At retirement age of 62, should my wife take a $190K lump sum payment or $1700 monthly payments for life?

F dude. 17K a month?! Are you insane? Take the monthly.

Monthly, of course. Find out if it is transferable to a surviving spouse.

Assume you mean 17k annually? Technically, you should evaluate by running an NPV analysis and look at the break even point assuming assuming a 2-3% discount rate. If you want to play for higher risk / higher return with your investments, then take the lump sum. Alternatively if you aren’t disciplined about saving/investing, taking the annuity is a bit of a forced savings program.

Ooops!!! Sorry, $1700/mo.

Chauvinist Pig wrote:

Looking for advice on this. My wife has this choice to make a few months from now regarding her retirement package from the World Bank. She is in fair to good but not great health. Main health risk factors are that she smokes a few cigarettes a week, has high cholesterol, is a little overweight, somewhat limited on her activity level due to lower back issues, and not too good at managing stress. My gut tells me we should take the lump sum but interested in hearing what you think and why. Also, we've been married 30 years and don't see us parting ways.

I am assuming $17,000/annually, joint life on spouse would reduce annual amount. The option on joint life, or 50% survivor benefit should be also outlined in the options. As it stands as a question, to beat the $17,000/annually your wife would have to live longer than 15 years, and get at least a 4% return. Now one would say 4% return is easy, perhaps not. Most sober projections are for very low returns, perhaps even negative over the next ten years. That said, if the annuity is the choice, take the joint with 50% to survivor on account of your wife’s health and habits.

What’s your financial status outside of this? Do you have any high interest debt? If not great, I’d take the lump sum.

If you have no mortgage and plenty of other savings, I’d go monthly payments. I don’t love the stock market right now, especially for a 62 year old investor.

Certainly tough to pass on the cash now, though.

Chauvinist Pig wrote:

Ooops!!! Sorry, $1700/mo.

Correction on my calculation and at $20,400/annually, 4% interest, $190,000 principal, your wife would need to live 12 years. Everything else stands.

Middle Class wrote:

What’s your financial status outside of this? Do you have any high interest debt? If not great, I’d take the lump sum.

If you have no mortgage and plenty of other savings, I’d go monthly payments. I don’t love the stock market right now, especially for a 62 year old investor.

Certainly tough to pass on the cash now, though.

We've got about $700K in savings in Schwab IRA/SEP IRA accounts, I make about $150K/yr and plan on working another 10-15 yrs, have a 92 yo mother with about $500K in Schwab accounts in her will for me (this will not be touched regardless of how long she lives), two grown-up kids who are fairly independent.

I owe $60K on student loans at 2.8% interest rate, mortgage of $280K at 2.7% interest rate on $350K home.

That's pretty much it.

How long will she live? If 40 years, take the monthly. If less, take the lump sum and invest wisely.

Thanks for your advice, Ghost. I will explore this option further.

Everydog!1 wrote:

Monthly, of course. Find out if it is transferable to a surviving spouse.

Yes. She designated both options transferrable upon her death to myself or our children if I pass before her.

yahoo1991 wrote:

Assume you mean 17k annually? Technically, you should evaluate by running an NPV analysis and look at the break even point assuming assuming a 2-3% discount rate. If you want to play for higher risk / higher return with your investments, then take the lump sum. Alternatively if you aren’t disciplined about saving/investing, taking the annuity is a bit of a forced savings program.

Thanks for your thoughts on this. These are things I will think on.

Chauvinist Pig wrote:

Everydog!1 wrote:

Monthly, of course. Find out if it is transferable to a surviving spouse.

Yes. She designated both options transferrable upon her death to myself or our children if I pass before her.

Is this is legit, $1700/ transferred to children would be amazing. Doesn’t sound accurate though, you should double check.

I think he meant 17K a year . . . . . .

17K a month would be insane!

bauskern wrote:

I think he meant 17K a year . . . . . .

17K a month would be insane!

I meant $1700/mo. My bad.

RunRagged wrote:

Chauvinist Pig wrote:

Yes. She designated both options transferrable upon her death to myself or our children if I pass before her.

The monthly payments would be transferable to you or to your children after her death? So the payments would go on until the last of your children dies? Sorry, that doesn't sound credible.

No, just the accrued savings from her account would be transferrable. The recurring payments would cease.

easy call = monthly payments

I don’t think anyone has mentioned the potential tax implications? I’m not sure whether this would be considered taxable income but I’d assume so which would favor the monthly payments as you’d pay a lot on the lump sump of $190k. The monthly payments would be less likely to push into higher tax brackets. Regardless, under reasonable actuarial assumptions the monthly payment already seems like the clear choice.