What I'm asking is, let's say my husband is 64 years old and we don't need the money that year, or my husband is 69 and only needs a few thousand dollars out of that account for a year, is that something that can be done...?
We'll take the easiest one first: with some exceptions that most likely will not apply to you, the answer is "yes".
We won't be taking the immediate annuity amount as that would put us in a higher tax bracket, and we would basically receive 1/3 of the amount on a monthly basis due to taxes.
Wow! A 67% tax rate? Are you sure?
And now, we have a few options. [1]Roll it over, [2]wait until his normal retirement date and take a monthly payment then, and [3]take an immediate annuity amount.
...
I'm assuming there is a calculator on the web that will give this info?
There are multiple ways to analyze this. Comparing your options to the cost of buying a commercial annuity is a good reference point. You can also do some what-if?s on your own.
E.g., the chart below looks at the option between a $400K lump sum and $30K/yr with no COLA. This would compare your option #1 with option #3.
To look at option #1 vs. option #2, consider the following:
One way to evaluate "pension now" vs. "pension later" |
Compare pension payment promised at the later time to either |
- the "Interest generated by Future Value" (Future Value 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 now | PV | $400000 | |
Payment starting now | Pmt_now | 0 | $/payment |
Interest rate | i | 5.0% | /yr |
number of years | n | 5 | yr |
number of payments/year | freq | 1 | /yr |
When payments are made for each n | type | 0 | 0 = at end, 1 = at start |
Future Value | FV | $510513 | |
|
Interest generated by Future Value | FV(i,n,P) * i | 25526 | $/payment |
Longevity of future pension | L | 30 | yr |
Constant withdrawal of FV over time L | Pmt_future | 33210 | $/payment |
|
Spending growth rate (e.g., CPI) | g | 2.0% | /yr |
First year Trinity-style withdrawal | W(FV,L,i,g) | 25110 | $/yr |
| | 2092 | $/mo |
In other words, depending on the assumptions you choose, the $400K lump sum now might be "worth"
- $25,526/yr forever, or
- $33,210/yr for 30 years (and then the payments stop), or
- $25,110/yr, increasing by 2%/yr, for 30 years (and then the payments stop).
See the 'Misc. calcs' tab in the spreadsheet you can download from
http://forum.mrmoneymustache.com/ask-a-mustachian/how-to-write-a-%27case-study%27-topic/msg274228/#msg274228 if you want to enter your own numbers.