Lump Sum Pension calculator

[thepalmersinking]

I just got a letter from a previous employer that they will be offering a lump sum option in 2023. I am looking for a calculator to determine what I can expect. It’s non cola

 

[Sunset]

Our experience is they offer a non-cola pension, or lump sum, or can mix and take reduced pension and 1/2 the lump sum.

It's tricky to figure out is the lump sum a good or bad deal, and some folks should stay away from the lump sum as they will spend it all in 5->10 years and have nothing. Other folks like terminally ill people should take the lump sum.

 

[TheWizard]

One standard way to evaluate a lump sum is to get quotes from immediate annuities dot com to find what monthly payout you can get per $100k for same conditions.
Conditions include: age at start of payout; joint or single life and if joint, the percentage to survivor; guarantee period, if any...

 

[brett]

When interest rates are higher the cash value of a pension will typically be higher. So will the monthly payments from an annuity.

I took the pension. I consider it to be the fixed income allocation of our investments. I also have longevity in our family.

 

[youbet]

When interest rates are higher the cash value of a pension will typically be higher.
.

I believe you have that backwards brett.

 

[brett]

I believe you have that backwards brett.

You are correct. My mistake.

I had a friend who delayed his retirement by a year. One year later he discovered that the commuted value of his pension(which he intended to take) had decreased during that year by approximately the amount of his salary during that year!

Interest rate had changed.

 

[bada bing]

When interest rates are higher the cash value of a pension will typically be higher. So will the monthly payments from an annuity.

I took the pension. I consider it to be the fixed income allocation of our investments. I also have longevity in our family.

I believe you have that backwards brett.

It's important to know what kind of "pension" you have. Defined benefit plan lump sums move opposite of interest rates. Cash balance plans have set lump sums and the prospective annuity payouts (prior to annuity start) move with interest rates.

I have one of each, the defined benefit value is dropping with interest rates and inflation. The projected payout rate on my deferred cash balance plan has been climbing nicely this year with both mortality credits and segment rate hikes.

 

[freedom2022]

The real value of monthly payment will be reduced substantially, due to high inflation. I think it is better to take the lump sum and invest 50/50 in stocks and fixed income. If the Fed can do magic to get inflation under control in two years, then there will be an option to switch part of the fixed income to annuity later.

 

[Qs Laptop]

Our experience is they offer a non-cola pension, or lump sum, or can mix and take reduced pension and 1/2 the lump sum.

It's tricky to figure out is the lump sum a good or bad deal, and some folks should stay away from the lump sum as they will spend it all in 5->10 years and have nothing. Other folks like terminally ill people should take the lump sum.

Thanks for the 'link'. I am being offered a lump sum payout from a job I held for a while in the 80's. I went to the site you suggested and plugged in my personal information, selected the same terms as my pension payout and learned I should be getting an average monthly annuity payment that was $60 more than what the company is offering me.

I also went to another similar site that had very similar results.

Coupled with the fact that the stock market is way down right now, I'm going to take the lump sum payment option. I feel confident I could earn more money on that lump sum in the next 20 years than the amount of money I would receive from the pension payment for 20 years.

 

[2HOTinPHX]

Here is a couple of good articles on why you might want to take a lump sum now rather than wait.

https://www.forbes.com/sites/leonla...mp-sums-timing-is-everything/?sh=67a5d5926bf5

https://ofdollarsanddata.com/why-you-might-want-to-retire-soon-if-you-have-a-pension/

 

[youbet]

It's important to know what kind of "pension" you have. Defined benefit plan lump sums move opposite of interest rates. Cash balance plans have set lump sums and the prospective annuity payouts (prior to annuity start) move with interest rates.

I have one of each, the defined benefit value is dropping with interest rates and inflation. The projected payout rate on my deferred cash balance plan has been climbing nicely this year with both mortality credits and segment rate hikes.

Agreed, but in this case we knew we were talking about a DBP, hence the answer.