lump sum pension or annuity ... survivor benefit??

[albireo13]

I have a pension coming up when I retire (2019) and can either do lump sum or annuity.

Usually most advice to take the annuity.
However, consider your spouse if you die ....
the lump sum will be totally hers as a beneficiary.

If you you take the annuity, the 100% survivor benefit option drops the monthly payout by 15%+.
That plus the annuity is not COLA.

Will this make the lump sum more attractive??

 

[joeea]

If you want a real answer, you have to provide the specific numbers being offered.

 

[meierlde]

Go to immediateannuities.com and input the lump sum and compare the amount to the annuity pay out. This essentially answers the question of how fair the conversion is, given that the base default payout would be the annuity for a single life. If the lump sum would buy you an annuity close to the annuity offered then the deal is at least fair in terms of comparable value. Then the question becomes also what other assets you have as well. Note for Social Security if one spouse dies and the benefit is higher than that of the surviving spouse, the benefit is increased as a survivor benefit.
It also depends on ones appetite for risk, a lump sum needs to be invested, and you take the risk, the annuity puts the risk on the insurance company/ employee retirement plan.

 

[jazz4cash]

One thing I don't see mentioned very often is what happens if the pensioner survives the spouse. Does the deduction for survivor coverage get credited back to the payout?

 

[pb4uski]

No... typically, once you have accepted the pension amount it continues to ba paid as long as one of you is still living.

 

[CaptTom]

My lump sum option was a joke, it wasn't even close enough to bother researching. Things would get interesting if it were possible to invest or buy an annuity to get comparable returns to the defined pension plan.

I always thought of a pension as similar to insurance. Instead of pooling risk, you're pooling the benefit. Some will die early and get less, some will live longer and get more. But frankly, the ones who die early (along with their spouses in the case of survivor benefits) really won't care at that point. Or, put more kindly, that is a risk worth taking for the benefit of a larger lifetime payout if they did live longer.

So, given a "fair" lump sum option, those who plan (or hope) to live longer are better off taking the annuity, while those with an expectation of an earlier passing should look at the lump sum.

But I could be oversimplifying this.

 

[Red Badger]

In our case, DW is not interested (yet) in investing; AA, re-balancing, etc. So I opted for the 100% survivor option. Of our four retirement income streams, it is the only one non-cola (and is the smallest). Those streams make up about ~75% of our retirement income. The balance is from ~3.5% withdrawals from FIDO. YMMV.

 

[atmsmshr]

My lump sum option was a joke, it wasn't even close enough to bother researching. Things would get interesting if it were possible to invest or buy an annuity to get comparable returns to the defined pension plan.

I always thought of a pension as similar to insurance. Instead of pooling risk, you're pooling the benefit. Some will die early and get less, some will live longer and get more. But frankly, the ones who die early (along with their spouses in the case of survivor benefits) really won't care at that point. Or, put more kindly, that is a risk worth taking for the benefit of a larger lifetime payout if they did live longer.

So, given a "fair" lump sum option, those who plan (or hope) to live longer are better off taking the annuity, while those with an expectation of an earlier passing should look at the lump sum.

+1

 

[Car-Guy]

There are a lot of threads on this site asking the same question. You may want to do a quick search since the answers/ideas don't really change.

For me I took the lump sum which was into the 7th digit. Primary reason was, you just never know if a companies retirement funds will be around in 10, 20 or 30 years to continue to pay out all the annuities.

 

[gamboolman]

We are leaning strong towards taking the Lump Sum from Mega Corp in 2 years when I will be 60 yr old

Lump Sum is estimated to be = ~ $1,268,000

NCOLA Pension with 100% Survivor for the wife if I predecease her = $71,250 per year

Our reason's:
Pension is non cost of living adjusted and we fear inflation

When I run Firecalc with LS vs Pension the LS is better for all scenarios

For us, with our desired spend level - we just are more comfortable with LS and being willing to adjust accordingly if market goes down.

So for us - we are leaning towards taking the Lump Sum.

I reckon we will all know the answer in about 30 years....God willing.....

 

[Jerry1]

When I run Firecalc with LS vs Pension the LS is better for all scenarios

I believe that's because the LS is getting a market rate of return and the annuity is not COL adjusted. Just for another scenario, see if you can put that money just in cash or something that is stable or just covering inflation and see what you get.

I haven't decided yet, but I'm evaluating taking some LS and some annuity. I like the idea of locking in (I realize there's no guarantees in life), a base value of SS + annuity that would equate to a decent (base) living standard. So far, the LS seems to be the better option financially, but I'm struggling with the security part of the equation.

 

[jazz4cash]

No... typically, once you have accepted the pension amount it continues to ba paid as long as one of you is still living.

That was my understanding also, but my pension from mega reverts to the higher payment. That affected my decision.

 

[joeea]

So, given a "fair" lump sum option, those who plan (or hope) to live longer are better off taking the annuity, while those with an expectation of an earlier passing should look at the lump sum.

This is the correct way to think about it.

But as you have learned, the devil is in the details. And to assess "fairness" you would need to understand the amount of the lump sum being offered, the amount of the pension, the amount of the pension with survivor, if there is a COLA involved, and the risk of the pension defaulting.

If the OP were to indicate these amounts, a better assessment could be given. Otherwise, it's just a guess.

 

[pb4uski]

That was my understanding also, but my pension from mega reverts to the higher payment. That affected my decision.

Yes, that is why I said typically...
I know that there's some that do change when the pensioners spouse dies.

 

[Sunset]

We are leaning strong towards taking the Lump Sum from Mega Corp in 2 years when I will be 60 yr old

Lump Sum is estimated to be = ~ $1,268,000

NCOLA Pension with 100% Survivor for the wife if I predecease her = $71,250 per year

Our reason's:
Pension is non cost of living adjusted and we fear inflation

When I run Firecalc with LS vs Pension the LS is better for all scenarios

For us, with our desired spend level - we just are more comfortable with LS and being willing to adjust accordingly if market goes down.

So for us - we are leaning towards taking the Lump Sum.

I reckon we will all know the answer in about 30 years....God willing.....

I calculate the lump sum translates to $65,004 with survivorship, so your Pension offer seems pretty good.
https://www.immediateannuities.com/

 

[CRLLS]

We (I) took the LS when offered. Not because it was the best path on paper. I did look to the long term. I decided to consider the LS and its income of 4% (+annual increases) as part of our LTC backup plan. i.e. more money in the later years. In addition, I'd rather have a 100% survivor continuity plus a benefit that would include a COLA adder. A big part of our choice was due to the pension not being a significant part of our planned income stream. By taking the LS, in the event of both our early demise, it would transfer to our heirs, not available in any regular pension payout. These made the decision to take LS a win-win-win solution for us. YMMV.

 

[flintnational]

OP, I asked the same question a couple of months ago. The tread is here. My decision is detailed in post #70. I was about 60/40 split on the decision and could have made an argument for either case. As others have mentioned, it also depends on the value of the lump sum offer. Some appear to be equitable and others seem low compared to the annuity. For me the steps included, determining the relative value of the annuity and if acceptable, determining which option helps support my overall FIRE strategy.

FN

 

[youbet]

No... typically, once you have accepted the pension amount it continues to ba paid as long as one of you is still living.

Although it is fairly common for the surviving spouse to receive less than 100%, or in some cases even zero.

 

[HarveyS]

Assuming the lump sum offered is a legitimate present value of the pension: If you are disciplined (like most people on this forum) and will invest the money from the lump sum, take the lump sum. Then invest it and live from the principle, cap gains and/or dividends. As you say, if you die, the money becomes part of your estate. However, if you are like most people in the country who spend every dime they get, then leave it in the pension/annuity or you will likely run out of money before you run out of life.

 

[Big_Hitter]

No... typically, once you have accepted the pension amount it continues to ba paid as long as one of you is still living.

sometimes J&S pensions will have a "pop-up" feature which kicks in if the spouse pre-deceases the annuitant

you are correct, this is relatively uncommon in corporate db plans