Another Lump Sum vs Monthly Pension Question

[pb4uski]

lots of armchair actuaries in this thread - the OP answered his own question with the immediateannuities research

" As suggested in other threads, I did look on immediateannuities.com and to get the same 31K/yr would require just over $700K investment."

Agree... see post #11.

P.S. My post that you quoted was aimed at someone else who prognositcated about future investment returns.

 

[BrianB]

One of the most-asked, most-discussed questions on this forum. Here's my $.02 opinion:

Six years ago we had a similar question, on a smaller scale. DW retired at 55 and had a small pension that we could have taken as a $70k lump sum or $450 per month with 100% survivor benefit. It would have been about 5% of our total nest egg. We opted for the pension and haven't regretted it. The $450 covers our HOA fee, home insurance, and utilities. It is non-COLA so the value will decrease over the years due to inflation, but it's a nice feeling to get that money in the account every month without worry.

Through my adult life we have gone through significant market turmoil about every 10-12 years ('87, '99, '08, and '20). This one is the first time since we retired and I can say that it's a different feeling when you don't have a regular paycheck. While w**king I looked at the big drops as investing opportunities so we kept on piling money in. Now we're not adding to our stash, just trying to keep it from declining too fast. We haven't panicked and sold, but losing over $100k in a day (several times recently!) is truly a gut-wrenching experience when you count on the money being there.

As a lot of people are finding out now, you don't really know your risk tolerance until it's tested.

Brian

 

[jollystomper]

Through my adult life we have gone through significant market turmoil about every 10-12 years ('87, '99, '08, and '20). This one is the first time since we retired and I can say that it's a different feeling when you don't have a regular paycheck.

+1 - Completely agree with this.

I would have been a wreck if I had taken my pension as a lump sum and invested it, having no steady, consistent source of income, when this happened. One reason I chose the monthly annuity is to always have at least steady stream of income for the rest of my life, to add to the "sleep at night" factor for times like these. It is a tradeoff, but as you mention it is also a question of what one can tolerate.

 

[BeachOrCity]

I strongly believe in the value of a multi legged stool when retiring. @ 23% of portfolio the pension is a nice complement to your stocks and bonds. The pension vs lump sum is in the ball park, so not huge difference maker.

You should also present value your social security which as you know is an inflation indexed pension. I suspect that the PV of your pension and SS is over 50% of your NW. That may be a bit high if you like risk.

Don't factor too much "solid company". Your benefit yearly is well under PBGC cut off's so you are federally insured for its full value. So even if company was not so solid, you would be ok.

The change to mortality tables is suspect. Erisa requires not lowering benefit. Before finalizing decision make sure that this change complies with ERISA. Not sure if it does or not. Obvious: Don't ask the company this. Do your own investigation.

Overall I lean slightly take pension. But not critical you do so.

 

[Perryinva]

Any consideration to taking the single annuity and purchasing term life insurance? In my case, that covered both concerns, and the premiums were less than the difference.

If I took 100% survivor and died, DW would be on easy street between my much larger SS and that, plus assets. Humorously, we agreed to the concept of the objective of my life was not to make her a wealthy widow, (isn’t $6k/mo and $1.5M with a $700k paid off home enough?) but to maximize our income while both are alive, and be very comfortable in case of a demise. However, in our case, DW is over 6 years older and has a heart condition, so that factored in to our decision.

 

[pb4uski]

Any consideration to taking the single annuity and purchasing term life insurance? In my case, that covered both concerns, and the premiums were less than the difference. ...

I looked into that.. but for us the numbers didn't work so I went with the 100% survivor option. But if one does look at it then a term insurance ladder is most cost effective since it scales down the life insurance benefit over time to reflect the decreasing cost of purchasing a SPIA to replace the single-life pension.

https://obliviousinvestor.com/laddering-life-insurance-policies/

 

[Big_Hitter]

Agree... see post #11.

P.S. My post that you quoted was aimed at someone else who prognositcated about future investment returns.

yes I'm aware lol

 

[mijoy]

Lump sum represents approx 23% of total portfolio.

Thoughts welcomed....

Just a point about the lump sum. Perhaps you are aware of this.

I do not know about all pension lump sums but some are based on (or at least a factor of) interest rates. My pension payout is something I can look up and get an estimated pension amount based on when I choose to begin. This value is set, it does not change. But my potential lump sum changes substantially. Although this only happens twice a year (I believe). I think it will change again in July. The lump sum payout changes based on interest rates but because it only happens semi-annually, it lags current interest rate changes. Which means (I believe) that my potential lump sum will increase come July with the recent lowering of rates.

Unless they go up again between now and then, which is probably unlikely.

 

[ParFour]

Just a point about the lump sum. Perhaps you are aware of this.

I do not know about all pension lump sums but some are based on (or at least a factor of) interest rates. My pension payout is something I can look up and get an estimated pension amount based on when I choose to begin. This value is set, it does not change. But my potential lump sum changes substantially. Although this only happens twice a year (I believe). I think it will change again in July. The lump sum payout changes based on interest rates but because it only happens semi-annually, it lags current interest rate changes. Which means (I believe) that my potential lump sum will increase come July with the recent lowering of rates.

Unless they go up again between now and then, which is probably unlikely.

Mine is actually opposite. Lump sum is fixed and grows with interest each year. Monthly annuity changes based on when started and mortality tables in use at the time.

 

[dixter]

when I ER'd I looked at the pension money each week and looked at the lump sum and in my case anyway it would have taken me to invest the lump sum every single year and realise a 8% after tax return... I looked around for that investment and didn't like what I saw.. and decided I liked getting paid each and every month while I worked and so I chose the pension... just to let you know... its like getting paid as if your still at work... but you don't have to go into work to get paid... its a cool feeling... and you just add on to your monthly income with your other investments.. its nice to not have to worry about if you get your monthly funds in the bank to pay the bills and yet you have the extra investments to let you enjoy the retirement benefits.. we spent Jan in Cabo, Feb in Aruba and we were going to Cozumel for March... but we are stuck at the moment due to this virus junk... but you get the jest... I worked for that pension, I invested for my fun money... the biggest problem I now have is paying all of the taxes... those will eat into your funds like there is no tomorrow and nothing to show for it when you write the check to the IRS... $1200... what a crock.... thats a slap in the face...

 

[racy]

... the biggest problem I now have is paying all of the taxes... those will eat into your funds like there is no tomorrow and nothing to show for it when you write the check to the IRS... $1200... what a crock.... thats a slap in the face...

Cry baby