Minor Pension Decision

[Hopeful]

I have a small pension from an employer that stopped contributing to it years ago. I realize the amount is small, and it probably doesn't mater much, but I was looking at the numbers there other day.

Current age 50, DW 56 Assume average life expectancy

NO COLA 100% survivor benefit

Take today at 50yo $189 month
Take at 55yo $222 month
Take at 65yo $317 month

It seem to me to be increasing at approx 3.25% per year. I was thinking it might just make sense to start taking it now, but certainly don't mind waiting. I have the feeling it doesn't matter much either way. Wondering if I could get input from others who are better with number than I. Thanks

 

[Rianne]

Oh heck! Take it now. It may not be there in a few years. We made that decision about a pension buy out. Although, I do believe it’s better to wait til 70 for SS, even though we’re not sure it will be there for us.

 

[FI_RElater]

With no COLA and 100% survivor, while not doing the calc I'd expect the age 50 and 55 to be similar NPV but the age 65 to not be; money is "fungible" and at that level I would just start at 50 and if not immediately needed I can get 4.7% nominal now for one year and a bit lower for two years.

 

[pb4uski]

You could back into the current value of each alternative on immediate annuities.com. If the values are all reasonably comparable then pick any one, if one is significantly better (higher value) then consider that alternative.

 

[Andre1969]

I had one of those small pensions, that would have given me about $350/mo, non-inflation-adjusted, when I turned 65, which is in 2035. I think I could have taken it early, but I forget what the reduction was.

Anyway, in 2014, they offered to do a buyout, of $14,727. If I took that buyout and invested it, it would have to grow to $105,000 by 2035, if I wanted it to throw off $350/mo, assuming the 4% safe withdrawal rate.

It probably wouldn't, but I figured if they were offering buyouts, chances are they were trying to jettison the pension completely, and would find a way to do so. And the next offer might be worse.

So, I took it. I was able to combine it with an existing IRA, so I deferred the taxes on it. And now, here it is, a bit over 8 years later, and that account is up by around 50%. So I figure that $14727 portion of it is worth around $22,090. I seriously doubt it'll grow to $105,000 by 2035, but at least I know it will be there. Unless I do something really dumb, investment-wise. That pension might not be.

 

[Aerides]

I take it there's no lump sum version? Given no-cola, I'd start it sooner than later.

 

[FlaMariner]

I'd take it as soon as I could....

Why?

There is no COLA so the $$$ are worth less each year you wait.....And the 3.25% increase each year until you pull the trigger is still lower than today's inflation so money is being de-valued there as well.

Blow that dough!

 

[Hopeful]

Thanks for all the input. It is all very helpful. I probably should have put the current lump sum payout in the initial post. I just looked and the current payout would be $57,806 now, or $67,943 at age 65.

 

[Bamaman]

Drop the $ into a savings account and take a big trip when you get enough $. Or spend it on something frivolous.

 

[rodi]

I had a similar decision. I was also offered a buyout but when I plugged it into immediate annuities . com it turns out the pension paid more than the buyout offer. I was still on the fence and the next buyout offer comes in, and it's even worse. Finally, at age 55, I turned on the pensions. (I have two, from the two versions of the same employer after we were acquired and the first pension was frozen.) It adds up to about $450/month... no enough to retire on, but enough to pay most utilities.

Most of my former coworkers took the buyout.

 

[pb4uski]

I have a small pension from an employer that stopped contributing to it years ago. I realize the amount is small, and it probably doesn't mater much, but I was looking at the numbers there other day.

Current age 50, DW 56 Assume average life expectancy

NO COLA 100% survivor benefit

Take today at 50yo $189 month
Take at 55yo $222 month
Take at 65yo $317 month

It seem to me to be increasing at approx 3.25% per year. I was thinking it might just make sense to start taking it now, but certainly don't mind waiting. I have the feeling it doesn't matter much either way. Wondering if I could get input from others who are better with number than I. Thanks

You could back into the current value of each alternative on immediate annuities.com. If the values are all reasonably comparable then pick any one, if one is significantly better (higher value) then consider that alternative.

For a 50yo male and 56yo female in WI, I get values of:

immediately/age 50... $189/mo...$39,930
defer 5 years/age 55... $222/mo... $37,103
defer 15 years/age 65... $317/mo... $27,970

which would suggest that taking it now is the financially optimal alternative.

 

[Aerides]

Thanks for all the input. It is all very helpful. I probably should have put the current lump sum payout in the initial post. I just looked and the current payout would be $57,806 now, or $67,943 at age 65.

Now it's a no brainer - take the lump sum. You can put it in a CD and do better than waiting.

 

[Hopeful]

For a 50yo male and 56yo female in WI, I get values of:

immediately/age 50... $189/mo...$39,930
defer 5 years/age 55... $222/mo... $37,103
defer 15 years/age 65... $317/mo... $27,970

which would suggest that taking it now is the financially optimal alternative.

Thanks for the analysis. It would seem that with a current lump sum of $57,000 it would be an even more financially optimal to take the lump sum and purchase the immediate annuity rather than taking the pension.

 

[DrRoy]

If you take the lump sum now, and find something paying 5%, that's $240/mo.

 

[JoeWras]

I asked a similar question a while ago for a similar non-cola pension. The good people here did the annuity calculation for me and it turns out mine is a little friendlier at 65, but I think I'm going to take it early, what with all this inflation going on.

One important thing for OP I'm not sure is mentioned. TAXES. If you are in a high bracket now, that could factor into your decision. For those of us with no significant income, it isn't a factor.

 

[pb4uski]

Thanks for the analysis. It would seem that with a current lump sum of $57,000 it would be an even more financially optimal to take the lump sum and purchase the immediate annuity rather than taking the pension.

You better double check the numbers on immediateannuities.com. It is rare that the lump sum is so much better that the pension, which makes me wonder if there is a miscommunication somewhere.

 

[badatmath]

pb4uski, I tried to do that using my figure for a thing at 2101 monthly at 55 and 2272 at 56 and it rather looked like waiting was better. Am I doing it wrong?

Not even sure that is an option for me.