Pension lump sum or annuity?

pop_pop!_v2.2.1 wrote:

Set for life wrote: Could you weather a 30 or 50 % loss if you took the payout and kept it invested? Could you sleep at night watching it go down?

No one should be gambling with retirement savings like that when they are retired.

Op, take the payout today.

Pretty sure you don’t know how a defined benefit plan works.

pop_pop!_v2.2.1 wrote:

CPA wrote:

Utilizing the weighted life expectancy of a 58 year old male and a 58 year old female the $3150 payment per month is an implied return of ~3.7%.

That is a very unlikely yield in the current climate. That means a default at worse, or a renegotiated, lower, yield is the most likely outcome.

Take the lump sum today.

Definitely sure you don’t know how a defined benefit plan works.

McLectric wrote:

Would appreciate the financial analysts' viewpoint on this one.

I'm 58 - was just offered a pension "buyout" by my company.

Options are a $600K one time payout OR $3150 per month (until death, with a $1575 per month survivor's annuity). The math certainly favors the one time payout considering 7% annual growth on the $600K, but the market has bad years, etc. Also this is a Fortune 50 company with a solid pension fund (at this point anyway).

Feasibility of retiring is not my question as I have other resources...more of a math/strategy concern.

Thanks for any help!

Using the mortality table and segment rates to calculate the minimum lump sum payable from a (tax) qualified Pension Plan in 2018 and assuming your wife is age 55 and that both the annuity and lump sum options are payable immediately I estimate the lump sum equivalence of that monthly benefit should be @ nearly $700,000.

What you need to do is ask your company about how the lump sum was calculated---what mortality and discount/segment rates were used and their reason for using those rates and the annuity to lump sum conversion factor that produced (should be @ 600,000/3,150 = 190.48, or 15.87 if thinking in terms of annual rather than monthly benefits.

I think they may be low-balling you on the lump sum.

chgray wrote:

a third option is to take the lump sum, buy an annuity with $300l (kind of like a mini-pension) and invest the other $300k. That way is you would happen to die earlier than planned the $300k invested can be passed to heirs.

This is terrible advice. Run the numbers for what that $300k would buy in guaranteed income. I’d guess 20% goes to the salesman.

The pension shouldn’t be compared to the lump sum. It should be compared to the cost of a comparable annuity...and there is no comparison. OP, your company does not want to pay you a pension. They know you’re going to outlive their projections. It’s why you received the lump sum offer.

Actuarial wrote:

I think they may be low-balling you on the lump sum.

Well they were counting on him asking a board full of former runners who claim to be making $250k a year, but probably live with their parents, for advice.

MoneyMann wrote:

OP, your company does not want to pay you a pension. They know you’re going to outlive their projections. It’s why you received the lump sum offer.

Yes, just ring up HR and they can tell you what day you shall die.

Take the lump sum. There’s something not right about someone (your employer) having a vested interest in you and your spouse dying sooner rather than later