convergent
Dryer sheet aficionado
I am struggling with what to do about a pension fund that I have (IBM plan) and would like to get opinions from folks here.
Situation:
I'm married and my wife and I are both 54. I retired from IBM after 31 years about 3 years ago (but still working full time) and was on their "new plan" which is just a cash balance fund. We have about $900K in 401K, IRA, Roth, and brokerage accounts and I'm investing heavily while still working. We are totally debt free and have a paid for house worth about $350K. We have one (of four) kids still in college and money set aside for that. I don't plan to retire until at least 5 years from now.
When I left IBM, I was given a document outlining the pension fund options, and have gotten updated documents several times since. The two I'd consider are lump sum or 100% joint/survivor annuity. The complication is that because of my specific situation with IBM, I get an "enhancement" to the annuity payment which makes it a tough choice.
When I left three years ago, I could have initiated:
Lump sum payout = $231K
or
Annuity + Enhancement of $991 + $501 = $1492/month
Now, I could initiate:
Lump sum payout = $239K
or
Annuity + Enhancement of $1110 + $431 = $1542/month
This fund is growing at a rate based on the T-Bill, so practically nothing. The enhancement will keep diminishing over time... in 5 years it will be down to $279/month. But if I start the annuity payments, its locked in for life.
If I cashed out at $239K now, it would need to grow, assuming 8% investment growth and 4% retirement draw, for about 13 years to net the same draw that the annuity would give me today. If I instead started the annuity payment now and invested 100% of it, it would grow to about $75K in 5 years and would give me an extra $250 a month draw, or obviously more if I retired later. The $75K figure is assuming after taxes investment.
So my first thought was always to just lump sum out and invest it, but I've been on the fence for these years watching how it behaves and looking at the enhanced annuity payment seems the better option. I do have a good income now, so I would really invest 100% of the annuity payment. But even if I didn't invest it and just spent it, it still seems like the better financial choice.
What do you think?
Situation:
I'm married and my wife and I are both 54. I retired from IBM after 31 years about 3 years ago (but still working full time) and was on their "new plan" which is just a cash balance fund. We have about $900K in 401K, IRA, Roth, and brokerage accounts and I'm investing heavily while still working. We are totally debt free and have a paid for house worth about $350K. We have one (of four) kids still in college and money set aside for that. I don't plan to retire until at least 5 years from now.
When I left IBM, I was given a document outlining the pension fund options, and have gotten updated documents several times since. The two I'd consider are lump sum or 100% joint/survivor annuity. The complication is that because of my specific situation with IBM, I get an "enhancement" to the annuity payment which makes it a tough choice.
When I left three years ago, I could have initiated:
Lump sum payout = $231K
or
Annuity + Enhancement of $991 + $501 = $1492/month
Now, I could initiate:
Lump sum payout = $239K
or
Annuity + Enhancement of $1110 + $431 = $1542/month
This fund is growing at a rate based on the T-Bill, so practically nothing. The enhancement will keep diminishing over time... in 5 years it will be down to $279/month. But if I start the annuity payments, its locked in for life.
If I cashed out at $239K now, it would need to grow, assuming 8% investment growth and 4% retirement draw, for about 13 years to net the same draw that the annuity would give me today. If I instead started the annuity payment now and invested 100% of it, it would grow to about $75K in 5 years and would give me an extra $250 a month draw, or obviously more if I retired later. The $75K figure is assuming after taxes investment.
So my first thought was always to just lump sum out and invest it, but I've been on the fence for these years watching how it behaves and looking at the enhanced annuity payment seems the better option. I do have a good income now, so I would really invest 100% of the annuity payment. But even if I didn't invest it and just spent it, it still seems like the better financial choice.
What do you think?