Author Topic: Pensions: lump sum or annuity .... hear from lumpsum takers??  (Read 2934 times)

albireo13

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I've got a few modest pensions, which are frozen now ... they don't grow anymore.
I expect to retire in < 18months .. I am 62yo now.
Total current pension lump sum value is $230K and they have the option of lifetime annuity payout.
Most folks I talk to recommend to take the annuity.   There are a few advantages I see to taking the lump sum:

1. peace of mind:  Have heard horror stories of pension plans going under or squandered (Enron).  Investing the lump sum gives me total control.

2. Estate planning:   If I, and my wife, pass away annuity benefits cease.  With the lump sum, the assets become part of my estate and our kids could benefit as beneficiaries.

  I'd love to hear from folks who took the lumpsum approach.   How did it work out?  Did you regret the decision?   
Any words of wisdom?

Thx.
 

Murse

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Re: Pensions: lump sum or annuity .... hear from lumpsum takers??
« Reply #1 on: June 09, 2018, 06:54:57 AM »
For anyone to make a decent recommendation we need to know how much the monthly payout of the annuity is estimated to be? Do you have other retirement moneys other then this? How much and in what? What are your annual expenses?

Linea_Norway

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Re: Pensions: lump sum or annuity .... hear from lumpsum takers??
« Reply #2 on: June 09, 2018, 07:28:32 AM »
I would take the lump sum for the 2 reasons you mention.

If you would put some in a bank account, consider dividing it between different banks so that you get the money back from the guarantee fund if the bank will ever go bankrupt.
« Last Edit: June 10, 2018, 08:36:41 AM by Linda_Norway »

Cassie

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Re: Pensions: lump sum or annuity .... hear from lumpsum takers??
« Reply #3 on: June 09, 2018, 11:28:28 AM »
Do you get COL raises?

albireo13

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Re: Pensions: lump sum or annuity .... hear from lumpsum takers??
« Reply #4 on: June 09, 2018, 12:39:43 PM »
OK, so I have 2 pensions with the following benefits:

                        Lump sum today                Monthly Annuity option
Pension1:                 $86, 463                                              $589.73
Pension2:                 $143,998                                             $929.86

If I pick 100% survivors benefit for annuity, the monthly payout drops by 18% for each.
There is no COLA on the annuities.

I have other retirements savings:
$1.43M    tax deferred accounts  (401K, 403B, IRA, HSA)
$611K     wife's pension as lump sum

We also will have SS income  ($5800/mo combined at FRA)

  Thus, my pension is not a major chunk of our retirement portfolio.

One

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Re: Pensions: lump sum or annuity .... hear from lumpsum takers??
« Reply #5 on: June 09, 2018, 12:56:10 PM »
I saw this book called what to do when I get stupid. Talks about the advantage of the annuity, author has good points.

https://www.amazon.com/What-When-Get-Stupid-Radically-ebook/dp/B00EDWTFU2

albireo13

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Re: Pensions: lump sum or annuity .... hear from lumpsum takers??
« Reply #6 on: June 09, 2018, 01:10:01 PM »
the book looks interesting.  Think I'll get it.
Thx

Cassie

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Re: Pensions: lump sum or annuity .... hear from lumpsum takers??
« Reply #7 on: June 09, 2018, 01:54:47 PM »
With the amount of money you have itís a small decision

TheWifeHalf

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Re: Pensions: lump sum or annuity .... hear from lumpsum takers??
« Reply #8 on: June 09, 2018, 02:46:46 PM »
TheHusbandHalf says that only 2 people, that he knows of in the 27 years he's worked there, have taken the annuity route. He said he's going to take the 450-500k lump sum, and I don't question that. There's a page where we can punch in the numbers, and taking the annuity, 100 % to surviving spouse, would be about $2500/mo.
To be honest, I never asked him why. He's made good decisions for us for 37 years, I trust this one is good too.

albireo13

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Re: Pensions: lump sum or annuity .... hear from lumpsum takers??
« Reply #9 on: June 09, 2018, 02:52:26 PM »
The good thing about the annuity I suppose is that it gives you a mindless, steady income stream. 
  However, I'd be really pi$$ed if the pension funds get messed with 10 years down the road!!!!

  I guess it's part of a growing distrust in the corporation culture.

MDM

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Re: Pensions: lump sum or annuity .... hear from lumpsum takers??
« Reply #10 on: June 09, 2018, 03:13:07 PM »
OK, so I have 2 pensions with the following benefits:

                        Lump sum today                Monthly Annuity option
Pension1:                 $86, 463                                              $589.73
Pension2:                 $143,998                                             $929.86

If I pick 100% survivors benefit for annuity, the monthly payout drops by 18% for each.
The annuity for Pension1 is more favorable than the annuity for Pension2, so if you want to do one of each then taking the Pension1 annuity and the Pension2 lump sum would be best.

See rows 95-115 on the 'Misc. calcs' tab of the case study spreadsheet if you would like to do comparisons.

MayDay

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Re: Pensions: lump sum or annuity .... hear from lumpsum takers??
« Reply #11 on: June 09, 2018, 03:41:19 PM »
I took the lump sum because my monthly benefit was ~50$, and the math showedit was a wash. For 59$ a month it wasn't worth it to me to keep track of a separate set of paperwork and hope the company didn't go under.

Greystache

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Re: Pensions: lump sum or annuity .... hear from lumpsum takers??
« Reply #12 on: June 09, 2018, 04:52:49 PM »
I retired at age 55 and I chose the lump sum option for two reasons:
1. The annuity payout was very low. It was like they were really trying to push me into taking the lump sum.
2. There was no COLA. Chances are my wife and I will life another 30 years. I felt like inflation would make the annuity payments worthless towards the end.  I thought I could do a better job of keeping up with inflation if I took the lump sum and invested it.

Bateaux

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Re: Pensions: lump sum or annuity .... hear from lumpsum takers??
« Reply #13 on: June 09, 2018, 08:21:55 PM »
I'll be lumping most likely.  Current value is 350k.  It earns 5% annually and employer chips in 10.5% of my salary each year.  I won't be eligible for it till june 2023 at age 55.  Even if I leave early for FIRE it will grow at 5% till I take it and reinvest.  There is an annuity option as well.  We'll play the numbers in 2023.

albireo13

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Re: Pensions: lump sum or annuity .... hear from lumpsum takers??
« Reply #14 on: June 10, 2018, 04:15:29 AM »
my MegaCorp froze our pensions about 5 years ago.  They got out of the pension business and pushed everyone towards 401K.

Another thought on survivors benefit ...  I would like to make sure my pension benefits pass on to my wife, if I kick the bucket.
   With the annuity, taking 100% survivors benefit, the monthly payouts drop by 15%.    The lump sum, by its nature, provides 100% survivors benefit ... assuming you make your wife the beneficiary.
Thus, I should really be comparing the reduced annuity payout vs. the lump sum.   That plus, no COLA on the annuity makes the lump sum all the more attractive.

One

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Re: Pensions: lump sum or annuity .... hear from lumpsum takers??
« Reply #15 on: June 10, 2018, 07:43:25 AM »
The only advantage I see to annuities is if you become mentally weak or incapacitated you'll be depending on others to manage your money, with the annuity it seems harder for someone to take advantage or swindle you in a weak state of mind.  I guess you'd call it an insurance policy against your own stupidity.

Bateaux

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Re: Pensions: lump sum or annuity .... hear from lumpsum takers??
« Reply #16 on: June 10, 2018, 08:02:22 AM »
my MegaCorp froze our pensions about 5 years ago.  They got out of the pension business and pushed everyone towards 401K.

Another thought on survivors benefit ...  I would like to make sure my pension benefits pass on to my wife, if I kick the bucket.
   With the annuity, taking 100% survivors benefit, the monthly payouts drop by 15%.    The lump sum, by its nature, provides 100% survivors benefit ... assuming you make your wife the beneficiary.
Thus, I should really be comparing the reduced annuity payout vs. the lump sum.   That plus, no COLA on the annuity makes the lump sum all the more attractive.

Megacorp froze our pension in 2012.  They replaced it pennies on the dollar with the cash balance plan.  Old plan I would have been eligible in 2020 for a sweet Golden Parachute.  That's gone.   Makes me want to control my own money from here on out.

Roadrunner53

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Re: Pensions: lump sum or annuity .... hear from lumpsum takers??
« Reply #17 on: June 10, 2018, 10:00:41 AM »
I would take the lump sum and invest it.

Determine how many years you want it to last and then make monthly or yearly withdrawals.

Find a calculator that will help you determine your numbers. This calculator might not be the right one but you can plug in some numbers and see what you might get. https://www.mycalculators.com/ca/retcalc1m.html

By the River

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Re: Pensions: lump sum or annuity .... hear from lumpsum takers??
« Reply #18 on: June 11, 2018, 07:17:20 AM »
The only advantage I see to annuities is if you become mentally weak or incapacitated you'll be depending on others to manage your money, with the annuity it seems harder for someone to take advantage or swindle you in a weak state of mind.  I guess you'd call it an insurance policy against your own stupidity.

My wife will have the pension/lump sum decision to make in a couple of years.  I believe the math will be to take the lump sum but reading the thread about the elderly defrauded by the guardianships in Nevada and other tales of woe when people's mental acuity is lessened by age leads me to possibly take the pension. 

frugalnacho

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Re: Pensions: lump sum or annuity .... hear from lumpsum takers??
« Reply #19 on: June 12, 2018, 08:37:12 AM »
I would take the lump sum for the 2 reasons you mention.

If you would put some in a bank account, consider dividing it between different banks so that you get the money back from the guarantee fund if the bank will ever go bankrupt.

In the USA bank deposits are insured by the federal government, up to $250,000 per account.  He would be safe putting it all into a single account.

https://www.fdic.gov/deposit/deposits/faq.html