Pension Question. Lump sum vs monthly. Early retirement

[rungziggy]

Hello fellow Mustachians, I have yet another pension question/situation to run by you. I've search the forum, but couldn't find the topic that fits my situation. So here it goes. I'm turning 35 this year and have already reached FIRE. I have a vested pension from my former employer and they're offering a lump sum option. All the info I have is below.

If I commence now at age 35
$146.89 monthly or $34,045.03 lump sum

If I wait and commence at age 65
$1,026.57 monthly or $143,317.82 lump sum
Not inflation protected

My previous employer is large and I'm not really worried they won't be here in 30 years. I calculated the yearly return they're giving me from now (age 35) to retirement (age 65) is 4.91% on the lump sum and 6.7% on the monthly. In all my future value calculations the lump sum option at age 35 always yields the best results (assuming I can do better than 4.91% in returns).

I plan to roll the pension into an IRA since I don't need the money now. Am I missing something?

[ender]

Do you need the pension income? I'm assuming you have more than enough assets now.

I'd probably put it into an IRA particularly since your return is relatively low (though guaranteed).

[Acastus]

The best comparison is against a deferred annuity using the current lump sum as the funding source. An annuity is low risk. While you may do better by investing yourself, there is also a higher risk of failure using that route. The annuity will be there. Vanguard annuities looks promising, but I have not used them yet. You can get an industry estimate at www.immediateannuities.com.

[Catbert]

The one that I would NOT do is take the monthly pension now.  $146 a month won't make any real difference in your cash flow now and with inflation will slowly be worth pennies.

[rungziggy]

The one that I would NOT do is take the monthly pension now.  $146 a month won't make any real difference in your cash flow now and with inflation will slowly be worth pennies.

Yeah I quickly ruled out the monthly now. I figured $1000/month in the future is good and secure, but it doesn't keep up with inflation so it's set at $1000/month forever (unless I invest it immediately).

Sent from my SM-G950U using Tapatalk

[PaulMaxime]

If you take the 34K now, invest it at 7% for 30 years you end up with 259K.

I'd take the 34K now.

[Blackeagle]

My previous employer is large and I'm not really worried they won't be here in 30 years.

30 years is a long time.  Plenty of big companies that seemed very solid 30 years ago have gone through bankruptcy or disappeared entirely.

[rungziggy]

My previous employer is large and I'm not really worried they won't be here in 30 years.

30 years is a long time.  Plenty of big companies that seemed very solid 30 years ago have gone through bankruptcy or disappeared entirely.

Good point and very true

Sent from my SM-G950U using Tapatalk

[Prairie Stash]

You already switched everything to compare all values at age 65. Now its a lump vs monthly question.
The problem with monthly payments, you don't have access to the principal.
The problem with lump sum is all the risk is on you, market tanks you have no future income stream.

Would you take all the rest of your stash and buy a product that offers monthly payouts? Probably not, so why would you forgo a pay check of $34,000? Pretend you have a million dollar stash, would you put all of it into this product? You would get annual income guaranteed of $48k, but inflation would be your nemesis for the next 70 years (assuming 2% inflation, that $48,000 would look like $12,000 on your deathbed).

It doesn't matter where the money comes from, once its in your hands its all the same.

[Brother Esau]

If you take the 34K now, invest it at 7% for 30 years you end up with 259K.

I'd take the 34K now.

+1

[Curmudgeon]

I'm facing about the same question: slightly more money, take lump sum now or in 10 years, rate of return for waiting (and taking later as either lump or monthly) is ~5.4%.

I'm very undecided, but for everyone saying 'take it now': This seems to be a fairly safe, long-term investment yielding 5%.  Where else can you get that?  How much are your fixed income investments yielding?

[Catbert]

I'm facing about the same question: slightly more money, take lump sum now or in 10 years, rate of return for waiting (and taking later as either lump or monthly) is ~5.4%.

I'm very undecided, but for everyone saying 'take it now': This seems to be a fairly safe, long-term investment yielding 5%.  Where else can you get that?  How much are your fixed income investments yielding?

.

Now for this one I would definitely take the 10 year deferral and count it as a bond in my asset allocation.  This assumes that I had no need for the money in the next 10 years.  (10 years is very different than 30 years.)