Pension buyout offer?

[conversationalphrase]

I just received a lump sum pension buyout offer from a previous employer. I only worked there for six years back in the 90's so it's not a lot but still I'm wanting to evaluate the offer to make a smart decision.

Since I was planning on starting to draw in this pension in 2020 I have recent payment information for all of the normal options. To evaluate this I took the monthly pension amount for the 100% survivor option, we are both 61 and in good health so assuming at least one of us will live that long, I applied a 25 year term, and calculated the present value (PV) for various interest rates.

Using the Excel PV formula I find that I would need an interest rate of 3.25% to equal the buyout amount. Since long term treasury yields, "risk free", aren't near that rate I'm concluding the lump sum payout is not a good deal. Note this calculation is very sensitive to term. A 20 year term breaks even at 1.5% and a 30 year term never makes sense at any realistic rate.

Am I looking at this correctly? What are your thoughts?

Notes:
I have no immediate need for the lump sum money.
The lump sum would roll over to an IRA so tax is deferred, although I have slightly more tax deferred money now than I'd prefer.
The company has an A+ S&P credit rating with a stable outlook, and is a Fortune Global 500 company.

 

[pb4uski]

I would get on immediateannuities.com and input the lump sum and fill out the rest ot the form to replicate when your pension will start and see what the joint life benefit is. If it is less than your pension then the pension wins.

I had a similar offer a couple years ago and the lump sum as pathetic.... about 3/4 of the true value backing into the single premium needed to replicate my monthly joint life pension benefit.

 

[conversationalphrase]

I would get on immediateannuities.com and input the lump sum and fill out the rest ot the form to replicate when your pension will start and see what the joint life benefit is. If it is less than your pension then the pension wins.

Thanks, I was looking for a site like that but didn't have any luck. It looks like the company offer is about 12% low. That's closer than I expected.

 

[travelover]

Another factor is if you need to keep your income low for ACA reasons. If the lump sum is fair, it would allow you to delay the payment until Medicare age.