This is my first post here. I am very recently retired and just discovered this site. I need to make a final decision on my pension payout within the next 2 weeks I have read through several threads here and on Bogleheads but I am still struggling with this decision so I thought I would post here for some feedback. Below is some information about me and my current thought processes regarding this decision. Have I missed anything? Is my thinking flawed about one of these issues? I know this is a very individual decision but what would you do if you were me and why?
I am 61. I do not want to plan for a legacy. In addition to my pension I have ~ 1.6 million in savings (almost all in 401k). I plan to delay SS to age 70.
In the past several years I have spent ~ 75k/year (this includes taxes, and some travel already). I would like to increase that to around 90k to allow for increased travel in my early years of retirement.
My pension payout choices are as follow:
- a non-COLA’ed PHBC guaranteed annuity of 74.5k/yr OR
- a lump sum of 1.1 million
- It is one or the other, no option to take some as an annuity and some as a lump sum.
So here are my current thoughts:
- My goal of increased spending in earlier years seems to favor the annuity. Mostly because I think I will feel safer spending with the annuity. My spending goal will require a ~1% WR. If market does well I would feel comfortable increasing that to a 2-2.5% WR . I would be fine on the annuity alone if the market declines. With the lump sum planned spending of 90k/yr would be a 3.85% WR, decreasing once SS kicks in. However, unless the market was doing really well I don’t think I would feel comfortable spending more but maybe that is being too frugal.
- Tax implications would favor the lump sum. I could better optimize income in early years allowing more ROTH conversions.
- Simplicity: favors annuity, it is essentially a paycheck
Considering risks:
- Longevity (most family members have live to late 80's and some to late 90's, even 100): given inflation risk of non-COLA’ed annuity and market risk of lump sum I am not sure how this plays out. Lump sum might provide more income in later years if the market does well.
- Cognitive decline with aging: favors annuity as much simpler overall. I would not have to manage my investments to support spending.
- I think my biggest risk with the annuity is inflation as my pension is non-COLA’ed. I feel like the default risk is minimal.
- Biggest risk of lump sum is obviously market risk (sequence of return risk)
Your thoughts would be much appreciated.
I am 61. I do not want to plan for a legacy. In addition to my pension I have ~ 1.6 million in savings (almost all in 401k). I plan to delay SS to age 70.
In the past several years I have spent ~ 75k/year (this includes taxes, and some travel already). I would like to increase that to around 90k to allow for increased travel in my early years of retirement.
My pension payout choices are as follow:
- a non-COLA’ed PHBC guaranteed annuity of 74.5k/yr OR
- a lump sum of 1.1 million
- It is one or the other, no option to take some as an annuity and some as a lump sum.
So here are my current thoughts:
- My goal of increased spending in earlier years seems to favor the annuity. Mostly because I think I will feel safer spending with the annuity. My spending goal will require a ~1% WR. If market does well I would feel comfortable increasing that to a 2-2.5% WR . I would be fine on the annuity alone if the market declines. With the lump sum planned spending of 90k/yr would be a 3.85% WR, decreasing once SS kicks in. However, unless the market was doing really well I don’t think I would feel comfortable spending more but maybe that is being too frugal.
- Tax implications would favor the lump sum. I could better optimize income in early years allowing more ROTH conversions.
- Simplicity: favors annuity, it is essentially a paycheck
Considering risks:
- Longevity (most family members have live to late 80's and some to late 90's, even 100): given inflation risk of non-COLA’ed annuity and market risk of lump sum I am not sure how this plays out. Lump sum might provide more income in later years if the market does well.
- Cognitive decline with aging: favors annuity as much simpler overall. I would not have to manage my investments to support spending.
- I think my biggest risk with the annuity is inflation as my pension is non-COLA’ed. I feel like the default risk is minimal.
- Biggest risk of lump sum is obviously market risk (sequence of return risk)
Your thoughts would be much appreciated.