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Wellesley and Lump Sum
Old 10-31-2016, 08:01 PM   #1
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Wellesley and Lump Sum

So, got a lump sum offer for a future pension from my former MegaCorp. I'm currently working and planning to retire within the next two years. Current age 54 and married.

Here's my situation as I need to get a sanity check on the offer. I can receive a lump sum of $177,000 now or can start a $2,000 per month pension at 65. Looking at it just from being able to buy a future annuity, the $2,000 at 65 makes the most sense. But, if I dropped the $177,000 straight into Wellesley and assumed a 6% return, I could start pulling $2,000 per month at age 65 through at least 94. Frankly I would not really need the money until 65 and at that time other pensions, plus social security, cover 80+ percent of my anticipated expenses at that time.

Based on past returns it seems like 6% is not out of the realm with Wellesley. I know it would be making some assumptions on returns but what do others think? Thanks for any insights.
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Old 10-31-2016, 08:09 PM   #2
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Lump sums are almost never a good deal for the employee. Another way to value the pension is to look at the cost of a deferred annuity that will pay the same per month at 65.

No guarantees on Wellesley, and bonds have been in a very long bull market.

If I had a serious disease that would likely shorten my life, I would consider the lump sum. I would have better information than the actuaries in that situation.
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Old 10-31-2016, 08:18 PM   #3
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If you die before age 65 how much will your wife get?
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Old 10-31-2016, 08:39 PM   #4
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Thanks for the replies. Yeah, the long run in bonds concerns me a bit with Wellesley but I'd hope it could average 6% over a longer haul. My luck would have the historic record cease. Once I invested : )

If I wait for the $2K at 65, and I kicked the bucket earlier, my wife would receive 50% of my pension, $1k at my age of 65.
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Old 10-31-2016, 08:50 PM   #5
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Speaking as a wife, that tips it for me!!! Wellesley for sure.
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Old 10-31-2016, 08:58 PM   #6
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Speaking as a wife, that tips it for me!!! Wellesley for sure.
And looking at family longevity my wife will likely reach at least 95. Me, I'm guessing 85. Once I do reach 65 I can opt for reduced pension amounts to gain either a 50% or 75% survivor benefit.
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Old 10-31-2016, 09:07 PM   #7
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But how much would that fixed annuity be worth in actual spending value then?

I have most of our IRA $s in Wellesley, a friend tells me I could do as well with Vanguard index funds in a balanced portfolio. Maybe, but there is some comfort in having the experts work their magic.
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Old 11-01-2016, 07:10 AM   #8
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I would take the annuity. If you take the $177,000 and buy an annuity that pays starting in 11 years for the rest of your or your wife's life, you would receive $1,204/month so the $2,000/month looks pretty good. To get a $2,000/month benefit you would need to pay $294,000 today.

Similarly, a 65 yo would need $476,000 to buy a joint life annuity that pays $2,000/month. Your lump sum would need to earn 9.4%/year for 11 straight years to grow to $476,000.

Note... all the above are for 100% joint life annuities since immediateannuities.com does not provide pricing to 50% joint life annuities but I think they are fairly indicative.
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Old 11-01-2016, 09:18 AM   #9
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Seems like the only TODAY dollars are the 177,000. The 2000 dollars a month start 10 years from now and runs for 30 years.
You need a retirement calculator that can show you in today dollars your spending money for each month from 65 years to 94 years.
The 2000 dollars a month in 40 years might not seem like much.
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Old 11-01-2016, 09:31 AM   #10
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But how much would that fixed annuity be worth in actual spending value then?
+1

Even with a very modest 2% annual rate of inflation over the next 11 years, that $2000/mo will have a purchasing power of only $1600/mo when you are 65 - and it only gets worse with time.

Take the lump sum and stick it in Wellesley.
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Old 11-01-2016, 09:44 AM   #11
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what is the immediate qjsa that they offered and what is the relative value to the lump sum? both of those should be in the packet
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Old 11-01-2016, 06:13 PM   #12
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what is the immediate qjsa that they offered and what is the relative value to the lump sum? both of those should be in the packet
Thanks Big Hitter. I'll take a look at those numbers in my packet.

It appears the inner debate in my head is also playing out with others input as well I'll be having to make a decision within the next two weeks. If I went the lump sum route that wouldn't be paid out until mid December apparently.

I very much appreciate the input I've received so far.
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Old 11-01-2016, 07:56 PM   #13
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what is the immediate qjsa that they offered and what is the relative value to the lump sum? both of those should be in the packet
The immediate monthly annuity just for myself (age 54)is $900.66
50% Joint and Survivor: $855.63, $427.82 (survivor)
75% Joint and Survivor: $834.01, $625.51 (survivor)
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Old 11-01-2016, 08:45 PM   #14
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If you buy a SPIA for just you today for $177,000 it will pay you $732. To pay you $901 you would need $218,000 so they are discounting the lump sum by 19%... my recent lump sum was a bit worse as I recall but yours is still a significant discount/ripoff.

Per immediateannuities.com for a 54 yo make in CA.
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Old 11-02-2016, 07:02 AM   #15
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Wouldn't you owe taxes on the $177,000 lump sum in the year it was paid? If so you wouldn't have the total amount to invest. I'd take that into consideration.
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Old 11-02-2016, 07:05 AM   #16
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Wouldn't you owe taxes on the $177,000 lump sum in the year it was paid? If so you wouldn't have the total amount to invest. I'd take that into consideration.
Should be able to roll it into an IRA.
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Old 11-02-2016, 07:29 AM   #17
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Should be able to roll it into an IRA.
Yes, correct. I'd be rolling it into an IRA within my Vanguard account if I took that option.
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Old 11-02-2016, 08:57 AM   #18
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I did just that with my lump sum. Actuarily, the pension was better, but mine was large enough not to be covered by PBGC and I didn't have confidence that my Megacorp will be around 20 years from now.
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Old 11-02-2016, 01:06 PM   #19
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The immediate monthly annuity just for myself (age 54)is $900.66

50% Joint and Survivor: $855.63, $427.82 (survivor)

75% Joint and Survivor: $834.01, $625.51 (survivor)

So it looks like the cost for 50% J&S is 5%($45). That seems to be a pretty favorable rate for that coverage. I think I paid 5% for 65% J&S and took the annuity but my lump was almost exactly the same as what I would pay elsewhere for the same benefit so the J&S tipped the scales in favor of the annuity.
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Old 11-21-2016, 03:15 PM   #20
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Thanks for the great input to mull upon! Tough decision, but I've decided to take the lump sum. Primarily due to an expected difference in longevity between my wife and myself. If I do make it to my early 90's I'd need Wellesley to beat an annualized average return of approx 5.4% to break even between the lump sum and the pension. Definitely a close call between the options.
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