Trooper
Full time employment: Posting here.
Hi,
I have the following options with respect to my pension with MegaCorp. I am 60 years old and in good health.
1) Next month: Take lump sum of $209,181
2) Next month: Receive $1087.97/month for life
3) In 5 years, take lump sum of $266,771
4) In 5 years, receive $1551.14/month for life
In either of the lump sum options I will roll over to an IRA to avoid immediate taxation. IRA to be be invested in 60/40 VTSAX/VBTLX to maintain current AA.
We don't really need the income at this point, as we are living off of taxable portion of portfolio until we take SS.
Analysis I've done:
1) Determined the growth rate of waiting 5 years for a lump sum: 4.98%
2) Determined the rate of return of the earlier annuity: 5.24%. For example 5.24% makes the present value of the annuity payments equal to the lump sum. Time horizon = 35 years.
3) Determined the rate of return of the later annuity: 5.72%. For example 5.72% makes the present value of the annuity payments equal to the lump sum. Time horizon = 30 years.
4) Priced the earlier annuity on immediateannuities.com, and found that I would get $1,001/month (vs. $1,088 from MegaCorp)
I guess the risk in any option except #1 is the solvency risk of the pension plan. Is there a way to evaluate that?
I am leaning toward waiting for five years and then deciding on lump sum/annuity at that time. In the meantime I will get nearly 5% growth, tax free, guaranteed (as long as the pension fund holds out).
Anything else I am missing or failing to consider?
Is there a calculator that folks use for these types of decisions, or do you decide more on gut feel?
I have the following options with respect to my pension with MegaCorp. I am 60 years old and in good health.
1) Next month: Take lump sum of $209,181
2) Next month: Receive $1087.97/month for life
3) In 5 years, take lump sum of $266,771
4) In 5 years, receive $1551.14/month for life
In either of the lump sum options I will roll over to an IRA to avoid immediate taxation. IRA to be be invested in 60/40 VTSAX/VBTLX to maintain current AA.
We don't really need the income at this point, as we are living off of taxable portion of portfolio until we take SS.
Analysis I've done:
1) Determined the growth rate of waiting 5 years for a lump sum: 4.98%
2) Determined the rate of return of the earlier annuity: 5.24%. For example 5.24% makes the present value of the annuity payments equal to the lump sum. Time horizon = 35 years.
3) Determined the rate of return of the later annuity: 5.72%. For example 5.72% makes the present value of the annuity payments equal to the lump sum. Time horizon = 30 years.
4) Priced the earlier annuity on immediateannuities.com, and found that I would get $1,001/month (vs. $1,088 from MegaCorp)
I guess the risk in any option except #1 is the solvency risk of the pension plan. Is there a way to evaluate that?
I am leaning toward waiting for five years and then deciding on lump sum/annuity at that time. In the meantime I will get nearly 5% growth, tax free, guaranteed (as long as the pension fund holds out).
Anything else I am missing or failing to consider?
Is there a calculator that folks use for these types of decisions, or do you decide more on gut feel?