Annuity Options I Never Considered...

[RHONDAVE]

With hopes of relocation and reemployment just around the corner, and just fresh out of the company's retirement seminar, here are some numbers from their sponsored annuities they offer.

Funded Amount : $350000
No Cola
No Spousal Benefit
Annuity Rate 7.75%

Option 1-Life Only $2938.08 per month

20 year only $2799.46 per month

The funded amount is currently in 401K Guaranteed 5% Cash Balance Account.
The funded amount is 21% of our retirement account balance.
I am 62.5 and my DW is 55.99999, Happy Bday Honey.
If this thread gets read, I will post all options available to me,
Thanks

 

[travelover]

............If this thread gets read, I will post all options available to me .........

OK, I read it.

 

[zinger1457]

here are some numbers from their sponsored annuities they offer.

Funded Amount : $350000
No Cola
No Spousal Benefit
Annuity Rate 7.75%

Option 1-Life Only $2938.08 per month

20 year only $2799.46 per month

Not sure how they are able to do it but the life only payout (for someone age 62) is more than 60% higher than what is currently offered to the public for a fixed life annuity so it sounds like a pretty good deal. How does your wife feel about it? If you took that option and died a year later it's all gone, she gets nothing from it.

 

[Dawg52]

I would jump on that if available. (I'm single)

 

[nun]

Something doesn't add up, your annuity has a 10% payout rate. Is it an SPIA type arrangement or are the numbers being inflated by some accounting/investments slight of hand?

As you are married I wouldn't advise you to even consider the single life and the 20 years option doesn't give you any longevity insurance, but if you have other funds that you can save to spend after the 20 years it would be a possibility.

The 5% cash balance account is amazing. If the annuity numbers are correct and it's a simple SPIA I would buy the 20 year option, but keep a portion of the 401k back in the 5% cash balance account is it truly guarantees a fixed 5% return.......but these numbers just sound too good to be true. I advise you to read the fine print carefully.

 

[RHONDAVE]

The numbers are true and exact and administered the STATE government.
SPIA sounds exactly correct. Here are 3 different estimate benefit runs, no cola, with cola and with spouse/cola.

 

[Z3Dreamer]

10% is too good to pass up. Any of them are fine. Not knowing relative health and your aversion to risk, I cannot opine on your personal situation. But, if it was me and it was only 21% of my portfolio, I would go for the No Cola, Option 1 - Single Life $2,938.08.

 

[RHONDAVE]

The reason I post here is to ask questions like "How are you generating the 10%?"

THANKS

 

[Z3Dreamer]

The reason I post here is to ask questions like "How are you generating the 10%?"

THANKS

From your post, I assumed that the state government was covering the investment risk. No?

Clearly, if the annuity is from a reputable company inside a government plan, an above market benefit is being subsidized by your tax dollars.

 

[nun]

The numbers are true and exact and administered the STATE government.
SPIA sounds exactly correct. Here are 3 different estimate benefit runs, no cola, with cola and with spouse/cola.

View attachment 25227

View attachment 25228

View attachment 25229

OK, those number look sensible and are in line with the numbers I have for my MA state pension.

I would go with a lifetime/spouse option, very few married people do other wise and whether you do COLA or no-COLA will depend on you spending profile through retirement and you ability to tell the future. Does your state pension have any death benefit.....sometimes if both parties die early a fraction of the actuarial account balance is paid to heirs.

 

[nun]

There are some inconsistencies in your posts. If you are working for a state government then you won't have a 401k......it will probably be a 401a. Do you also have 403b or 457 accounts? Is this pension/annuity actually a state pension or an annuity through someone like TIAA-CREF? The latter would surprise me because the numbers are so nice.

 

[pb4uski]

Those numbers seem way too good to be true.... the IRR for the 20 year annuity is 7.41% by my calculations.... who is the guarantor and what is their creditworthiness?

At a minimum... take the 20 year fixed... it is like investing in a 20 year mortgage paying 7.41%.

The joint life with 15 years certain looks very good too.

 

[RetireAge50]

Here is a link that might be a piece of the puzzle:

https://www.irs.gov/retirement-plans/minimum-present-value-segment-rates

My corporate pension uses the Sept rates in the graph to calculate the present value of my pension during the following year. Since the rates are low the lump sum options (less than life payouts) are high.

 

[nun]

Those numbers seem way too good to be true.... the IRR for the 20 year annuity is 7.41% by my calculations.... who is the guarantor and what is their creditworthiness?

At a minimum... take the 20 year fixed... it is like investing in a 20 year mortgage paying 7.41%.

The joint life with 15 years certain looks very good too.

That IRR agrees with the one I calculated for my MA state pension. I took $280k to buy a single life benefit of $20k/year starting at age 55 with a 2% COLA. If I live to 83 the IRR is 7.4%

 

[nun]

FYI I put my numbers for the MA state pension into the Nebraska State pension calculator and the results are very similar. Both calculations are COLAed, start at age 55 and are based on $280k.

Nabraska Life Only $1,645.74

MA Life Only $1677

 

[haha]

Clearly, if the annuity is from a reputable company inside a government plan, an above market benefit is being subsidized by your tax dollars.

Not exactly. The retiree is a big net gainer. All other taxpayers who are not government employees are net losers.

Ha

 

[nun]

Not exactly. The retiree is a big net gainer. All other taxpayers who are not government employees are net losers.

Ha

Nebraska is generous in it's contributions as it pays in 60% and the employee contribution is 40%. The pension is 90% funded. It sounds like a well run plan and one that Nebraska and it's tax payers should be proud of.

 

[RHONDAVE]

Our retirement contribution as employees is set @ 4.8% and the State matches @ 156%.
I have the option to stay in the 5% guarantee account until 70+, those employees still in DCP just had their annuity rate drop to 2.75% but we are assured the cash balance 7.75% will hold through the year.
My initial reaction to the benefit estimators was to go with the life @ almost $3000/mo. My DW would have even more incentive to keep me healthy.
Not sure how to handle the COLA, No COLA.

 

[nun]

Our retirement contribution as employees is set @ 4.8% and the State matches @ 156%.
I have the option to stay in the 5% guarantee account until 70+, those employees still in DCP just had their annuity rate drop to 2.75% but we are assured the cash balance 7.75% will hold through the year.
My initial reaction to the benefit estimators was to go with the life @ almost $3000/mo. My DW would have even more incentive to keep me healthy.
Not sure how to handle the COLA, No COLA.

That's a great contribution deal. In MA the employees must contribute 11% and the state only kicks in 5%. Do you have a good feeling about Nabraska honoring it's commitments to retirees and have they been good about COLA? If so I'd go with the COLA with spousal benefit.

I had a choice between a lump sum of $280k or the MA state pension starting at age 55. I'm single so I chose the single life pension which is $1650/month. The MA pension has been around since the 1920s, they have a good history of COLAs with last year's being 3%, they have never reduced the benefits for those already retired, MA just reduced the retirement benefits for new employees (bad for them but it doesn't change my benefit), they have a pension investment board that is transparent and well run. It is 70% funded with a goal of 100% funding before 2030.

As Nebraska pension is 90% funded you should have no worries.

 

[RHONDAVE]

I thought it would be a good idea to bring up the annuity tax withholding options from my 414H account if and when its purchased, but my CPA does not like it. He also did not like the 5% certain return that I can keep until 70.5 years in this retirement account if I don't choose the annuity option. Thanks for all the responses.

 

[nun]

I thought it would be a good idea to bring up the annuity tax withholding options from my 414H account if and when its purchased, but my CPA does not like it.

What do you mean? You can set the level of withholding tax by filing a W-4P

He also did not like the 5% certain return that I can keep until 70.5 years in this retirement account if I don't choose the annuity option. Thanks for all the responses.

Am I right in thinking that if you defer the pension that your account balance is guaranteed to grow at 5% per year? If so have you done a comparison of the pension you could buy now and the pension is a few years with the larger lump sum? I feel that the utility of having the pension asap often out weights having higher payments for a shorter time.

 

[RHONDAVE]

I can not compare the annuity option at a future date versus the 7.75% rate that will hold through this year. We do not know future rates. The DCP rate has now dropped for the annuity to 2.75%.

Yes, I may keep this account for future annuity purchases, but rates will not hold. When I do touch it, it must all be rolled over.

 

[nun]

I can not compare the annuity option at a future date versus the 7.75% rate that will hold through this year. We do not know future rates. The DCP rate has now dropped for the annuity to 2.75%.

Yes, I may keep this account for future annuity purchases, but rates will not hold. When I do touch it, it must all be rolled over.

If you can buy the annuity at a discount rate of 7.75% do it! Looking back I see that the payout rate on the single life annuity is 10%...that's a deal not to be missed. But I would go for a pension with a spousal benefit rather than the single life.