Pension v. lump sum: non-financial reasons?

[Big_Hitter]

We do not know what level of income OP is wanting. Maybe she wants something like $60,000 a year. Which could be supplied entirely with a very conservative model from her "other" 70% or $2 million assets, and that $60,000 effectively cola'd to boot. Meaning the $852,000 lump does not need to supply ANY income---which makes SORR on it not only trivial but meaningless.

so you would rather roll the dice on a million when it could otherwise be used in that situation to live in comfort with 2 million in the bank? I don't get it

your risk tolerance is inverted

 

[RetireeRobert]

so you would rather roll the dice on a million when it could otherwise be used in that situation to live in comfort? I don't get it

your risk tolerance is inverted

Well, call my risk tolerance what you will. I retired at age 54 with three kids than ages 7, 11, and 17, and then after FIRE built our dream house and paid cash for it. Still living in it debt free and "quite comfortable", if I say so myself.

 

[Big_Hitter]

Well, call my risk tolerance what you will. I retired at age 54 with three kids than ages 7, 11, and 17, and then after FIRE built our dream house and paid cash for it. Still living in it debt free and "quite comfortable", if I say so myself.

congrats - unfortunately, we don't hear those stories from everyone who actively seeks risk

 

[RetireeRobert]

congrats - unfortunately, we don't hear those stories from everyone who actively seeks risk

There is risk everywhere one looks.

For instance, ChicagoGal may take the pension and "risk" seeing it's non-Cola'd purchasing power shrivel to untenable amounts in 30 years. Whereas with the lump she could stay even with, or most likely, ahead of inflation. With a modicum of investment attention she could grow the lump significantly faster than inflation.

Or she may take the "risk" of that pension amount putting her into an otherwise avoidable extra tax hit year after year. Whereas with the lump, she could turn on and turn off the income from the lump at her will.

Or she may take the "risk" of having that non-growing pension year after year, instead of the lump sum and regretting her decision for the rest of her natural life!

Yes, my friend, perhaps you are the one with an inverted risk tolerance.

 

[Big_Hitter]

Yes, my friend, perhaps you are the one with an inverted risk tolerance.

those are all good points, I just try to eliminate as many financial risks as possible in retirement, not create them - that's called being risk averse, which is prevalent

matching fixed income streams with fixed expense flows in retirement is one way to make it work, but everyone has his or her own coefficient of risk

 

[RetireeRobert]

matching fixed income streams with fixed expense flows in retirement is one way to make it work,

And could not ChicagoGal create her own "fixed income" stream from her lump of $852,000? To match her expense flows?

OR from her other retirement assets of about $2 million?

OR a combination thereof?

While still retaining the flexibility to "turn off" some of that income stream to manage her tax situation, or when she just realizes she does not need "so much" income in any given year? With the pension she is "forced" to take the income regardless--meanwhile losing ground to inflation.

She is in an enviable position, regardless, to have such a "nice" choice to make!!

 

[DayDreaming]

I spent a few years waving between lump sum vs monthly annuity. But recently I took the plunge and started taking my pension as a monthly annuity.

I'm single, healthy, no heirs to leave my money to. My savings are more than enough for me to live on, even without pension or social security. My pension is enough for me to live on even without any other savings. The pension is well funded, but non-COLA, so I realize that years down the road it won't be enough to cover my expenses, but until then, I won't need to touch my savings at all, so those savings will grow even faster for a while. That helped me to decide on the pension as a monthly annuity. I find it very comforting to have the pension payment appear in my checking account each month. And if the market crashes, I still don't have too much to worry about. If I had taken the lump sum option, I'd probably still be okay, but I'd really be sweating out an big dips in the market.

In short, I like the 3-legged stool of pension, savings & social security.

 

[gamboolman]

We just retired effective 1-Feb-21.

We took the Lump Sum from megaoil corp.

The Pension was/is NCOLA and that was the deciding factor in taking Lump Sum.

We are scared of inflation over potential 30 to 40 year retirement.

And while not a driving motive - we hope that we can leave some monies for #1 Daughter, and hopefully some grand babies, when the time comes for ms gamboolgal and I to cross the Jordan...

And finally, on a purely personal basis - I have lost confidence in the Sr. Mgt of megaoil corp and do not trust them for the potential time frame of retirement - if we had elected to take the Pension......but admittedly this may be the onset of " Mean Old Man " retirement syndrome and me telling all the youngsters how we "used to do it".....back in the "old days" ha......

gamboolman.....

Lifes A Dance And You Learn As You Go....

 

[Big_Hitter]

We are scared of inflation over potential 30 to 40 year retirement.

so was my dad when he retired from Hess in 92 - he took the 100J&S and my mom is still getting that check

 

[RetireeRobert]

Would be interesting to hear from the OP ChicagoGal, what her final decision was, and the decisive factors for her final decision whatever it was. As I recall, today was the day her decision was due. And however it went, congratulations ChicagoGal!

 

[ChicagoGal]

Yes, today was my decision day. And my decision was to defer my decision

I am really still torn between the options. Every one of the points people brought up here resonate in some measure or another. I did confirm during my conversation with the retirement specialist that I can defer a decision up until my 65th birthday, so have plenty of time. Realistically, it will only continue to grow until my 62nd birthday, but that's still a few years away. I have funding options in the interim, so I realized there isn't a need to push me into a decision before I'm ready.

I really appreciate all of the input here. Only 8 more days of w*rk until retirement is a reality! I'm sure I'll have many more questions to tap into the collective wisdom here as this process keeps moving forward.

 

[bobbyr]

Yes, today was my decision day. And my decision was to defer my decision

I am really still torn between the options. Every one of the points people brought up here resonate in some measure or another. I did confirm during my conversation with the retirement specialist that I can defer a decision up until my 65th birthday, so have plenty of time. Realistically, it will only continue to grow until my 62nd birthday, but that's still a few years away. I have funding options in the interim, so I realized there isn't a need to push me into a decision before I'm ready.

I really appreciate all of the input here. Only 8 more days of w*rk until retirement is a reality! I'm sure I'll have many more questions to tap into the collective wisdom here as this process keeps moving forward.

good luck and congratulations!

 

[MarieIG]

I like that decision!

 

[meleana]

Roll the lump sum into an IRA

 

[imnontrad]

Can that lump sum be rolled over directly to your traditional IRA without taxes being withheld? that would be your best option.

 

[ERPRECY]

Had the same question 10 years ago when I retired. I’m a control freak so took the lump sum and rolled into an IRA. No regrets.

 

[papaof2]

I chose the lump sum because I didn't think the company would do well in the future. I was correct. Although the IRA took a hit from market events, we've adapted and are still OK for years.

The company didn't do as well, finally being absorbed by one of its former subsidiaries which is NOT friendly to retirees. Better that I have control of the money.

 

[wildsun]

I'm not in the position to take a pension from a large corporation, because I've been self-employed for most of my life. But when I read the "lump sum vs monthly payout" discussions, I am always inclined towards the lump sum.

I'm a business software consultant, and I've worked with hundreds of businesses over my career. I'm very aware that many businesses are poorly managed, don't leverage their resources well, make decisions based on factors aren't the primary drivers for their success, hire the people not suited for their job, etc. And I've worked with business through economic downturns and social and political disruptions that affected their viability. For example, in the 2009, fully half of my client base went out of business, or got bought out by larger companies.

The idea that any business is virtually guaranteed to survive changes over the next 30 or 40 years, doesn't make sense to me. Some of the biggest companies that have existed in my lifetime, are gone and mostly forgotten.

So there is risk in agreeing to a pension payout, and risk in buying "guaranteed income" annuities from an insurance company. In my mind that risk is equivalent to the risk I face if I'm investing in equities. So if the risk is roughly equivalent, I would rather take the lump sum and have some control over the returns.

I think if you've worked for megacorp for a lot of years, its natural to assume that megacorp will outlast you and the pension checks will keep on coming. But there are so many examples of megacorps that no longer exist or were swallowed up by a company that doesn't care about your pension payment.

Wars, pandemics, recessions, political and social upheaval, environmental tragedy, etc. all put that pension at risk, and they have happened repeatedly in our lifetimes.

 

[livingalmostlarge]

Did anyone take the lump sum because they were afraid of investing? I ask because my mom took her pension in 2007 at 55 but I told her to pension it because she can't handle money at all. She has my dad's roth IRA sitting in cash with and advisor. So a pension was the way to go even not COLA. FWIW she's outlived already the lump sum and even if we'd taken it she's outlived it at 69.

Realistically my family is long lived so her mom is 93 and still alive and her grandmother was 101. And most aunts and uncles lived until 90+. My grandfather died at 78 from COPD and pack or two a day habit. His sisters and brothers all died post 90. So I like my mom's chances. In 14 years x $60k/year = $840k. The payout was like $377k. But the money would have been gone and she pretty much I could bet she'd outlive her lump sum.

 

[street]

Did anyone take the lump sum because they were afraid of investing? I ask because my mom took her pension in 2007 at 55 but I told her to pension it because she can't handle money at all. She has my dad's roth IRA sitting in cash with and advisor. So a pension was the way to go even not COLA. FWIW she's outlived already the lump sum and even if we'd taken it she's outlived it at 69.

Realistically my family is long lived so her mom is 93 and still alive and her grandmother was 101. And most aunts and uncles lived until 90+. My grandfather died at 78 from COPD and pack or two a day habit. His sisters and brothers all died post 90. So I like my mom's chances. In 14 years x $60k/year = $840k. The payout was like $377k. But the money would have been gone and she pretty much I could bet she'd outlive her lump sum.

No. I took the lump because I wasn't afraid of investing. My lump sum has grown to 170% in 56 months. That number alone is 85x my expenses. Lump Sum has worked well for me I don't want a monthly check. I enjoy being a pauper. Lumps don't work for everyone thou.

 

[eleighj416]

I took a lump sum when it was offered back in +/- 2008. Rolled it over into my IRA at Vanguard into one of their target retirement funds and let it ride. One of the best moves I made financially.

 

[target2019]

Yes, today was my decision day. And my decision was to defer my decision

I am really still torn between the options. Every one of the points people brought up here resonate in some measure or another. I did confirm during my conversation with the retirement specialist that I can defer a decision up until my 65th birthday, so have plenty of time. Realistically, it will only continue to grow until my 62nd birthday, but that's still a few years away. I have funding options in the interim, so I realized there isn't a need to push me into a decision before I'm ready.

I really appreciate all of the input here. Only 8 more days of w*rk until retirement is a reality! I'm sure I'll have many more questions to tap into the collective wisdom here as this process keeps moving forward.

It's great that your pension will grow a few more years until you're 62. Hopefully all continues on a success path, you grab SS, and there you are!

I guess Friday's your last day? Everyone here is grinning.

 

[pb4uski]

.... The idea that any business is virtually guaranteed to survive changes over the next 30 or 40 years, doesn't make sense to me. Some of the biggest companies that have existed in my lifetime, are gone and mostly forgotten.

So there is risk in agreeing to a pension payout, and risk in buying "guaranteed income" annuities from an insurance company. In my mind that risk is equivalent to the risk I face if I'm investing in equities. So if the risk is roughly equivalent, I would rather take the lump sum and have some control over the returns. ...

WADR, if you think that the risk of electing the pension option is roughly equivalent to the risk of investing in equities then you have no idea what you are talking about.

First, pension funds are segregated from company funds... sort of like funds in a trust... and are subject to strict rules and mostly invested in bonds. If the pension fund were unable to pay the the PBGC would step in.

Second, if the pension fund settles the pension by buying an annuity from an insurance company then insurance companies are very strictly regulated and generally very well capitalized... the risk of an insurance company defaulting on a payout annuity is next to nil and if it did happen then there are state guaranty funds that will step in.

Overall the risk of a pension is more than US Treasuries but less than investment grade fixed income securities.

 

[Perryinva]

I had no choice, pension was the only option. Mainly because retiree healthcare pre-age 65 plus Supplemental Medicare payments per year ($1800/yr MFJ) for life are included. It is comfortable getting a monthly check, that, along with SS, when I file, covers all essentials and then some. It made refinancing my house to 2.5% very easy. No income...no refinancing. If the company offered later, after I was collecting SS to buy out my pension, I would consider it, though.

 

[Exchme]

The choice does not have to be either/or. You can take the lump sum and then use part of it to buy an annuity yourself if you want. There are on line annuity calculators you can use to evaluate options/check the fairness of the company annuity offer, etc.