another annuity vs. Lump pension question?? LOL

[albireo13]

OK, I plan to turn on a modest pension very soon, in order to help with cash flow. I just retired last Sept and DW is still working. Thus, our earned income dropped by about 55%. I already have another small monthly pension giving $22K/yr.

Anyway, this other pension gives me the following options:

Lump sum = $305,000
Single Life = $1565/mo
100% Survivor = $1257/mo

I am going back and forth between taking the monthly vs. the lump payment.
We would like to avoid dipping into our existing nest egg over the next 3 yrs, at which point DW will retire. Some of my thoughts below ...

1. We would go for the 100% benefit to ensure DW is covered.

2. immediateannuities.com came up with $1478/mo and $1177/mo, for Single Life and 100% Survivors. This based on $305K annuity. It seems my pension offer isn't too bad (??)

3. Going with the $305K lump, I could tap that to help with cash flow for awhile. If for 3 yrs, I would initially invest heavily in Bond index fund. Allocation can be changed down the road.


I am leaning towards the lump sum right now.
Any thoughts, opinions, advice?

Thx

 

[Midpack]

That is a competitive pension package, congrats. When I faced the same decision in 2011, my MegaCorp pension v lump sum was a wash (even closer). Not surprising since MegaCorp just purchased an annuity on behalf of the retiree, they stopped paying out pensions directly long before I retired. I chose the lump sum because I planned to invest more aggressively than a pension return/payout - and did so.

As long as you believe the pension is/will continue to be well funded (unlike some public pensions that are WAY underfunded), looks like you can't go wrong either way . Just comes down to whether you want to invest a lump sum, or lock in some SI.

Only caveat (part of my thinking in 2011), if you take the pension you're committed forevermore. If you take the lump sum, you can buy an SPIA (equiv to pension) with the money any time in the future whether 1 or 20 years or anything in between - IOW you can change your mind and buy SI later. Yields are very low now, so annuity payouts might improve, but not anytime soon as it appears.

 

[albireo13]

The monthly pension is non-COLA which bothers me somewhat.
The pension is with a large, international Megacorp and is well funded but ... who knows what it will be 15+ yrs from now??!!

 

[CRLLS]

Pretty good package. It is better than Immediate Annuities' numbers which seems to be a rare occurrence.

I would consider your LTC and estate plan. You could, with a 60/40 AA and a 4% withdrawal rate, get 305,000*0.04=1017 which is lower than the 100% survivor. Plus it would have a COLA. I'm not sure if that extra 240 per month is needed for your lifestyle/ expenses. Likely, it would leave something to you heirs if that is a desire in your retirement plan. The lump sum also gives you control of your money should you need more income to cover large, unexpected bills.

 

[Midpack]

The monthly pension is non-COLA which bothers me somewhat.
The pension is with a large, international Megacorp and is well funded but ... who knows what it will be 15+ yrs from now??!!

I assumed both were non COLA, if not my reply would change considerably.

 

[RetireeRobert]

I assume you could/would roll the lump sum into an IRA account to maintain tax deferral.

I also assume you would not be bothered by being responsible for your own investment decisions for the $305000.

If so, go for the lump sum. It gives you more options flexibility for the future. Plus, if both you and your wife go RIP before too many years of payouts, you leave something for your heirs which does not happen with the company pension payments. And you could invest the lump to be inflation protected so as to provide yourself a "cola", which you also don't get with the company monthly payouts.

Your gut instinct you say at this point is "lump sum". Probably the right decision for you. Good luck either way!

 

[pb4uski]

I think it is hard to answer without knowing more about the totality of your situation. For example, if you have little in retirement savings I would favor the lump sum since you already have SS and the other pension. OTOH, if you have a lot of retirement savings I'd lean in favor and put some investment risk off of you and onto the pension plan.

In short, it is a buy a life annuity decision and this one seems fairly priced.

 

[brett]

I decided to take the pension rather than the lump sum for a number of reasons.

I view the pension annuity as part of the fixed allocations of our investment portfolio. The second reason what peace of mind. After eight years I still really like getting that monthly payment. It will not go away and is an integral part of our overall retirement financial plan.

We are also much more likely to spend money on travel and gift to our children that we otherwise might not because we know that we have a steady income.

The final kicker was in my jurisdiction, because of my income level over my final five or six years, about 25 percent of the commuted value would have been taxable in my hands at an incremental rate of 39 percent. Only 75 percent could have been rolled into a retirement fund tax shelter.

After eight years we are very happy we took this route. Our equity investments have done very well during this period, thanks in part to sequence of returns.