Pension Advice

[FrugalZony]

Looking for some advice from the Math/Pension Wizards around the boards.

I resigned from my job this year to do a trial run at FIRE.
I have a small pension from my former employer and just received the paperwork.

The Pension Options Form says the following:
Lump sum $9.115 if taken in January 2017

Single life annuity $42 monthly
50% Joint and Survivor $41 / 20
75% Joint and Survivor $41 / 30

I thought the annuity would start when I reach retirement age in 2036, but after calling them they confirmed that it would be the sum if I took it right now staring January 2017 until death.

I also checked if they have some sort of extra benefit in retirement (such as discounted health insurance etc.) if I waited until full retirement age, which I know some companies offer. But unfortunately they don't.

The company is a Fortune 500 Company and has been around for quite some time if that makes any difference.

I am wondering what to do.
My gut says to take the $42 now, my math says to take the lump sum and invest it.
Considering I am 20 years ahead of regular retirement age, the cummulative value seems more interesting than just cashing in on the lump sum.
Investing the lump sump would give me roughly $30/month at 4% WDR, plus I'd have the money in my control. It would take 65 years to get to the break even point (monthly $30 plus lump sum, compared to $42 monthly, not taking into account interest) if I am not totally mistaken. But I am not 100% sure if my math is right and if I am comparing apples to oranges..

I know ultimately I am making a longevity bet if I take the annuity.
Is there anything I am overlooking?


I know there are some folks on here, how have this down to a T, please enlighten me!!
Thanks!

[MDM]

I know ultimately I am making a longevity bet if I take the annuity.

Yes, all you need to know is your longevity and the return you will get on the lump sum. ;)

See the case study spreadsheet, 'Misc. calcs' tab, ~cell A94 to check the numbers but I think your choice looks like:


Of course, that's the pure math look.  On that you can overlay issues of pension reliability, your estate, concerns about market crashes or hyperinflation, etc.  Good luck!

[FrugalZony]

Thanks MDM! I knew I had seen something, but I could not locate it anymore, despite searching through older threads!
Appreciate the work on the spreadsheet, just downloaded the latest version.
Going down a buch of other rabbit hole for the rest of the day, LOL!

[Another Reader]

What would the payment be if you deferred the annuity until normal retirement age?

[FrugalZony]

What would the payment be if you deferred the annuity until normal retirement age?

I was wondering about this myself.
When I called to ask, they said the amounts are based on January 2017.
If I wanted a calculation based on other dates I would have to submit that request in writing....
So not sure, but their interest rates are at 1.7% or so, so I don't expect it to grow that much.

[Another Reader]

Submit the request.

[mustachianteacher]

What would the payment be if you deferred the annuity until normal retirement age?

+1

Can you live on your savings now, and just keep the pension payout at bay until age 60?

[FrugalZony]

I don't really need this money now.
I was just wondering about the mathematically optimal solution.

It's a good thing to have a separate source of income, albeit small, in a few years as all my savings are in Vanguard funds right now.
But I like to have control over the money as well.

I'll ask them for a projection at full retirement age just for kicks.
Thanks all

[chasesfish]

I'd recommend looking at Fidelity and see what a replacement annuity will buy with the lump sum.  Does it give you any comfort knowing you have that guaranteed?

I've earned a nice pension at my employer, but I'm 20yrs post FIRE before I can see it, so I would take the lump sum in an instant