It seems I haven't seen this topic here before, but forgive me if this has been hashed over a million times.
I have a corporate pension from a company I no longer work for. It promises to pay out $9000/year when I turn 65, which is 29 years from now (I'm 36). From a Mustachian budget level, that number sounds pretty awesome, except that it's not inflation-adjusted, and $9000 in 2042 will barely be enough for a couple of rolls of toilet paper.
Last month, the pension plan opened a window in which we can choose to instead take a lump-sum distribution. The lump-sum offer is $29k. Should I take it?
Here's an analysis I did. I wanted to figure out what size endowment I would need in 2042 to produce $9k of income per year. Playing around in FireCalc, it appears that if I don't make yearly increases in withdrawals for inflation, I can withdraw at about 5.8% to achieve a similar level of 30-year success as the standard 4%-but-increasing-with-inflation withdrawal-rate. $9k is 5.8% of $155k, so to get an equivalent benefit, I would need to turn today's lump-sum of $29k into $155k over the next 29 years. That equates to approximately a 6% annualized rate-of-return.
Given then fact that a 6% rate-of-return of the next 29 years sounds healthy-but-not-impossible, and there is some non-zero chance that the pension could fail to pay out as promised in 29 years, I'm tempted to take the lump-sum (which I would keep tax-deferred in an IRA).
For further background, my investments are currently about $750k (essentially all index funds), my yearly expenses about $22k, and I'm still working. So the choice doesn't have a huge effect on my financial picture, but I still want to make the optimal one. I currently expect no other sources of annuitized income in retirement besides Social Security, so one of my thoughts in favor rejecting the lump-sum would be just to have a sort of diversification in forms of retirement income. I'm planning to live to at least 100.
Are there any factors I'm missing? Anything that makes this decision different for a Mustachian vs. a normal person? I'm assuming the actuaries/IRS calculate the lump-sum amount in such a way as to make the arguments in favor of either decision equal and the choice impossible, but maybe there is a Mustachian-factor that throws the math in favor of one route over the other? (just as it might be an easy decision for a non-Mustachian who "needed" a brand-new Infiniti) Is there any history of pension plans making "better offers" further down the line if enough people don't take them the first time around?