Take The Money And Run

[REWahoo]

When it comes to your pension, Bankrate.com advises the safest option is to take the lump sum...

http://www.bankrate.com/brm/news/sav/20050805a1.asp

Guess the only good thing about not having a pension is not having to figure out how to take it.

REW

 

[VoyT]

  That advice has definitely changed ... then again, you can't -- and shouldn't count on anything any more.

    How the heck do you tap a lump-sum pension if you ER?  Roll it into an IRA to avoid the tax bite, then take equal distributions?

 

[sgeeeee]

  . . .

    How the heck do you tap a lump-sum pension if you ER?  Roll it into an IRA to avoid the tax bite, then take equal distributions?

That'll work.

 

[WRBT]

My wife is earning a pension but she won't be anywhere near the min age/service requirement when she calls it quits, so lump sum it's going to be.

It's an incredibly fat deal... they're taking 7.4% of her paycheck out pretax (it just went up from 5%, causing much moaning and groaning from her coworkers but champagne popping from us) and are matching it 100% assuming she stays another 5 years to make the full vesting. They're currently giving an 8% rate of return on the pseudo balance of her contributions.

 

[maddythebeagle]

WRBT: is this a state or corporate pension plan?

 

[deserat]

Two scenarios - I had a friend who "Er'd" but took the lump sum and rolled it over - turns out based on his projections he would have had the same effective amount whether he rolled it over or stayed the extra 10 years to take the full retirement at 65. Now he's working (why the ER is in quotes above) for one of our vendors and has yet another income stream and opportunity to have another retirement plan. Very good decision on his part (except for the not really ERing) financially.

I checked into the ability to rollover a lump sum of the defined benefit pension plan here and there were some very restrictive rules on it as well as a serious penalty for the ER portion. Make sure you check the fine print - for example, the lump sum option is not available until I am 55 or I have worked there for 15 years. Also, there is a 2% per year reduction in the amount assessed for the pension benefit. Also, the interest rate (for lack of a better term right now) used for determining the value of the lump sum as compared to the monthly payments can make a beig difference in how much you get. I believe the lower the current rate, the bigger the sum you get. In any case, as always check the fine print.

Bridget

 

[Robert the Red]

Can't always do it, though (TTM&R).  My wife was a WI state employee for years, and has about $50K in their pension plan.  But at age 55, she can get an annuity based on "her" 50K plus the state's 50K, but if she takes a lump sum, she just gets the her 50K and forfeits the state's contributions.

 

[bosco]

When it comes to your pension, Bankrate.com advises the safest option is to take the lump sum...

Careful now. For example, my pension is worth many times more than what I could cash it out for. Looks like this article was intended mainly for corporate pensions.

Example: when I finally pull the plug on May 1, 2007, the cash value (what I can cash it out for which by state law is only the contributions I made with 3% interest) of my pension will be somewhere in the neighborhood of $120k. At that time I will be 54. Yet it will pay me about 42k for life, plus the entire premium on medical coverage starting as soon as I quit.

Anyone think I should follow bankrates advice?

The advice may be true for private pensions, but far less true for government ones. I realize that even government pensions are coming under attack, but in my case if I only get 3 or 4 years of benefits I will come out ahead.

Now if I could use the US T-bill interest rate to calculate the value using my promised benefit, that might be another matter. But even then, given the medical coverage I would hang on.

 

[Nords]

Yet it will pay me about 42k for life, plus the entire premium on medical coverage starting as soon as I quit. 

Anyone think I should follow bankrates advice? 

Well, if you're saying that you have a state pension then you're probably pretty safe.

Bankrate's advice is based on the recent spate of bankruptcies, underfunded & broken pension plans, PBGC's lack of reserves, and the fact that most of Bankrate's advertisers make money off active investors instead of pension disbursements.

But to exhume a quote from the Orange County derivatives fiasco: "For this investment to fail, the entire county would have to go bankrupt!"

Keep in mind, too, that most company's lump-sum calculations are boosted by low interest rates. With interest rates the lowest they've been in four decades, paranoid pensioners would do well to take a lump sum and sleep better at night. I'd hate to have to analyze the options with 1981's record high interest rates.

 

[bosco]

Well, if you're saying that you have a state pension then you're probably pretty safe.

Yes, that's what I'm saying. I have a state pension.

My point is....it's a serious enough decision that it should be analyzed based on the pension itself, and the regulations that apply (which are evidently quite different between public and private pensions). And if you don't have the inclination or knowledge to do the analysis, then hire someone who does. If the pension comes with some sort of medical coverage, then make sure that that is included in the bottom line, as difficult as this may be to do.

 

[Lancelot]

Low interest rates were a BIG factor in me taking the lump sum...

Lance