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- Thread starter Bigbass
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- Joined
- Jul 22, 2006

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I’m can elect a non COLA pension of about $3,000 a month for the rest of my life. Or a partial lump sum of $285,000 plus $1,650 a month.

If we assume that the partial lump sum of $285,000 would have a SWR of 4%, that would be $11,400 per annum, or $950 per month to start with. Add that to $1,650 and you get an initial income of $2,600 per month. So at the beginning the pension wins. However, if you do not need to draw on the lump sum and can invest it for five years, assuming the market grows, it will be a better inflation hedge. Given your circumstances, that's what I would do. If the pension had COLA, I would choose that.

+1 on the question if the Pension is COLAd or not, and how much?

Also, if you do take the partial lump sum + smaller monthly benefit, I would ***NOT*** automatically roll it over to my new 401k plan, since many 401k plans don't offer funds that are anywhere near the low-cost that you can find on your own.

I assume both the $3,000 or $1,650 would be non-COLA.

Is there a spousal benefit on the pension? what happens if you die before DH?

If you don't have any other pension income coming, you might want to take the larger pension but only if you have significant liquid assets available for retirement. If you are broke, you definitely need to take the lump sum.

Bottom line, the annuity offer is reasonable given your age and current interest rates. These rates really have no where to go but up so you can probably get a better annuity deal later. Interest rates will have risen and you'll be older.

+1. Exactly the answer I'd give. Now is a bad time to buy an annuity (unless you must) and should be a very good time to take a lump sum - getting quotes of your own should confirm (MichaelB evidently did that already, though up to you to confirm for yourself). If you take the lump sum now, you can invest it tax deferred and buy an annuity when rates are more favorable if you want to (that's what I did in the same situation, albeit my pension was frozen in 1994 and therefore pretty small). If you take the pension now, there's no turning back...taking the lump sum you can have your cake and eat it too IMO!

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- Mar 29, 2007

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If we assume that the partial lump sum of $285,000 would have a SWR of 4%, that would be $11,400 per annum, or $950 per month to start with. Add that to $1,650 and you get an initial income of $2,600 per month. So at the beginning the pension wins. However, if you do not need to draw on the lump sum and can invest it for five years, assuming the market grows, it will be a better inflation hedge. Given your circumstances, that's what I would do. If the pension had COLA, I would choose that.

This is also the way I'd think of it, except that using the SWR of 4%, your payment would increase each year...whereas the non-COLA pension would not. Another factor...if you take the pension at $3k, is it in a trust? In other words, what if the company goes bankrupt? Having the $285k in hand is worth something IMO...and I'd lean that way.

+1... Having the $285k in hand is worth something IMO...and I'd lean that way.

I would roll the lump sum into IRA and watch it grow until you need it.

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