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Re: Pension buyout offer - Accept or reject

I agree that you have to look at the true "return/yield" without return of principle....however, at the same time, it is a benefit to have some locking-in of part of your portfolio, so you're not dependent 90% upon your stock and bond portfolio and 10% on some SS. I would assign some (sma...
by Frugal Al
Sat Nov 22, 2014 5:11 pm
 
Forum: Personal Finance (Not Investing)
Topic: Pension buyout offer - Accept or reject
Replies: 45
Views: 3968

Re: Pension buyout offer - Accept or reject

For comparison, the 2006 PPA long-term high quality corporate bond discount rate (segment 3) is currently about 5%, close to what #Cruncher got. I suspect the lookback month Boeing is using is from late 2013, for the current plan year, which would put the long segment rate around 5.5%, and then mor...
by Frugal Al
Fri Nov 21, 2014 1:15 pm
 
Forum: Personal Finance (Not Investing)
Topic: Pension buyout offer - Accept or reject
Replies: 45
Views: 3968

Re: Pension buyout offer - Accept or reject

Should one factor in the risk of never being able to claim the pension - death before eligibility. Then there is no payout. In cases where the pension is a large part of a retirement portfolio, longevity is suspect, and there is a legacy intent, the actuarial present value can certainly play a role...
by Frugal Al
Thu Nov 20, 2014 8:53 am
 
Forum: Personal Finance (Not Investing)
Topic: Pension buyout offer - Accept or reject
Replies: 45
Views: 3968

Re: SIMPLE IRA Help for my business

If someone contributes $100, you contribute $100. If someone contributes $14,500, you match that up to a maximum of 3% of their salary. Correct, but the max annual employee contribution to a Simple IRA is $12,000 in 2014, and $12,500 in 2015. So the match would be 3% of employee income, with a cap ...
by Frugal Al
Sat Nov 15, 2014 8:55 am
 
Forum: Personal Finance (Not Investing)
Topic: SIMPLE IRA Help for my business
Replies: 8
Views: 776

Re: David Stockman interview

The problem is that there's no evidence indicating that interest rates must revert upward to some historical mean. In fact, most of the current studies I've seen on the global supply and demand for capital indicate that real interest rates could be low for a long time. The global rates of investmen...
by Frugal Al
Fri Nov 14, 2014 4:19 pm
 
Forum: Investing - Theory, News & General
Topic: David Stockman interview
Replies: 7
Views: 1017

Re: How often do you change your car's oil?

It's for my f-I-l who just drives locally but upgraded to a new car since the old one was starting to become unreliable after 20 years of driving it. The new car is a Subaru Impreza running on 5W-20 full synthetic, the dealer was telling him to change it every 6K but after being questions about the...
by Frugal Al
Tue Nov 11, 2014 2:38 pm
 
Forum: Personal Consumer Issues
Topic: How often do you change your car's oil?
Replies: 168
Views: 11127

Re: How often do you change your car's oil?

I now see you say "New York" as your location. Change the oil once a year before the first hard freeze. That would be this coming Thursday. So it comes down to just 3 more days to change it? :D I doubt we have to get that exact about it. Actually I do the same thing on vehicles that only ...
by Frugal Al
Tue Nov 11, 2014 2:22 pm
 
Forum: Personal Consumer Issues
Topic: How often do you change your car's oil?
Replies: 168
Views: 11127

Re: How often do you change your car's oil?

Although we are 4 pages into it, I still don't have the right answer. Let me ask another question: A car is driven 3,500 miles a year, the trips are of short duration (less than 20 minutes of continuous driving) with occasional long distance highway driving, the motor is filled with synthetic oil t...
by Frugal Al
Mon Nov 10, 2014 11:43 am
 
Forum: Personal Consumer Issues
Topic: How often do you change your car's oil?
Replies: 168
Views: 11127

Re: How often do you change your car's oil?

I drive my 1994 Buick about 1000 miles/yr. It just passed smog, so I'm good to go for another two years. Oil change? Let me check. The little sticker says I was due 2 years ago, or (based on mileage) 3000 miles from the last change, which would be next year? It gets confusing. Last time I took it t...
by Frugal Al
Sun Nov 09, 2014 7:44 am
 
Forum: Personal Consumer Issues
Topic: How often do you change your car's oil?
Replies: 168
Views: 11127

Re: How often do you change your car's oil?

I get oil sample analysis done after every oil change so I have a pretty good idea about what's going on inside. I'm all for doing a UOA periodically, but unless you have a reasonable suspicion that something is awry, getting one at every oil change seems excessive for a passenger vehicle. I unders...
by Frugal Al
Fri Nov 07, 2014 3:13 pm
 
Forum: Personal Consumer Issues
Topic: How often do you change your car's oil?
Replies: 168
Views: 11127

Re: How often do you change your car's oil?

Delete duplicate.
by Frugal Al
Fri Nov 07, 2014 3:08 pm
 
Forum: Personal Consumer Issues
Topic: How often do you change your car's oil?
Replies: 168
Views: 11127

Re: Oil change costs--dealer vs other

Dodecahedron, you're doing fine if you have a trustworthy dealer do your oil a couple time a year and check things over for a reasonable price. I would add that just because a dealer has been trustworthy in the past, doesn't mean they will always be trustworthy--so it does pay to be cognizant of the...
by Frugal Al
Fri Nov 07, 2014 9:59 am
 
Forum: Personal Consumer Issues
Topic: Oil change costs--dealer vs other
Replies: 35
Views: 2254

Re: Pension lump sum offer - am I thinking clearly?

Sonicendeavor, Cruncher's numbers are correct, given the info you've provided. At >6% implicit IRR over reasonable longevity, it would be hard to recommend NOT keeping the pension. One concern that you still haven't addressed is your wife's age and anticipated longevity, and you're not choosing any ...
by Frugal Al
Fri Nov 07, 2014 9:18 am
 
Forum: Personal Finance (Not Investing)
Topic: Pension lump sum offer - am I thinking clearly?
Replies: 32
Views: 2383

Re: Pension lump sum offer - am I thinking clearly?

While it's not necessary to preserve all the principal by taking out only the interest every year, it would be a pretty bad idea to plan to be broke by the average life expectancy of age 83. My FIL who lived to 97 and his older brother who lived to 101 would probably agree. We don't know the antici...
by Frugal Al
Thu Nov 06, 2014 2:13 pm
 
Forum: Personal Finance (Not Investing)
Topic: Pension lump sum offer - am I thinking clearly?
Replies: 32
Views: 2383

Re: Lump Sum vs Pension

No real beneficiaries other than my wife. Pension is covered by PBGC. The pension will not be a significant portion of my retirement. What is your SS claiming strategy? What is your anticipated longevity? What percent is the pension of your anticipated retirement? I'd say if the pension is more tha...
by Frugal Al
Wed Oct 29, 2014 4:01 pm
 
Forum: Personal Finance (Not Investing)
Topic: Lump Sum vs Pension
Replies: 15
Views: 1465

Re: Pension Early Buyout Offer

A safe return is 3.05% today... Of course that's the 30 year rate, and we're talking perhaps 50 years here. I get nervous at those time horizons--too many things can happen. The last I saw the credit spread for an investment grade (not "risk free") 50 year tranche was about +1.4%. Then ag...
by Frugal Al
Tue Oct 28, 2014 4:21 pm
 
Forum: Personal Finance (Not Investing)
Topic: Pension Early Buyout Offer
Replies: 20
Views: 1955

Re: Annually Recalculated Virtual Annuity

Nisi, it's generally not like you to comment on something you haven't read, although I do admit the mortality credit issue crossed my mind as well. This is basically just using laddered TIPS to fund the "annuity." We need to keep in mind that the purest definition of an annuity is just a s...
by Frugal Al
Tue Oct 28, 2014 2:44 pm
 
Forum: Investing - Theory, News & General
Topic: Annually Recalculated Virtual Annuity
Replies: 9
Views: 923

Re: How often do you change your car's oil?

This topic does get beat to death. I think everyone can save some time and just read jimb's, Johno's, BigOil's, and Wolkenspiel's posts--oh and of course this post as well. In jimb's post, I read it more as not to ignore one's oil, rather than changing it out excessively (based on the type of drivin...
by Frugal Al
Tue Oct 28, 2014 1:35 pm
 
Forum: Personal Consumer Issues
Topic: How often do you change your car's oil?
Replies: 168
Views: 11127

Re: Lump Sum vs Pension

Some good advice above. Given that the OP says they'll need this pension in 6 or 8 years, I'm making the assumption this will be a significant part of their retirement planning. The IRR needed is about 5.72% per year, over 40 years. I would not look at historical returns on a balanced portfolio and ...
by Frugal Al
Mon Oct 27, 2014 2:42 pm
 
Forum: Personal Finance (Not Investing)
Topic: Lump Sum vs Pension
Replies: 15
Views: 1465

Re: lump sum now vs pension later?

Thanks for agreeing with me, cherijoh :D . A very close approximation could be calculated using today's interest rates and a mortality table, but we don't know what interest rates would be at age 55 for the OP, or if the age 55 lump option would even be available. The pension could be in the hands o...
by Frugal Al
Thu Oct 23, 2014 4:45 pm
 
Forum: Personal Finance (Not Investing)
Topic: lump sum now vs pension later?
Replies: 45
Views: 4235

Re: lump sum now vs pension later?

You mention that you don't really need the money. That being the case my initial hunch is that you should take the lump sum. Annuities provide a nice floor income for retirement security. If you don't need that, then maybe it makes sense to take the lump sum and shoot for the moon. Plus, it will si...
by Frugal Al
Thu Oct 23, 2014 3:50 pm
 
Forum: Personal Finance (Not Investing)
Topic: lump sum now vs pension later?
Replies: 45
Views: 4235

Re: lump sum now vs pension later?

The point of the analysis is to decide whether taking the lump sum is the prudent financial decision (and for most people it isn't). Once the lump is taken, it becomes a moot point -- but it still could have been a bad decision. If anyone would sincerely like help with any of this, I'm happy to pro...
by Frugal Al
Thu Oct 23, 2014 8:30 am
 
Forum: Personal Finance (Not Investing)
Topic: lump sum now vs pension later?
Replies: 45
Views: 4235

Re: lump sum now vs pension later?

If one wants to use the lump sum opportunity to take on more risk, one can certainly do so. But a financially disciplined investor doesn't just take more risk on the fly. I don't think anyone is suggesting anyone "just take more risk on the fly." The fact is it is very difficult to measur...
by Frugal Al
Wed Oct 22, 2014 2:32 pm
 
Forum: Personal Finance (Not Investing)
Topic: lump sum now vs pension later?
Replies: 45
Views: 4235

Re: lump sum now vs pension later?

Cruncher, Uber, and g$$, I did want to share what does seem to be a reasonable application of a mortality adjusted IRR, and that would be if the the prospective pensioner and spouse had widely disparate health/longevity, and perhaps the necessity to compare term insurance vs survivorship options. Mi...
by Frugal Al
Sat Oct 18, 2014 10:20 am
 
Forum: Personal Finance (Not Investing)
Topic: lump sum now vs pension later?
Replies: 45
Views: 4235

Re: lump sum now vs pension later?

#Cruncher, as you pointed out, your example exagerates the issue because you've got the entire population dying off within such a short time span in a tight distribution. It's this application of mortality rates, plus any change in applicable segment rates, that would alter the intermediate age PV a...
by Frugal Al
Sat Oct 18, 2014 6:25 am
 
Forum: Personal Finance (Not Investing)
Topic: lump sum now vs pension later?
Replies: 45
Views: 4235

Re: lump sum now vs pension later?

And I agree with G$$ that we are terrible at guessing our own life expectancy and we are equally bad at guessing the future of the yield curve as well as the level of investment return that we can achieve. Good explanation, ubermax. I'd add that we are equally terrible in guessing at inflation, and...
by Frugal Al
Fri Oct 17, 2014 10:53 am
 
Forum: Personal Finance (Not Investing)
Topic: lump sum now vs pension later?
Replies: 45
Views: 4235

Re: lump sum now vs pension later?

#ubermax is right that the lump sum is probably not equivalent to the PV of all three annuities. I'll PM you so as not to derail the thread Coming in at the end of a thread, questioning the methodology, and then taking the discussion off-thread already derails the thread. It calls into question the...
by Frugal Al
Fri Oct 17, 2014 5:12 am
 
Forum: Personal Finance (Not Investing)
Topic: lump sum now vs pension later?
Replies: 45
Views: 4235

Re: lump sum now vs pension later?

#Cruncher, I know you're not addressing me, but I suspect the issue is with the theoretical lump sums that would result at those noted ages. It really doesn't matter what actuarial assumptions produce the annuitization numbers, the numbers are what they are. However, the value of the lump sums imput...
by Frugal Al
Thu Oct 16, 2014 4:15 pm
 
Forum: Personal Finance (Not Investing)
Topic: lump sum now vs pension later?
Replies: 45
Views: 4235

Re: Another Pension Buyout Reference Point

To be honest I didn't check the numbers because cherijoh was not seeking advice. I was taking their word for it, and it looked reasonable to me given the early retirement spif. Granted, it can get a bit tricky when incentives are involved.
by Frugal Al
Thu Oct 16, 2014 11:48 am
 
Forum: Personal Finance (Not Investing)
Topic: Another Pension Buyout Reference Point
Replies: 5
Views: 910

Re: lump sum now vs pension later?

In other words, the three annuities do look equivalent, but that's just kind of a lucky coincidence. Usually the offer in the plan documents will indicate any incentives that may be applied, so I do think this is more than a coincidence. However, that is not saying that the lump sum equivalent woul...
by Frugal Al
Thu Oct 16, 2014 11:33 am
 
Forum: Personal Finance (Not Investing)
Topic: lump sum now vs pension later?
Replies: 45
Views: 4235

Re: lump sum now vs pension later?

Jason, although the nominal difference in payments is about $90k, the real value of those dollars is not. The $2159 you receive at age 65 is only worth a bit more in real dollars than the $1080 you'd receive at age 55, at the discount rates we're talking about. Assuming one is employed, after taxes ...
by Frugal Al
Wed Oct 15, 2014 4:36 pm
 
Forum: Personal Finance (Not Investing)
Topic: lump sum now vs pension later?
Replies: 45
Views: 4235

Re: lump sum now vs pension later?

I get satisfaction from devising an efficient way to crunch the numbers to provide one piece of the puzzle. You've done a great job showing the options in a coherent manner, #Cruncher. I still do a lot of calculation on my trusty HP17BII, but I think its days are numbered. Using the Excel spreadshe...
by Frugal Al
Wed Oct 15, 2014 6:02 am
 
Forum: Personal Finance (Not Investing)
Topic: lump sum now vs pension later?
Replies: 45
Views: 4235

Re: Another Pension Buyout Reference Point

Nice analysis on your pension, Cherijoh. It certainly is a slam-dunk. I have changed my mind a little and think that this analysis could be helpful for those individuals (hopefully few) who want to take the lump sum and invest it in such a way that they do better than their annuity options from the ...
by Frugal Al
Wed Oct 15, 2014 4:19 am
 
Forum: Personal Finance (Not Investing)
Topic: Another Pension Buyout Reference Point
Replies: 5
Views: 910

Re: lump sum now vs pension later?

The "implicit rate of return" and IRR analyses , both equivalent , are nice thoughts and fun spreadsheet exercises but they fall short in two key ways - (1) they are interest only analyses whereas the annuities and lump sum are interest and mortality dependent and (2) they both require tw...
by Frugal Al
Tue Oct 14, 2014 3:13 pm
 
Forum: Personal Finance (Not Investing)
Topic: lump sum now vs pension later?
Replies: 45
Views: 4235

Re: Pension buyout help

They asked me about putting it into IRA's, but I made them aware that they could only put in a maximum amount of $6,500 so it really wouldnt compound. The $6500 limit would not apply to a rollover from a qualified pension plan. As Herekittykitty points out, you haven't provided enough details to pr...
by Frugal Al
Tue Oct 14, 2014 12:34 pm
 
Forum: Investing - Help with Personal Investments
Topic: Pension buyout help
Replies: 6
Views: 255

Re: You will think this is a stupid question

The FED hasn't given any precise information either explicitly or implicitly, therefore one should not try to time the market. There statements have been more on the order of "we believe rates should rise by mid 201X, should and will are two different animals. Personally, I don't think rates w...
by Frugal Al
Tue Oct 14, 2014 12:00 pm
 
Forum: Investing - Theory, News & General
Topic: [unofficial Fed announcements make bond prices predictable?]
Replies: 25
Views: 938

Re: Reverse Mortgages

I've been looking into these recently for my mother. Reverse mortgages aren't quite as bad as they used to be as there were many rules and regulation changes a few years back, most for the better. Still, there is room for improvement. They are expensive and complex, and they should probably be used ...
by Frugal Al
Mon Oct 13, 2014 3:47 pm
 
Forum: Personal Finance (Not Investing)
Topic: Reverse Mortgages
Replies: 21
Views: 2108

Re: Cleaning Up Leaves

EmergDoc wrote:Chainsaw?

Ah, c'mon Doc, you're just trying to drum up business. :wink:
by Frugal Al
Mon Oct 13, 2014 9:07 am
 
Forum: Personal Consumer Issues
Topic: Cleaning Up Leaves
Replies: 40
Views: 3283

Re: lump sum now vs pension later?

It seems that it makes sense to start taking the pension at age 55 There's more to the decision than just the rate of return. This income will be taxable to the OP, so that will be a consideration as well. Also, in the case of married couples, if we're comparing the lump sum with the pension, we re...
by Frugal Al
Mon Oct 13, 2014 9:01 am
 
Forum: Personal Finance (Not Investing)
Topic: lump sum now vs pension later?
Replies: 45
Views: 4235

Re: Pension Lump Sum Offer

It's not uncommon for lump sum limits to be mandated in a buyout offer, especially if plan is marginally funded. Excessive subscription to large offers could send the plan below the necessary funding limits mandated on the plan sponsor allowing them to offer the lump sum. Since the sponsor has put l...
by Frugal Al
Sun Oct 12, 2014 4:03 pm
 
Forum: Personal Finance (Not Investing)
Topic: Pension Lump Sum Offer
Replies: 2
Views: 610

Re: [Decision on] lump sum

Sorry uber, but if one is "running near empty" at age 52, that's even more reason for them to NOT take the lump sum. All we know is what the OP has posted.
by Frugal Al
Fri Oct 10, 2014 12:09 pm
 
Forum: Personal Finance (Not Investing)
Topic: [Decision on] lump sum
Replies: 11
Views: 1050

Re: Couch Surfing

She reported that very seldom was there an issue of confused expectations on the part of the hosts, and that setting those expectations in line early was always sufficient. She couldn't have afforded the trip staying in hotels, and hostels would have also been a strain financially. She met wonderfu...
by Frugal Al
Fri Oct 10, 2014 9:54 am
 
Forum: Personal Consumer Issues
Topic: Couch Surfing
Replies: 90
Views: 5887

Re: [Decision on] lump sum

Let the pension ride and shore up your emergency fund. I suspect this pension will be a large part of your retirement income. With little apatite for market risk there's no reason to consider the lump sum, nor early annuitization (unless you question reasonable longevity).
by Frugal Al
Thu Oct 09, 2014 10:09 am
 
Forum: Personal Finance (Not Investing)
Topic: [Decision on] lump sum
Replies: 11
Views: 1050

Re: Another pension lump sum scenario

A little bit of "longevity insurance" afforded by an annuity is better than none at all, even if it ends up paying to take the grandkids for ice cream once in a while. Craig, you may have missed it, but the OP isn't necessarily concerned about longevity issues. Not everyone needs to maint...
by Frugal Al
Wed Oct 08, 2014 1:35 pm
 
Forum: Personal Finance (Not Investing)
Topic: Another pension lump sum scenario
Replies: 20
Views: 1670

Re: Pension Buyout Offer

If I earn 7%, the value at age 65 would be $106,852. Assuming good health and average anticipated longevity, there's no compelling reason to take the offer at this time. Depending upon your lookback month you may have a better opportunity in the near future to take the lump sum. I certainly wouldn'...
by Frugal Al
Mon Oct 06, 2014 9:40 am
 
Forum: Personal Finance (Not Investing)
Topic: Pension Buyout Offer
Replies: 5
Views: 668

Re: Pension buyout...take annuity now or later?

Buffett_wannabe wrote: Like most lump sum buyout offers, this one will only buy about 85% of the payment in an individual SPIA or SPDA as simply staying on the plan would yield, so the lump sum seems like a bum deal.

Why would you say that, are you annuitizing it today? How many years/months until age 65?
by Frugal Al
Sat Oct 04, 2014 7:44 am
 
Forum: Personal Finance (Not Investing)
Topic: Pension buyout...take annuity now or later?
Replies: 20
Views: 1592

Re: Yet Another Pension Buyout Scenario

In general these questions are asking the best alternative between early and normal annuities along with consideration of a lump sum ; if it can be shown mathematically that in each of these situations there is one optimal choice, then spare us all the dialogue and demonstrate which one it is ; or ...
by Frugal Al
Thu Oct 02, 2014 6:43 am
 
Forum: Personal Finance (Not Investing)
Topic: Yet Another Pension Buyout Scenario
Replies: 42
Views: 2857

Re: Yet Another Pension Buyout Scenario

Second, despite the ever popular IRR analysis and the "suppose I earn x% over the next Y years" argument , based on the current yield curve and mortality model used for pension funding and lump sum calculations , I don't believe it can be demonstrated mathematically that among your 3 choi...
by Frugal Al
Thu Oct 02, 2014 5:05 am
 
Forum: Personal Finance (Not Investing)
Topic: Yet Another Pension Buyout Scenario
Replies: 42
Views: 2857

Re: Death Benefit from pension - lump sum or lifetime monthl

Reedman, OK, now I understand the name. Musicians help the rest of us enjoy life. You've got it right. Basically, by foregoing the $309k today, you are essentially buying a $1900/month cash flow. The nearly 7.5% effective annual rate is the return that would be necessary to produce that cash flow ov...
by Frugal Al
Wed Oct 01, 2014 1:21 pm
 
Forum: Personal Finance (Not Investing)
Topic: Death Benefit from pension - lump sum or lifetime monthly?
Replies: 19
Views: 1385

Re: Death Benefit from pension - lump sum or lifetime monthl

Bsteiner, I certainly understand many of your points, but Cruncher's numbers are correct for the effective annual rate. Depending upon tax rates (fed, st, loc) there could be an argument to roll the lump sum into an IRA, but that doesn't seem to be an issue at current income levels. The marginal inc...
by Frugal Al
Wed Oct 01, 2014 8:14 am
 
Forum: Personal Finance (Not Investing)
Topic: Death Benefit from pension - lump sum or lifetime monthly?
Replies: 19
Views: 1385
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