Sick pay reimbursed in annuity- what to do

[Octogirl]

I am leaving a full time position with a state agency.

In order to get paid for unused sick leave, (about $7000) I must set up a life time annuity with $10,000 in cash (I know- it's odd)

The annuity must be life time - paid over 20+ years.



I have NO interest in setting up an annuity that may only pay $75-80/month however, I never like to walk away from money.

We don't depend on the $10,000 - but I can not use the sick time and will lose its value.


I'm hoping others here have insights or experience with this scenario.
What did you do ? Why ?

 

[badatmath]

Surely you know others at your employer who faced this. What did they do?

If you are saying you have to pay 10k to get 7k that is not something I would do. Most places do not pay out unused sick leave.

 

[pb4uski]

I think if she pays $10k then she gets an annuity based on $17k.

Just pay the $10k and don't let the $7k go to waste.

 

[ckelly78z]

Ironically, "Badatmath" is correct about this math problem. I don't see how throwing $10K away to get an additional $7K over 20 years is a deal at all. You can get better gains in index funds.

 

[pb4uski]

I totally disagree.

It sounds like OP will write a check for $10k and receive $75-80/month for 20 years. That would be an IRR of 6.78% (if benefit is $75/month) or 7.67% (if benefit is $80/month).

That is a crazy good return considering the negligible risk.... risk is probably akin to a AA bond.

Or to be more simple about it... invest $10k and receive $18k-$19.2k of benefits over the next 20 years... slam dunk.

Even better the payments are for life.... it would cost $18k to get a life benefit of $75/month and $19.2k to get a life benefit of $80/month per immediateannuities.com so OP will pay $10k and get free money.

 

[Sunset]

I think if she pays $10k then she gets an annuity based on $17k.

Just pay the $10k and don't let the $7k go to waste.

+1
Totally Agree.

 

[rk911]

to the OP....what happens to the annuity if you die before 20-yrs?

 

[Octogirl]

sick pay

Good question -

It is paid out to estate in lump sum- so no risk of loss.



Most other employees set up the annuity when they leave but they have more unused sick days, thus more money. Most have > $10,000 in unused sick time.

 

[Aerides]

Putting that 10k into the annuity ties up your 10k for 20 years to get 7k. What other returns are involved? Because putting 10k into, say, vtsax for the past 10 years would have gained you that 7k (of course the last 10 were extraordinary).

In your shoes I might just get a touch of the flu and take a week of that paid sick now and think about it... and then start getting migraines on fridays until the end of my work contract....

 

[euro]

Good question -

It is paid out to estate in lump sum- so no risk of loss.



Most other employees set up the annuity when they leave but they have more unused sick days, thus more money. Most have > $10,000 in unused sick time.

Then it’s REALLY a slam dunk, as pb4uski says

 

[pb4uski]

Putting that 10k into the annuity ties up your 10k for 20 years to get 7k. What other returns are involved? Because putting 10k into, say, vtsax for the past 10 years would have gained you that 7k (of course the last 10 were extraordinary).

In your shoes I might just get a touch of the flu and take a week of that paid sick now and think about it... and then start getting migraines on fridays until the end of my work contract....

VTSAX isn't a valid comparison... besides its a virtually guaranteed 7-8% vs the risk inherent in stocks. She can just consider that $10k as part of her income allocation... so unless her AA is 100/0 it makes sense to buy the annuity.