Help to make decision take monthly annuity or lump sum

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catlover
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Help to make decision take monthly annuity or lump sum

Post by catlover »

Please help. My company just offered a package to retire and they will give us a years pay to go ahead and get off payroll. I work for large company that has pension plan. I can take a monthly annuity $2860.43 before taxes or a lump sum of $495,000.00. I also have 401K valued at $347,890. My husband died 16 years ago so this year I could start collecting his social security of $892.00 a month until ready to collect mine. I am nervous about taking the lump sum and then paying high fees to someone to manage it. I have heard horror stories about this. If I take the annuity, if I die the month after I retire no one in my family gets any of it. I have no kids but help one of my nieces who is a single mom and would like to leave her something. I do have a roth IRA $28,995.00 in it and since I can't add to it if I retire I could leave her that. I am so scared of doing the wrong thing. I have to give my answer in less than a week and once I tell them which option I want, there is no going back! I thought of taking the monthly annuity and investing my 401K in something like Scott Burns recommends like the Couch Potato. I also thought about taking the lump sum and adding half of my 401K to it and putting it into those new hybrid index annuities where it's a guaranteed amount for the rest of my life but I can leave the balance to a family member and they say you cannot lose money in it. I would live on the other half of my 401K while the hybrid index annuity grew, say about 5 years or more. I will be 60 this year and can draw my SS at 62 if needed and that would be $1494.00 a month before any taxes. I would appreciate your help to steer me in the right direction. I am frozen with fear that I will make the wrong decision and regret it. I have a long commute every day (2.5 hrs) and I am tired of that. I have no debt except for a one year old car that I got with zero interest. I am frugal and I know how to manage my money. I don't think the company will offer this again as they have been downsizing for a few years now. Please help me to sort out my best option. I have to give them an answer within a few days and it's too short of notice to meet with financial planners. Any advise or suggestions will be greatly appreciated. Thanks for your time.
Calm Man
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Re: Help to make decision take monthly annuity or lump sum

Post by Calm Man »

If you are of retirement age and have a commute of 2.5 hours per day, I go with your instinct. Get out as life is slipping away in a car. I would take the lump sum and be done with them and I don't even calculate what others will do to arrive at the financial answer. It has to be close to even and will be highly dependent on assumed interest rates and market returns. But please, please -- do not get an adviser to help you. We can here for free. A simple 3 fund portfolio is, well, simple to set up and manage. If you really want a planner Vanguard will do a 1-time CFP review with you either for free or a modest cost. Good luck.
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Ged
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Re: Help to make decision take monthly annuity or lump sum

Post by Ged »

I would accept the offer.

Definitely don't mess with the index annuity.

You've said you are frugal, that's great, but really what you want in retirement is to have enough money to live well. Travel, etc. Have you thought about how much you would like to be able to spend vs the income from the annuity vs a safe withdrawal rate from the lump sum and what it would offer you?
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Re: Help to make decision take monthly annuity or lump sum

Post by jimb_fromATL »

Here are some things to think about:

First, how much money do you need to pay all your bills every month? Remember that you won't be paying FICA tax on the pension or any withdrawals from an investment account. Depending on which state you live in, you may not pay any state income tax either. And you won't be contributiong to any retirement plans.

What kind of pension plan is it? If it's a corporate pension fund covered by the PBGC it's probably a safer bet than a city, county, or state government plan that may be under-funded and over-committed.

Does it give cost-of-living increases?

How much income are you willing to do without from month to month for the rest of your life in the hopes of having more to leave to your heir?

Generally, you cannot afford to take out anywhere near as much from a lump sum buy-out as the pension will be paying you. For example, a common rule of thumb is to take out no more Than 3% to 4% of a lump sum starting at normal retirement age in order to be reasonably sure of not running out of money before you die. That would be in the range of $1238 to $1650 per month.

If you started out with a lump sum of $495,000 withdrawing $2860 per month and earned a fairly steady but conservate average APY of 5% it would all be gone in about 25.6 years even if you didn't increase it to keep up with inflation. You'd need to earn a fairly constant APY of about 6.4% to be able to take out $2860 per month for 40 years before it was all gone.

If you take the monthly pension and don't need all the money every month, you can invest the surplus to build a bigger nest egg for your heirs. On the other hand, if you take the lump sum but the market does poorly or you live a long, long time, you may run short of money and become a burden on your heir rather than have anything left to give to her when you die.

I don't know much about hybrid annuities, but I'd be surprised if you could buy any insurance product that will pay you as much per month as you can get from the pension. What are its terms? If it's as hard to get any concrete details on hybrid annuities, such cash value, expenses, surrender fees, etc as it is with other insurance products that are often (mis)represented as investments, I'd be mighty wary about it.


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Jack
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Re: Help to make decision take monthly annuity or lump sum

Post by Jack »

A quick check at immediateannuities.com shows that if you took the lump sum and invested it in an immediate annuity yourself, you would get only $2440 per month. The company annuity is giving you an extra $400 per month for the rest of your life which seems like a pretty good deal.
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Aptenodytes
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Re: Help to make decision take monthly annuity or lump sum

Post by Aptenodytes »

I would definitely take the annuity.

To make sense of your interest in leaving something to your heirs, it would help to know your monthly expenses and whether you own any real estate or other major assets.
Jack
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Re: Help to make decision take monthly annuity or lump sum

Post by Jack »

Regarding your legacy, the best gift you can give your niece is not to become a burden on her in your old age by running out of money. The company annuity can prevent you from ever running out of money.
JW-Retired
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Re: Help to make decision take monthly annuity or lump sum

Post by JW-Retired »

Agree the pension annuity is clearly a better deal than the lump sum. What are your expenses? That pension of $2860/month + $900/month SS as a widow = $3760/month. Can you get by OK on that and let the $350k of 401k money grow untapped for a while? I would make delaying taking your own SS until as late as possible an even higher priority. SS has a cola which is very important, especially for someone who retires early.

IMO, the "new hybrid index annuity" you are talking about is basically a complicated insurance salesman swindle. Don't do it. Bogleheads hear from people all the time who wish they had never fallen for this stuff.
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BL
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Re: Help to make decision take monthly annuity or lump sum

Post by BL »

Since you sound somewhat inexperienced in handling large sums of money, I think the risk of the cash lump sum is greater, as someone will be there to "help" you with your money, save on taxes, buy insurance and annuity products that will make them lots of money but may tie up your funds and not pay that well.
Pensions have a great value, assuming you have confidence that you will get most of what is promised, in that you never run out of money and never have to make major decisions on what to do with that money.

However, for your 401k (and the lump sum if you decide to go that way), you still have decisions to make and Vanguard has low cost funds and a low-cost advisor if you decide you need one. For your rollover IRA, there are no tax costs until you remove money from the account. You could go with a single Life Strategy fund or Target fund of desired Stock/bond balance or use a 3-fund portfolio and maybe rebalance once a year or two to keep the AA in desired balance. http://www.bogleheads.org/wiki/3-fund_portfolio

You have gotten good advice above from some previous comments.

You might want to check on spouse's PIA to see if it would be greater than yours at that time in order to decide which to take first. Ask ss office for information. Withdrawing some of your savings if needed would still make it worthwhile to delay SS as that is the best annuity of all.

Will you need the RMD on your 401k when you hit 70 1/2? If not, you can re-invest some of it in a taxable account for the future.
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Watty
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Re: Help to make decision take monthly annuity or lump sum

Post by Watty »

catlover wrote:they will give us a years pay to go ahead and get off payroll.
catlover wrote:I have a long commute every day (2.5 hrs) and I am tired of that.
catlover wrote:I have no debt except for a one year old car
Does that mean that you have a paid off house, or do you rent? If you have a paid off house then by the time medicare starts and you are getting social security then your retirement income needs may be much lower.

You have two decisions so you might want to look at them separately.

1) Do you take the buy-out?

That is easy - most likely yes, since you are likely only working a few more years that is is probably too good a deal to pass up.

One problem is that if you don't take it now then could be laid off a few years from now with little severance.

The one wild card is if your pension would be a lot higher if you worked a few more years or if the buyout is linked to giving up other retirement benefits like retiree health insurance.

If you take the buyout you might also be able to get unemployment, depending on your state laws and how they structure the buy out.

You might also be able to find some other work for a few years and even if that did not pay as much that could still make a large difference, especially without that killer commute.


2) Do you take the pension or annuity.

This is more complex. One thing to ask is to see if you can split it and take half in the pension and half in the annuity, they may or may not allow that.

I would assume that the annuity is not inflation adjusted. Assuming that it isn't and that you are in relatively good health then I would be concerned that since you are retiring at the age of 59 that you might need it for 30+ years and that even moderate inflation would make it worth very little after a few decades.

Sometimes in buyouts like this once they buy the annuity the pension guarantee that the PBGC provides for many pensions may ends if the annuity is provided by an insurance company. If so there is also some risk that the insurance company that issues the annuity will have financial problems while you are still alive.

One thing that I would look at is to take the lump sum and then consider buying a single premium when you are older. When you are 75 the annuity would cost less because you are older and if interests rates are higher then it might pay out more. The annuity that you are being offered is paying about 7% which a lot better than things like CD's right now but I would not assume that rate will look real good for the next 30+ years.

Personally since you are relatively young to retire I would lean towards taking the lump sum and just putting it into something like the Vanguard Retirement income fund.
https://personal.vanguard.com/us/funds/ ... IntExt=INT
catlover wrote:I do have a roth IRA $28,995.00 in it and since I can't add to it if I retire
You can still do Roth conversions which might be a good idea especially if you take the lump sum.
basspond
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Re: Help to make decision take monthly annuity or lump sum

Post by basspond »

I think most people have the same fears you do so believe me you are not alone. Gather as much information in the next few days to feel more comfortable in one of the most important decisions you will be making in your life.

First make sure the annuity doesn't have any other options. Some have guarantied terms of 10+ years but that would reduce the amount.

Setup a meeting with a financial planner or two to get their insights.

Determine how much your expenses will be. If you are saving over 10% now, your expenses should be about 70%, more likely less.

You will have a little cushion with the buyout, so if you decide with the lump sum you will not have to act immediately. Good luck and hope the choice you make will put you at ease and will give you plenty of income and legacy.
The Wizard
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Re: Help to make decision take monthly annuity or lump sum

Post by The Wizard »

Another option MIGHT be to get another job closer by. Ask if you can DELAY taking the monthly annuity payments for two or three years.
If so, you should be able to get MORE per month for starting later.
So the question is: are you really ready to retire at this point?
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Dandy
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Re: Help to make decision take monthly annuity or lump sum

Post by Dandy »

By my calculation the $495,000 lump would have to average 7% to equal the pension. 7% is not impossible but would require an allocation of say 60% or more to equities - and you would have to be able to ride the ups and downs of the market. No guarantees on getting 7% might get 9% or might go negative for several years. That might cause you to lose sleep and panic.
Your prospects are for living another 25 or more years. I wouldn't be focused on leaving money to your niece but on your ability to support yourself.
I'm not a fan of the type of annuity you mentioned, any annuity that isn't an immediate annuity is often problematic.
You do not seem to be an experienced investor so managing such a large and critical lump sum might be a bit overwhelming. Using a financial advisor is usually expensive and somewhat of pot luck as to whether he/she is looking out for your best interest or theirs.
Absent any other information I would strongly suggest going for the pension.
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Re: Help to make decision take monthly annuity or lump sum

Post by The Wizard »

Dandy, we ALWAYS expect to see legitimate annuities with payout rates of 6%, 7% or even more depending on age.
Trying to replicate an annuity's payout in a personal portfolio through good times and bad is not generally going to be successful...
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VictoriaF
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Re: Help to make decision take monthly annuity or lump sum

Post by VictoriaF »

Take the annuity, delay collecting Social Security until the age of 70, and live happily ever after. The happier you are, the longer you will live, and the more attractive the choice of the annuity will look in the retrospect.

As you stop working and commuting, take a look at your life and find some new pleasures. Visit this site and read some stories of very successful retirements. Retirement is not the end, it's a beginning.

Best wishes,

Victoria
Inventor of the Bogleheads Secret Handshake | Winner of the 2015 Boglehead Contest. | Every joke has a bit of a joke. ... The rest is the truth. (Marat F)
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BL
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Re: Help to make decision take monthly annuity or lump sum

Post by BL »

VictoriaF wrote:Take the annuity, delay collecting Social Security until the age of 70, and live happily ever after. The happier you are, the longer you will live, and the more attractive the choice of the annuity will look in the retrospect.

As you stop working and commuting, take a look at your life and find some new pleasures. Visit this site and read some stories of very successful retirements. Retirement is not the end, it's a beginning.

Best wishes,

Victoria
I like this! It is really good advice. If life seems boring, get a (part-time) job if you can't find volunteer work and other hobbies or travel to fill your time joyfully.

The annuity means less stressful decisions to keep making and reduces the possibility of making wrong decisions or sleepless nights of worry when the economy goes bad or you get talked into a great-sounding "investment". That steady paycheck will be so nice to have, even if you need to supplement it in the future if it does not have COLA.

The SS does have COLA, so it often pays to use other money to to live on and wait as close to age 70 as you can to maximize it. Every month you delay will help, so no need to commit to waiting if you don't care to; put it off for a while and then think about it every 6 months or so if that helps. You will probably decide to take the lower one (widows?)at 60-62, and waiting for the higher value one (yours?) until 70 might be the best deal. If widows one is higher, you might not benefit waiting longer than FRA (67?). Boglehead TFB has a website and has written about these choices: http://thefinancebuff.com/when-to-claim ... ators.html

Right now the pension is the big decision. Don't go to a broker for advice; he/she will have a conflict of interest hoping you may invest with him, so of course they will suggest going with lump sum! It is difficult to find a fiduciary who has only your interests in mind. I think you have come to the right place to get (mostly) unbiased advice from people who really like to help and don't get any monetary benefit from it. But after weighing the suggestions, it is still up to you alone to make the decision which will be best for you. After all, you are the one who has to live with the decision.
Last edited by BL on Sun May 04, 2014 8:12 am, edited 1 time in total.
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midareff
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Re: Help to make decision take monthly annuity or lump sum

Post by midareff »

If I assume the annuity is insured it is easy to recommend taking that against paying the IRS on a $495K payout + a years salary + your year's earnings to date. Since you are debt free (except car) it would seem reasonable to be able to live on the annuity and any needed dividends/interest from your investments. As far as Scott Burns and the Couch Potato my personal feeling is that you would be better off in a simple three fund such as what Taylor recommends. Your age in bonds (Vanguard Total Bond Market) and then split the rest between Total US and Total International. Your 401K should produce a bit over 2% in dividends, or a bit over $7K a year, $600 a month, without selling anything, just dividends, and you don't need anyone to manage it for it.

That seems to leave a first question of can you live OK on $2860.43 + $600 or $3460.43 a month (that's before taxes)? If you can, Social Security is two years away if needed, and as Victoria has pointed out, the longer you can wait the better the results.

Welcome to retirement.
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Re: Help to make decision take monthly annuity or lump sum

Post by Jack »

midareff wrote:If I assume the annuity is insured it is easy to recommend taking that against paying the IRS on a $495K payout + a years salary + your year's earnings to date.
In general, the lump sum and annuity would be about the same for taxes. A lump sum from a retirement plan can be rolled into an IRA, so taxes are paid as money is withdrawn. Likewise for the annuity from a retirement plan, taxes are paid as money is withdrawn. The lump sum IRA has more flexibility for withdrawal, but if spending is the same in both cases, taxes should be about the same.
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Watty
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Re: Help to make decision take monthly annuity or lump sum

Post by Watty »

The Wizard wrote:Dandy, we ALWAYS expect to see legitimate annuities with payout rates of 6%, 7% or even more depending on age.
Trying to replicate an annuity's payout in a personal portfolio through good times and bad is not generally going to be successful...
+1

This is because with a portfolio your estate will get what is left when you die but for a normal annuity the estate does not get anything. It is sort of like a negative life insurance policy so for comparison you could look at what a half a million dollar life insurance policy would cost a 60 year old to get an idea of how much this is providing.

Comparing the 7% annuity to a 4% safe withdrawal rate(SWR) is also not a fair comparison since the since the 4% SWR rate is adjusted for inflation each year but the 7% is a fixed rate.

This math is oversimplified but very roughly speaking if there is ten years of 3% inflation that would be 30% inflation so the original 4% SWR would be adjusted upward by 30% (30% of 4% is 1.2%) and it would then be up to 5.2%(4+1.2) of the original amount. Before long the amount from the adjusted SWR would exceed the 7% annuity if there is even moderate inflation.

http://www.bogleheads.org/wiki/Safe_withdrawal_rates

Of course part of the appeal of an annuity is not a higher expect return, but more predictability since you only have to worry about inflation and not how the stock an bond markets do each year.

In the original posters situation she is relatively young at 59 so she needs to be able to make the money last 30+ years. If she was 75 then with a 15+ year investing horizon an annuity would be a lot easier choice.
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Re: Help to make decision take monthly annuity or lump sum

Post by target2030 »

1) You said: I can take a monthly annuity $2860.43 before taxes or a lump sum of $495,000.00. I also have 401K valued at $347,890.

I would take the lump sum and invest in a three-fund portfolio at Vanguard. You may try to see if you can get a one-time free CFP consultation from Vanguard in addition to the fine advice that you can get here.

You may want to come up with a plan for the entire portfolio of $495K plus $347K , all in a single IRA account. I would congratulate myself on this great nest-egg and safeguard it.

2) You said you had a ROTH.

I would keep the ROTH untouched and invest it in a stock index and leave it there for your niece when you pass on. You may want to fill out the beneficiary designation form with your niece as the primary beneficiary and her kids as the contingent beneficiaries. This way you do not have to worry about a will. You may want to do the same with the IRA in 1). This can help you postpone creating a proper will and yet ensure that your rightful heirs are served well.

3) You said that you would get a year's worth of pay. If I was retired and did not have to pay for a long commute and gas, and did not have dependents (except may be for helping someone like your niece), and have some kind of insurance from the company that is letting me go, I would think in terms of stretching the one year pay with your husband's survivor social security benefit to cover the living expenses for three years and just watch the nest-egg grow.

Congratulations again, you are in good shape. Just do not fall prey to any annuity schemes or any instruments that advisors will be too willing to sell you.
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Re: Help to make decision take monthly annuity or lump sum

Post by Jack »

You can inflation-adjust a fixed annuity by reinvesting a portion of the distribution each year. And regardless of the behavior of the stock market, you will never run out of money.
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Re: Help to make decision take monthly annuity or lump sum

Post by heyyou »

Take the annuity, delay collecting Social Security until the age of 70, and live happily ever after.

Wise advice.

Take the buyout. You can stretch the extra pay since the commuting expenses will end. During that time, find out the proposed numbers on your widow Social Security, and use that to delay your own SS to age 70.

Take the regular annuity because it suits you. Any other choice adds risk, uncertainty, and stress.
You can inflation-adjust a fixed annuity by reinvesting a portion of the distribution each year. And regardless of the behavior of the stock market, you will never run out of money.

they say you cannot lose money in it
Avoid the hybrid annuity. The complexity is designed to hide the higher fees paid to the provider and its sales people. Not losing money over two decades could mean that you only get the return of your principle while they keep all of the earnings. Those people may have good intentions, but they will most certainly help their own families before they help you. Old Joke: "I helped put two kids through college, but it was my insurance agent's kids."

In your seventies, when rates are better due to your more advanced age, you could periodically buy some small annuities with portions of your traditional IRA in order to supplement your worry-free income. That diversifies annuity providers, and interest rate risk. Sales people will often say, "This deal won't last" which is true, but sometimes the later deal is better.

Your heir will get your IRAs if you die young, and will not likely need as much help later if you live longer. Do put the Roth IRA into a broadly diversified stock fund and ignore the fluctuations in the balance. With your pension and eventual Social Security income, you do not need bonds in your Roth. Look at how the whole portfolio fits together, not just individual pieces in isolation.

You are here, and aware of the risk of financial pitfalls, so you will do fine in spite of your current misgivings. Someday, you will give similar advice to another, due to your first hand experience.
Austintatious
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Re: Help to make decision take monthly annuity or lump sum

Post by Austintatious »

BL wrote:
VictoriaF wrote:Take the annuity, delay collecting Social Security until the age of 70, and live happily ever after. The happier you are, the longer you will live, and the more attractive the choice of the annuity will look in the retrospect.

As you stop working and commuting, take a look at your life and find some new pleasures. Visit this site and read some stories of very successful retirements. Retirement is not the end, it's a beginning.

Best wishes,

Victoria
I like this! It is really good advice. If life seems boring, get a (part-time) job if you can't find volunteer work and other hobbies or travel to fill your time joyfully.

The annuity means less stressful decisions to keep making and reduces the possibility of making wrong decisions or sleepless nights of worry when the economy goes bad or you get talked into a great-sounding "investment". That steady paycheck will be so nice to have, even if you need to supplement it in the future if it does not have COLA.

The SS does have COLA, so it often pays to use other money to to live on and wait as close to age 70 as you can to maximize it. Every month you delay will help, so no need to commit to waiting if you don't care to; put it off for a while and then think about it every 6 months or so if that helps. You will probably decide to take the lower one (widows?)at 60-62, and waiting for the higher value one (yours?) until 70 might be the best deal. If widows one is higher, you might not benefit waiting longer than FRA (67?). Boglehead TFB has a website and has written about these choices: http://thefinancebuff.com/when-to-claim ... ators.html

Right now the pension is the big decision. Don't go to a broker for advice; he/she will have a conflict of interest hoping you may invest with him, so of course they will suggest going with lump sum! It is difficult to find a fiduciary who has only your interests in mind. I think you have come to the right place to get (mostly) unbiased advice from people who really like to help and don't get any monetary benefit from it. But after weighing the suggestions, it is still up to you alone to make the decision which will be best for you. After all, you are the one who has to live with the decision.
catlover, if I were advising a loved one in a situation such as yours, I might simply quote these two posts. I continue to believe that, dollar for dollar, reliable income streams from annuities such as from pensions and Social Security will afford the greatest peace of mind, especially for those of us who are still asking ourselves if our financial resources will be sufficient to last our lifetimes. You'll have your pension and your survivor's benefit, hopefully allowing you to take your own SS benefit at the optimum time. You'll have a nice lump sum in the form of the buyout. You have a respectable amount in your retirement savings that, if invested wisely, will nicely augment your income streams if needed or desired, and which might still serve as the legacy you would like to leave your niece, a worthy goal although you must consider that subordinate to your own income needs. You're going to be just fine. Good luck!
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catlover
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Re: Help to make decision take monthly annuity or lump sum

Post by catlover »

I would like to thank everyone for helping me in this life decision. Someone posted "If you have a paid off house then by the time medicare starts and you are getting social security then your retirement income needs may be much lower." Why is that and what can I do about it? I have tried to search and find out if I start taking my late husband's SS now, will that in any way affect mine when I start taking it? Mine will be more. Also, if I want to go back to work after a few years, can I suspend taking the SS and start back later? And what is it I hear about how to avoid having 85% of SS taxed? That just sounds so wrong.

Thanks again to everyone. I'm kinda excited now. I think I will take the monthly annuity and invest my 401k myself (thanks to your advice!) and since there is no COLA added to the annuity, I can save some money each month to compensate for that.
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BL
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Re: Help to make decision take monthly annuity or lump sum

Post by BL »

catlover wrote:I would like to thank everyone for helping me in this life decision. Someone posted "If you have a paid off house then by the time medicare starts and you are getting social security then your retirement income needs may be much lower." Why is that and what can I do about it?
You haven't said if you have a mortgage, or how many years you have left to pay on it. Insurance may be higher until you start Medicare and Medicare Supplement. So housing and health care are one or two costs that may become lower. When you start your SS, you will have more income, especially if you delay your SS.

I have tried to search and find out if I start taking my late husband's SS now, will that in any way affect mine when I start taking it? Mine will be more. Also, if I want to go back to work after a few years, can I suspend taking the SS and start back later? And what is it I hear about how to avoid having 85% of SS taxed? That just sounds so wrong.
Did you specifically ask for husband's PIA and your PIA? The questions you ask determine whether you get useful answers or not. I believe his SS would be calculated as if he worked the full 35 years. Some are surprised by how large that number is. You may very well have the right numbers, but I can't be sure by what you have written. If you are receiving the survivor benefit first, there is no need to suspend. They will do it if the income is too high. If you wait on yours until you are done working, or FRA, you probably wouldn't suspend anyway, but I think you can change your mind withing 1 year.

I would just assume you will be paying tax on 85% of SS. If your income were mostly capital gains (non-retirement accounts) and cash on hand, that would be different.


Thanks again to everyone. I'm kinda excited now. I think I will take the monthly annuity and invest my 401k myself (thanks to your advice!) and since there is no COLA added to the annuity, I can save some money each month to compensate for that.
Congratulations! You will now have the traditional "3-legged stool" of retirement: pension, SS, and savings. We feel very fortunate to have this as well. It gives great peace of mind!
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dumbbunny
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Location: Oregon coast

Re: Help to make decision take monthly annuity or lump sum

Post by dumbbunny »

catlover wrote:Thanks again to everyone. I'm kinda excited now. I think I will take the monthly annuity and invest my 401k myself (thanks to your advice!) and since there is no COLA added to the annuity, I can save some money each month to compensate for that.
Atta, girl. You'll be fine. Enjoy the days ahead of you.
“It’s the curse of old men to realize that in the end we control nothing." "Homeland" episode, "Gerontion"
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patriciamgr2
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Joined: Mon Nov 19, 2007 2:06 pm

Re: Help to make decision take monthly annuity or lump sum

Post by patriciamgr2 »

I'm so glad you decided to retire. Avoiding that commute is going to be a wonderful change in your life.

Does your employer offer retiree health coverage? If not, have you priced out ACA policies? With an annuity or high levels of taxable withdrawals, you may not qualify for subsidies. You don't want to have a gap in coverage, so consider COBRA coverage for the interim period if necessary.

While you're filling out employer forms, it's worth checking whether you will be allowed to keep the 401(k) at the employer (not all companies allow this). If not, I'd suggest rolling it over to a low-cost provider which offers index funds (Vanguard, Fidelity, etc.). Then you can implement a simple, low-cost portfolio. I didn't note in your original post how you have the 401(k) invested right now. If you want advice on how to invest that in the future, you can post information (in the suggested format) about what your monthly cash needs are (after pension and any social security you decide to take--see below) & forum members will chime in with their thoughts. [By the way, I'd also suggest obtaining copies of all beneficiary forms for your 401(k) and Roth IRA to ensure that they are up-to-date and reflect your current intentions on who should receive that money.]

JimbfromAtl raised good points about the safety of your employer annuity--whether your employer is in good financial condition; whether the pension is guaranteed by PBGC, etc. I assume you've considered those points.

On the issue of the private market hybrid annuity, I agree, in the strongest possible terms, with the advice not to allow anyone to sell you an annuity product without a lot more research. Those "guarantees" contain lots of caveats. In any event, if you are choosing the employer annuity without a COLA, you probably will be orienting your other investments more towards stock.

I believe the earlier poster's reference to having a paid off house & being on Medicare lowering retirement expenses just meant that the amount you will need each month will be lower without a monthly mortgage or rent payment, or monthly private health insurance costs that are higher than what is charged by Medicare.

I'd suggest researching your Social Security questions using (1) the Wiki (Retirement planning/Social Security) and (2) the Search function (there have been lots of threads on these topics). If you have questions that remain unanswered, I hope you'll post another question. There are some Forum members who are very knowledgeable about social security and generous with their expertise if the answer hasn't already been covered.

Best Wishes to you for a wonderful future.
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Watty
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Re: Help to make decision take monthly annuity or lump sum

Post by Watty »

Congratulations on your retirement. :beer
catlover wrote: Someone posted "If you have a paid off house then by the time medicare starts and you are getting social security then your retirement income needs may be much lower." Why is that and what can I do about it?
Without a mortgage payment you will need less income year which might put you in a lower tax bracket but it might mean that less of your social security is taxed. There are lots of ways to try to manage you taxes in retirement and you could write a book on that but two that come to mind are;
1) Doing Roth conversions before you start social security.
2) If you are in a range where your social security will be taxed then you may be able take out extra money every other year so that in alternate years your income is low enough to not cause your social security to be taxed.

catlover wrote:I have tried to search and find out if I start taking my late husband's SS now, will that in any way affect mine when I start taking it? Mine will be more. Also, if I want to go back to work after a few years, can I suspend taking the SS and start back later? And what is it I hear about how to avoid having 85% of SS taxed? That just sounds so wrong.
The taxation is sort of "is what it is". There is a wiki on the taxation of social security.

http://www.bogleheads.org/wiki/Taxation ... y_benefits

You can also try some of your numbers in taxcaster to get an idea of how your federal taxes will be;

https://turbotax.intuit.com/tax-tools/c ... taxcaster/

You can also make up a dummy tax return if you have tax software and try entering what your retirement numbers will be.

I agree that your late husbands social security survivor amount sounds low even if he did not have real high income, it would be good to look into that to confirm that is correct and to make sure of your number. Once you have the details you can make another post to ask specifically about your social security options. There are a couple of people that are real knowledgeable about social security but you will get the best response from them if you do some basic research first and give them all the relevant details.
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