Author Topic: Lump Sum vs. Pension Annuity  (Read 1179 times)


  • 5 O'Clock Shadow
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Lump Sum vs. Pension Annuity
« on: September 22, 2017, 03:52:50 PM »

I'd appreciate your input on whether I should take a lump sum payment from a former employer (a large national non-profit charity) or hold out for the pension payments in retirement. The lump sum is $118,400. The annuity payments at age 65 would be $1,760 a month. I also have the option to take a $1,266 monthly payment at age 60. Or an smaller, $772 monthly payout at age 55.

I'm 47.5 years old and hope to mini-retire (dropping to three days a week) in a 27 months and fully retire about 4-5 years from now. To bridge the gap between ~52 and 59.5, I will live off of dividend and interest income from other retirement assets and I may utilize the 72t rule if any additional income is needed.

If I take the lump sum, it will immediately be added to my S&P500 indexed IRA so that taxes can be avoided at this time. I like the idea of controlling my money, but I also like the idea of diversification later in life between the annuity, social security and investment earnings.




  • Senior Mustachian
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Re: Lump Sum vs. Pension Annuity
« Reply #1 on: September 22, 2017, 04:28:10 PM »
Much depends on what you will get for "i" and "L" below.

Three ways to evaluate "pension now"  vs. "pension later"
Compare pension payment promised at the later time to either
  - the "Interest generated by Future Value (FV) of the lump sum" (FV principal is not touched), or
  - the "Constant withdrawal of FV over time L" (principal goes to zero), or
  - "Trinity-style withdrawal of FV over time L" (annually inflated spending; principal -> zero)
Lump sum nowPV$118400
Payment starting nowPmt_now0$/payment
Interest ratei5.275%/yr
number of years until annuity beginsn13yr
number of payments/yearfreq12/yr
When payments are made for each ntype00 = at end, 1 = at start
Future ValueFV$228606
Interest generated by Future ValueFV(i,n,P) * i1005$/payment
Longevity of future annuityL30yr
Constant withdrawal of FV over time LPmt_future1266$/payment
Spending growth rate (e.g., CPI)g2.0%/yr
First year (of 30) Trinity-style withdrawalW(FV,L,i,g)11988$/yr
See rows 70-90 of the 'Misc. calcs' tab in the case study spreadsheet to enter your numbers.