nest egg without a need for the money due to their other financial situations, would be a bit more aggressive than seeking a 3% growth.

I'm the one who made the comparison case to not spend the money, just to keep the math simple. OP has not said whether or not they are reliant on this money at all.

[rick55]

I’ll try to be as brief as I can…
I worked for about 40 years in the health care field, 10 years at one hospital, where I became vested in their plan,and almost 30 at another.

About 2 years after I left the first place they terminated the pension and bought an annuity at Mutual of America. My initial estimate when I left was $240 a month, with various options for DW which I did not pick from ( I think there was a default option if none was picked). Throughout the years I would get an annual statement, then they stopped. At 65 I inquired about it, and I received a number that was lower,around 185 or so, so I asked why it was lower. They said because they bought an insurance policy for my protection. News to me!

I took the option of 150 for me and DW after I die.

Employer #2 froze the pension 4 or so years before I left (one of the reasons it made sense for me to leave, after they also eliminated the 403b match) a year after I was gone they decided to terminate the plan and instituted an option to take a lump sum buyout. I promptly took the buyout because DW will get that after I kick the bucket. Invested it in Wellinton/wellesley with the rest of the portfolio and I’m not complaining. I think everything worked out for the best in our situation.

As others will say, YMMV!

[meleana]

Quote:

Originally Posted by Omega I know this has been asked dozens of times, but I can't help myself! My pension plan has been terminated and I've been offered a one-time, lump sum buyout of $233,256 for my single life annuity of $1593.24/mo starting at age 65. I am 57 with about 600K in other retirement accounts and will collect SS. Would you take the lump or keep the annuity?

The same happened to my husband and pretty much the same pension numbers as yours, and he took the lump sum and rolled it into his IRA.

[iloveyoga]

Quote:

Originally Posted by rick55 My initial estimate when I left was $240 a month, with various options for DW which I did not pick from ( I think there was a default option if none was picked). Throughout the years I would get an annual statement, then they stopped. At 65 I inquired about it, and I received a number that was lower,around 185 or so, so I asked why it was lower. They said because they bought an insurance policy for my protection. News to me!

That sounds really odd. Usually the amount at age 65 is protected by legislation such as ERISA and there are even some DOL laws. I would be curious about the insurance policy mentioned. Maybe hospitals are not subject to ERISA??

[Canoeboy]

Quote:

Originally Posted by samm I would take the annuity -- I did so when I had this choice years ago. No regrets! Annuities purchased by PBGC insured corporate pension plans at termination are NOT PBGC insured. PBGC insurance exists only when plans are ongoing. See ref: https://www.investopedia.com/article...antee-fund.asp

Additionally, Annuities are regulated at the state level AND every state has an Guaranty Association that generally guarantees at least 250k of an annuity. Some states are much higher (NY = 1 million cap). Likely not as good as pension protection through PBGC, but it’’s pretty good protection for most people. One will need to check with an individual state for details on rules, caps, etc.

Reference: https://www.annuity.org/annuities/re...-associations/

[rick55]

I’m guessing that’s why they say it’s an estimated benefit. The amount at 65 was different than the amount at 35. Even though I left employment at 29. I believe they find ways to reduce it by providing life insurance coverage to 65 for beneficiaries, I never knew about it.