Author Topic: Pension lump sum decision  (Read 958 times)

bada bing

  • 5 O'Clock Shadow
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  • Posts: 11
Pension lump sum decision
« on: September 08, 2016, 02:26:56 AM »
My first post. I've been lurking and reading for a couple weeks.

I have an old pension from an employer I left 10 years ago. The employer
closed the facility I worked at and I was unwilling to relocate to stay with
the company. I was vested for a small pension and the company has never
had an option to lump sum out of the pension plan. The choice has been to
take it as an annuity with the flexibility to start any time after 59.5. This past
year I've been notified that the company has since quit pension benefits for
existing employees for future years of service and intends to dissolve the
existing plan. The options I will be offered in the next couple of months are
a lump sum payment or an annuity contract purchased for me equal to the
pension. I don't know yet what the lump sum offer will be. My pension
annuity is $808 per month starting at age 65 or adjusted amounts for other
starting ages. I've done some research and purchasing an annuity to replace
that pension for me on the open market would be somewhere around $110K-$125K.

My question is should I take the annuity ? I know the general recommendation is
to always lump sum, but I wonder about my situation, especially if they offer a lump
sum significantly less than it would cost to purchase the same annuity for myself. My
thinking is that they may have access to less expensive annuity products than a retail
customer might and may price the lump sum offering accordingly. If I take the lump sum,
I'll roll it into an IRA and invest it in total market index.

Age: 57 male
Single, divorced 11 years ago, no kids.
No dependants or heirs I need worry about.
Working full time till 6-1-2018 or 6-1-2019, my choice
$175K/year W2 wages
$30K/year sideline biz that will continue after I retire
Total liquid investments: $850K = $225 tIRA + $275K taxable + $350K Roth, pretty much all indexed
Pension at current employment = $1150/month @ age 65 or $150K lump today, still accruing
About $400K paid for house. About $200K in marketable side biz assets, no debts.
Total net worth today ~ $1.5mm, growing about $150K/year last 3 years.
Max'ed social security earnings record. I may actually get it ??

I know that my profile suggests a very unmoustachian lifestyle. I have blown a lot of
money over the decades. I've always found it easier to earn more than manage better.
In my defense, I have buckled down and virtually all of my net worth has been accumulated
in the last 10 years. So I'm doing better. Not great but better. I intend to be mostly
retired in 2.5 years at age 59.5, living on $80K/year = $50K from stash + $30K from sideline
until full SSI age.
Given the above, at what discount below retail market price on the
$808/pension annuity as a lump sum offer would I consider taking the offered
annuity instead? I'll be facing a similar situation when I retire with my
existing pension, but my existing plan allows lump sum at anytime after I
retire and is currently 125% funded, so it isn't time sensitive.


  • Magnum Stache
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Re: Pension lump sum decision
« Reply #1 on: September 08, 2016, 07:20:20 AM »
I don't know how we can make this decision without knowing the lump sum value.

I have a similar pension from a previous employer, though I think the current value is only around $25k, but would roll it into an IRA in a heartbeat if I had the option. But I am very aware of my finances and it's not likely that I'd blow through the money. YMMV.