Author Topic: What to do with my defined benefit pension?  (Read 2862 times)

Crawdaddy

  • 5 O'Clock Shadow
  • *
  • Posts: 3
What to do with my defined benefit pension?
« on: August 04, 2015, 06:53:21 PM »
Hello. First time poster. I have a $30,000 defined benefit pension from a previous employer that is just sitting there and not really increasing in value. I have the option to cash it out which I don't want to do because of the tax hit or I could start drawing on it right now. I'm 58 years old and think I could make more money with it somewhere else, but I don't know where that somewhere else would be. I'd like to move it somewhere and not have to pay any taxes on it right now and I was hoping I could get some ideas of where I can move it. Or, should I leave it where it is?

Thank you in advance.

Crawdaddy

MoonShadow

  • Magnum Stache
  • ******
  • Posts: 2542
  • Location: Louisville, Ky.
Re: What to do with my defined benefit pension?
« Reply #1 on: August 04, 2015, 06:56:07 PM »
You can roll the cash value into an IRA.

MDM

  • Senior Mustachian
  • ********
  • Posts: 10255
Re: What to do with my defined benefit pension?
« Reply #2 on: August 04, 2015, 07:35:23 PM »
...not really increasing in value.
Crawdaddy, welcome to the forum.

Could you define "not really"?  As in, does the lump sum and/or monthly payment you can take change as you age?  If so, by how much?

Potterquilter

  • Stubble
  • **
  • Posts: 113
Re: What to do with my defined benefit pension?
« Reply #3 on: August 04, 2015, 07:46:40 PM »
Could you roll it over to a low expense IRA with a company like vanguard. There is a bogle heads forum to get advice where to put it. Fees and expenses Can take a huge chunk out of your profits. Perhaps you could outline what this benefit plan does every year.  Does it make a percentage interest?  What is it invested in or does the company just send you a statement that shows a bottom line? 

What are the rules for getting the money out?  Can you take it as x number of dollars a year or does the entire sum need to come out.

Crawdaddy

  • 5 O'Clock Shadow
  • *
  • Posts: 3
Re: What to do with my defined benefit pension?
« Reply #4 on: August 05, 2015, 06:50:26 AM »
Yes, this is some information that was on my statement at the beginning of this year.

Monthly amount at retirement age (Jan. 1, 2023): $300.89
Monthly amount if I started withdrawing now: $163.89
Cash lump sum value now: $29,413.24

Monthly benefits options available:

Single life: $163.89
120 months certain and life:$157.58
50% joint and survivor:$152.54
75% joint and survivor:$147.52

In 2014, the lump sum was $30,214.14. Don't have a 2013 figure.

In 2012, the lump sum was $24,069.42. And....

Single Life $134.21
120 Months Certain and Life:$129.88
50% Joint & Survivor:$125.57
75% Joint & Survivor: $121.66

chubbybunny

  • 5 O'Clock Shadow
  • *
  • Posts: 93
  • Location: Georgia
Re: What to do with my defined benefit pension?
« Reply #5 on: August 05, 2015, 07:06:44 AM »
My opinion, I don't think you should roll it over to an IRA.  From what I can tell from your post, the cash-out value is going down, but your defined benefit is not. 

Those monthly payments (if you took them today), are the equivalent of withdrawing 6.6% annually.  Unless you have health problems, keeping it there and starting withdrawals in 2023 sounds like a pretty good idea (equivalent of 12.3% annual withdrawal). If you were taking 12% out of your IRA, there's a good chance you would run out of money at some point, right?

To me, this decision would be based more on how long I think I might live, the health of my spouse, and how important it is to leave funds for my children. 

KCM5

  • Pencil Stache
  • ****
  • Posts: 877
Re: What to do with my defined benefit pension?
« Reply #6 on: August 05, 2015, 07:18:58 AM »
Do you need the income now?

I'd keep it and start drawing on it when I retire - the rate, assuming 8% growth per year of the $30k, is about 6.6% either way (taking it now or taking it at full retirement age). So it's a guaranteed rate of return and some guaranteed income. Seems like a good hedge. Is the pension inflation adjusted? If so, then I'd really want to keep it around.

Crawdaddy

  • 5 O'Clock Shadow
  • *
  • Posts: 3
Re: What to do with my defined benefit pension?
« Reply #7 on: August 05, 2015, 07:26:02 AM »
No, I don't need the income now. I was really just wanting to get opinions from others that know a lot more about investing than I do to see if I could do better somewhere else. I don't know if it's adjusted for inflation.

Is there any chance that something could happen to the pension and I could lose it all? The company is a healthcare company that has been around longer than me. I'd hate to lose it all knowing that I can grab it now.

MoonShadow

  • Magnum Stache
  • ******
  • Posts: 2542
  • Location: Louisville, Ky.
Re: What to do with my defined benefit pension?
« Reply #8 on: August 05, 2015, 12:49:11 PM »
Is there any chance that something could happen to the pension and I could lose it all? The company is a healthcare company that has been around longer than me. I'd hate to lose it all knowing that I can grab it now.

Well, the risk of failure is not zero, but it's not something to really worry about.  In the event that the company files bankruptcy, it is possible that the pension benefits could be reduced; but a complete loss is very unlikely.  Most pensions are insured by government programs anyway.