Author Topic: Cash out vs monthly payment?  (Read 2793 times)

Abrams1130

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Cash out vs monthly payment?
« on: August 26, 2014, 08:16:54 PM »
Hi all,
What's the best option, to cash out your retirement for lump sum, or  take the monthly payment for life?  The monthly would basically cover the monthly expenses, but I would be losing the interest I could gain on a lump sum. Not to mention, leave it to family later if needed. Whereas, the monthly would stop if something happened to me. I'm confused as to which to choose. I like having it handled by myself, and if the company ever goes bankrupt in the middle of my retirement, I'd already have the funds. Any thoughts mustachians?

Abrams1130

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Re: Cash out vs monthly payment?
« Reply #1 on: August 26, 2014, 08:25:35 PM »
I meant, the monthly option would basically cover 80-85% of my living expenses. I do have a 401k also. If I take the lump sum, I would just be drawing out that amount every year to live off of.

Greystache

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Re: Cash out vs monthly payment?
« Reply #2 on: August 26, 2014, 08:51:50 PM »
I plan to take my pension in a 10 year certain payout.  It is not a huge pension.  If I took the lifetime annuity, it would not cover my baseline monthly expenses and I would have to put a lot more pressure on my other investments ($1.1M portfolio) early in retirement.  I plan to retire at 55. The 10 year payout will give me $45 K a year for ten years.  That is enough to cover my basic expenses and then some.  I will only hit my investments lightly (maybe 2% WR) during the first 10 years.  When the pension payments quit at age 65, I can go on medicare and SS and start hitting my investments a little harder but never more that a 4% WR.
I have looked at several different ways to take my pension payment and I keep coming back to this strategy.  It seems to get the job done with the least amount of risk.

MDM

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Re: Cash out vs monthly payment?
« Reply #3 on: August 26, 2014, 09:13:11 PM »
Hi all,
What's the best option, to cash out your retirement for lump sum, or  take the monthly payment for life?

Need more information.  At least:
  - Size of the lump sum?  Expected investment allocation and annual return?
  - How much will you pay in taxes when you receive the lump sum?
  - Size of the monthly payment?
      - If you go this route, must you start payments immediately? 
      - Or can you defer the start date in return for higher monthly amounts?  If so, how much higher (as a function of start date if possible)?
  - Life expectancy and expected age at retirement?

Of course, values for many of the above numbers will be guesses.  You'll need to learn which have the greatest impact on your situation and how sensitive the "lump sum vs. monthly?" answer is to those values.

 

Abrams1130

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Re: Cash out vs monthly payment?
« Reply #4 on: August 26, 2014, 09:20:49 PM »
It will be between 500-700k. And I can do those 5,10,15,20 year options. The monthly payment would be about $2700-3300.  I am 54 this year, was going to go till 59, maybe. I like 55 or 57 better, but of course it would only be about 350- 425k then.

Of course at 65, SS kicks in as the other poster said above.
« Last Edit: August 26, 2014, 09:30:02 PM by Abrams1130 »

Abrams1130

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Re: Cash out vs monthly payment?
« Reply #5 on: August 26, 2014, 09:29:00 PM »
Life expectancy.... Hoping to live till something like 85-89! (Fingers crossed, lol) If I cash out and put it into a retirement account, I think I will only pay taxes on what I withdraw that year. If I take the monthly payments, I must take the first payment within the next 30 days.

What to invest it in, and expected return? Not sure. Something Vanguard.

MDM

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Re: Cash out vs monthly payment?
« Reply #6 on: August 26, 2014, 09:40:38 PM »
You could copy and paste the table below into cell A1 in Excel, then adjust numbers for your situation.  Interest rate should be treated as "amount above inflation" you would expect to earn on investments. 

Don't know what is meant by "those 5,10,15,20 year options."

rate0.02
nyear20
pmt_mo3000
Total=B3*B2*12
PV=PV(B1/12,B2*12,-B3)
Lump sum550000
Best?=IF(B6=B5,"Either",IF(B6>B5,"Lump sum","Monthly"))

Abrams1130

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Re: Cash out vs monthly payment?
« Reply #7 on: August 27, 2014, 07:33:04 PM »
Thanks MDM!