Pension or Annuity?

[Rianne]

I searched on our forum because I know this has been hashed out before. With interest rates rising, we've been offered a buyout instead of monthly pension checks. Many here have used TIAA for annuities.

We need cash flow, not looking to invest. Thinking of a lifetime annuity. Best company or advice? Looking at $600K + to put into the annuity. And hoping for $3-4K/month. Is that within reason?

I have no idea how beneficiaries work on annuities. Are expense ratios high?

You all are the best advisors in these situations.

 

[SevenUp]

Immediate Annuities - Income Annuity Quote Calculator - ImmediateAnnuities.com may be useful to you.

 

[bmcgonig]

I searched on our forum because I know this has been hashed out before. With interest rates rising, we've been offered a buyout instead of monthly pension checks. Many here have used TIAA for annuities.



We need cash flow, not looking to invest. Thinking of a lifetime annuity. Best company or advice? Looking at $600K + to put into the annuity. And hoping for $3-4K/month. Is that within reason?



I have no idea how beneficiaries work on annuities. Are expense ratios high?



You all are the best advisors in these situations.

Assuming you’re talking about an immediate annuity and not a variable annuity. That just means that you give somebody money and they give you a monthly income until you die (or some period you choose).

Is your pension COLA? If so then it’s impossible to buy one like it.

Otherwise you can look at the immediateAnnuities link posted above and compare what you would get there versus what you’re getting now. That depends on your age and spouse’s age etc.

You can set up the annuity as a joint annuity that will pay until both parties are gone.

Expenses are low for immediate annuities also called SPIAs and are included up front.

 

[pb4uski]

I searched on our forum because I know this has been hashed out before. With interest rates rising, we've been offered a buyout instead of monthly pension checks. Many here have used TIAA for annuities.

We need cash flow, not looking to invest. Thinking of a lifetime annuity. Best company or advice? Looking at $600K + to put into the annuity. And hoping for $3-4K/month. Is that within reason?

I have no idea how beneficiaries work on annuities. Are expense ratios high?

You all are the best advisors in these situations.

If your pension is a fixed benefit you can use immediateannuities.com to assess whether the pension benefit is a fair deal or not.

From what you wrote it sounds like you are thinking of 1) taking the monthly pension benefit or 2) taking the lump sum and buying a payout annuity.

$3-4k a month for $600k seems unlikely to me.

The best annuity that you can buy is to defer social security... not only is it a great deal but the benefitse COLAed too.

If you have a joint life annuity then benefits would end when the second of you die. There are also versions where the survivor gets less than 100%.

If it is a single life annuity thentypically benefits end when you die but there are versions that provide for either return of premium or a minimum of x years of benefits and in those cases there would be a beneficiary.

 

[savory]

For me at least, your question is not clear. One confusion is that a pension is an annuity. It is funded by the company.

It sounds like you are wondering if you purchase an annuity will you do better than the pension the company is offering. That is why SevenUp suggested looking at Immediate Annuities. That will be a good point of comparison for taking the pension annuity or a lump sum and buying your own annuity.

I think you need to get all the details from the company about the pension as a starting point as well as deciding on all the alternative offerings. Is there a cost of living adjustment (COLA), do you want to make it for one or both lives, do you want more money for a shorter amount of time or a pension for your remaining years, and more.

I am not sure if a TIAA type of annuity is insured but a company pension should be insured in part or in whole under PBGC. You should take a look at that https://www.pbgc.gov/ and I think it should be an important consideration in your decision.

You should also take a look at the level of funding your company is at today. They can make it available to you. Is the pension well funded. A poorly funded pension would give me some pause. But a well funded pension is not a guarantee either. But it is a better starting point. The good news is there are better regulations in place for company funded pensions. Having said that, we will not know how good the regs are until there is a problem.

Hope this helps.

 

[pb4uski]

....I am not sure if a TIAA type of annuity is insured but a company pension should be insured in part or in whole under PBGC. ...

TIAA-CREF is a large insurer in the annuity space. It is a combination of Teachers Insurance and Annuity Association of America and College Retirement Equities Fund.

Most pension plans pay pension benefits out of pension fund assets. Sometimes the pension plan buys an annuity from an insurer to pay the benefits that the plan is obligated to pay so the pensioner received benefits directly from the insurer.

 

[RetiredHappy]

How old are you and when do you want to have the annuity to start paying you? If you want to get $3-4K per month, you can buy deferred fixed income annuity. You pay the $600K to the insurer, and the money continues to grow. I put in about $430K 6 years ago and I bought 2 deferred term annuities, first for 10 years, the second for 15 years which starts at the end of the first. One starts paying this year, $2,820 per month, for 10 years. The second one starts in 10 years' time, paying $3,786 per month, for 15 years. You can get some flavor of this for lifetime payout. I used immediateannuities.com to price out the annuities before pulling the trigger.

 

[Rianne]

Originally, we thought we wanted the 100% Joint and Survivor Annuity Lifetime Pension paying $2626/month-$31,512/year (rounded up slightly) from the company, not COLA. They just offered the $628K (rounded up slightly) buyout. That buyout provides $31,400 for 20 years. Both of us will be 65 this year.

The dilemma is our lifetime and beneficiaries. There are annuities that would pay beneficiaries the remainder (if we died) or one of us died sooner than 20 years. The yearly lifetime pension from the company dies when we die. DH is waiting until 70 for SS. I took mine this year as opensocialsecurity.com suggested. This gets complicated as we could put $400K in laddered treasuries and use the rest until 70. Or all $628K in treasuries and use the tIRA and backdoor Roth as much to stay in the 12% tax bracket. Our tIRA is + 750K before the pension buyout.

We have a hefty index (taxed) account in the Living Trust. And I-Bonds from the early 2000s. I just spilled my guts.

We will meet with a tax accountant. I want to walk into that appointment with as much knowledge as possible and that our questions are specific without wasting time.

 

[pb4uski]

So your choices from the plan are $628k lump sum or $31,512/year joint life?

Where you say "That buyout provides $31,400 for 20 years" do you mean that you can purchase a joint life annuity with a minimum of 20 years of payments of $31,400 annually for $628k? If so, that sounds decent.

You are on to the wart with SPIAs... if you die soon ar payments start then it is "wasted" money, but that is less likely with a joint life annuity barring some event you both die together and the options for life with x years certain or life with cash refund mitigate that risk and the discounts to payouts for those features are negligible.

As a former CPA for 35 years, I'm not sure that your tax accountant is going to be able to provide a lot of insight in this decision.

 

[Rianne]

So your choices from the plan are $628k lump sum or $31,512/year joint life?

Where you say "That buyout provides $31,400 for 20 years" do you mean that you can purchase a joint life annuity with a minimum of 20 years of payments of $31,400 annually for $628k? If so, that sounds decent.

You are on to the wart with SPIAs... if you die soon ar payments start then it is "wasted" money, but that is less likely with a joint life annuity barring some event you both die together and the options for life with x years certain or life with cash refund mitigate that risk and the discounts to payouts for those features are negligible.

As a former CPA for 35 years, I'm not sure that your tax accountant is going to be able to provide a lot of insight in this decision.

The 20 year annuity ends after 20 years and the $628 is fully paid, either to us or our beneficiaries.

 

[finnski1]

The 20 year annuity ends after 20 years and the $628 is fully paid, either to us or our beneficiaries.

a life and 20 year certain annuity for two 65 year olds from IL pays $3417/month for a female or $3483/month for a male. Seem a lot better than $2616/month? None of these nor yours appear to be cola'd


Premium $628,000 (Female 65, Male 65). These quotes are estimates. To get exact quotes, check the “Add to My Report” box next to any annuity options and continue to step 2.
- Show Fewer Quotes
Average Estimated Quotes Joint Life & Period Certain Options
Income Starts in 1 MonthEst. Monthly Income Life (?)
$2,878Life & 10 Years Certain (?)
$2,880Life & 20 Years Certain (?)
$2,868Life with Cash Refund (?)
$2,8555 Year Period Certain (?)
$11,25210 Year Period Certain (?)
$6,22515 Year Period Certain (?)
$4,81820 Year Period Certain (?)
$3,89225 Year Period Certain (?)
$3,491<li id="recalc-start-date"> Start Date: <li class="recalc-income-premium"> Premium: OR <li class="recalc-income-premium"> Monthly Income: <li id="recalc-person-2">
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Single Life Monthly Income (Female 65) Add to My ReportSingle Life Options
Income Starts in 1 MonthEst. Monthly Income Life (?)
$3,641Life & 5 Years Certain (?)
$3,632Life & 10 Years Certain (?)
$3,594Life & 15 Years Certain (?)
$3,521Life & 20 Years Certain (?)
$3,417Life with Cash Refund (?)
$3,414 Premium $628,000 (Female 65). These quotes are estimates. To get exact quotes, check the “Add to My Report” box next to any annuity options and continue to step 2.
Single Life Monthly Income (Male 65) Add to My ReportSingle Life Options
Income Starts in 1 MonthEst. Monthly Income Life (?)
$3,775Life & 5 Years Certain (?)
$3,804Life & 10 Years Certain (?)
$3,722Life & 15 Years Certain (?)
$3,617Life & 20 Years Certain (?)
$3,483Life with Cash Refund (?)
$3,546 Premium $628,000 (Male 65). These quotes are estimates. To get exact quotes, check the “Add to My Report” box next to any annuity options and continue to step 2.


2
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Your Date of Birth (Female 65)
Your Spouse's Date of Birth (Male 65)

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[pb4uski]

The 20 year annuity ends after 20 years and the $628 is fully paid, either to us or our beneficiaries.

That makes no sense... $31,400*20 years is $628k...you could put $628k in an online savings account and withdraw $2,617/month or $31,400/year for 20 years and still end up ahead because of interest.

 

[Phroig]

The 20 year annuity ends after 20 years and the $628 is fully paid, either to us or our beneficiaries.

$31,400 for 20 years adds up to $628K; the present value of that cash flow is only about $300K at 8% or about $360K at 6%.

 

[finnski1]

That makes no sense... $31,400*20 years is $628k...you could put $628k in an online savings account and withdraw $2,617/month or $31,400/year for 20 years and still end up ahead because of interest.

Agreed. I posted just before you from i mediate annuities.com and the results were significantly better. I think she was simply talking about taking the 628 k and dividing it into 20 years and that's how much they coud spend each year, not what an annuity would pay?

She stated:

"That buyout provides $31,400 for 20 years. Both of us will be 65 this year."

 

[Chuckanut]

She stated:

"That buyout provides $31,400 for 20 years. Both of us will be 65 this year."

Yes, but leaving out the fact that you could be earning interest on the money for 20 years seems like a big slip-up. You could take the lump sum, and immediately starting buying I-bonds and gifting I-bonds to each other for another three years. That alone would help to turn a non COLA deal into a partially COLA'd deal.

Further enhance the COLA portion of your future income by using some of the funds to delay taking SS until 70.

It seems to me that you have a lot of good choices here. These are good problems to have.

By the way, if you have no heirs you wish to leave an estate (granted a big IF), taking SS at 70 maximizes the amount of money you an spend every year.

 

[Rianne]

Starting to think MYGAs are the way to go.

 

[finnski1]

Yes, but leaving out the fact that you could be earning interest on the money for 20 years seems like a big slip-up. You could take the lump sum, and immediately starting buying I-bonds and gifting I-bonds to each other for another three years. That alone would help to turn a non COLA deal into a partially COLA'd deal.

Further enhance the COLA portion of your future income by using some of the funds to delay taking SS until 70.

It seems to me that you have a lot of good choices here. These are good problems to have.

By the way, if you have no heirs you wish to leave an estate (granted a big IF), taking SS at 70 maximizes the amount of money you an spend every year.

Don't disagree with anything you said. Just trying to clear up what Pb was responding to with my own interpretation of what she was said.

 

[pb4uski]

Well if you took the $628k and put it into a 20 year CD/UST ladder that averaged 3%, you could get $3,483/month over 20 years... IOW, the present value of $3,483/month for 20 years discounted at 3% is $628k.... a lot better than $2,617!

Plus, if they both die early then the remaining balance of the CD/UST ladder is inherited by their heirs.

 

[Phroig]

I might be confused, but it doesn’t seem like OP gets $628K to invest today. The choice seems to be $31,500/year joint & survivor lifetime or $31,400/year guaranteed for, and terminating after, 20 years.
Based on my understanding of the facts, OP, I’d take the pension. You’re better off if either you or your spouse is around after 20 years. If not, your heirs still get a substantial legacy.

 

[finnski1]

Well if you took the $628k and put it into a 20 year CD/UST ladder that averaged 3%, you could get $3,483/month over 20 years... IOW, the present value of $3,483/month for 20 years discounted at 3% is $628k.... a lot better than $2,617!

Plus, if they both die early then the remaining balance of the CD/UST ladder is inherited by their heirs.

Yes. Even better.

 

[pb4uski]

I might be confused, but it doesn’t seem like OP gets $628K to invest today. The choice seems to be $31,500/year joint & survivor lifetime or $31,400/year guaranteed for, and terminating after, 20 years.
Based on my understanding of the facts, OP, I’d take the pension. You’re better off if either you or your spouse is around after 20 years. If not, your heirs still get a substantial legacy.

I think she does, but I'll concede that she has been clear as mud.

Originally, we thought we wanted the 100% Joint and Survivor Annuity Lifetime Pension paying $2626/month-$31,512/year (rounded up slightly) from the company, not COLA. They just offered the $628K (rounded up slightly) buyout. That buyout provides $31,400 for 20 years. Both of us will be 65 this year.

 

[copyright1997reloaded]

Starting to think MYGAs are the way to go.

Dunno about the others posting here, but my feeling is that you have not given enough detail regarding the pension option particulars to come to any conclusion.

 

[pb4uski]

If you're looking to generate monthly income, IMO MYGAs are not a good option unless perhaps you combine a MYGA ladder with an online savings account that accumulates annual 10% free withdrawals and maturities and pays out the monthly distributions.

A CD/USTladder would be easier and less complicated, but would not be as high yielding.

 

[Rianne]

Seems I’ve not presented this situation correctly. Bottom line, our choice is:
$628,000 January 1, 2023, one lump sum.
Or $31,500/ year for life, 100% survivorship. I die, DH gets that amount and visa versa. No COLA on January 1, 2023.
Thus our dilemma.

 

[pb4uski]

How old are you and DH at the end of 2022?