Which Pension choice should I make?

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Which Pension choice should I make?

Postby willybiggs » Fri Aug 30, 2013 5:31 pm

If I decide to retire at 60, here are the two choices I am looking at:
1. $3862/mo with 100% pop up to 4470 if my wife predeceases (she gets the 3862 if I go first)

2. Lump Sum with annuity: $528,000 Lump Sum plus $1185/mo

This is a non-COLA'd pension. Which represents the best choice to you? We do have substantial investment assets, so not totally dependent on the pension.
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Re: Which Pension choice should I make?

Postby Grandpaboys » Fri Aug 30, 2013 6:38 pm

With limited information to run the numbers and know your personal situation, the one thing I would be thinking about is how secure is the payee in your planning for the next 30+ some years of retirement. My company went bankrupt before I retired but Uncle SAM took over the pension program before that happened, therefore my pension was preserved. Many people today are losing there pensions, so maybe a bird in the hand is worth having. Pension security is extremely important. Good Luck and Happy Retirement.
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Re: Which Pension choice should I make?

Postby willybiggs » Sat Aug 31, 2013 11:07 am

My Co. is listed among the top 5 overfunded pensions in the Fortune 500. I know this doesn't mean things couldn't go South in a heartbeat, but I feel reasonably good even if it ends up with PBGC fund since my payout is still below the max PGBC will pay. That said, my interest is in how others might calculate their long range outcomes given the non-cola annuity or investing the lump to get some return to offset inflation while still getting the fixed $1185 for life. Thanks for the reply.
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Re: Which Pension choice should I make?

Postby Frugal Al » Sat Aug 31, 2013 11:38 am

Without knowing your anticipated SS claiming strategy and benefit, your anticipated expenses in retirement, the extent of your other assets, your legacy intentions, and you and your wife's health this question cannot be answered. The two possibilities are essentially equal in actuarial value. The big concern with all of these early non-indexed pension annuitizations is the unknown inflation over such a long time horizon.
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Re: Which Pension choice should I make?

Postby dm200 » Sat Aug 31, 2013 11:43 am

willybiggs wrote:If I decide to retire at 60, here are the two choices I am looking at:
1. $3862/mo with 100% pop up to 4470 if my wife predeceases (she gets the 3862 if I go first)

2. Lump Sum with annuity: $528,000 Lump Sum plus $1185/mo

This is a non-COLA'd pension. Which represents the best choice to you? We do have substantial investment assets, so not totally dependent on the pension.


1. Ask your wife's opinion. I'll bet she goes for #1.
2. Based on the fact that you have other assets, #1 provides diversification.
3. Regarding #1 - Is there another choice/option with slightly larger monthly amount, but no increase if your wife dies? Just seems a bit odd that you get more, if your wife dies first.
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Re: Which Pension choice should I make?

Postby jimkinny » Sat Aug 31, 2013 11:57 am

I have decided on one course of action and then changed my mind, then back again.

I do not think there is a correct answer to this dilemma. I am just going to go with what seems less likely to cause me pain, 10-15 years from now, if I am still around.



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Re: Which Pension choice should I make?

Postby dm200 » Sat Aug 31, 2013 12:07 pm

Whether it regards an amount of Life Insurance, Pension choices or other financial matters - while I certainly do not want my wife to suffer financially if I pre-decease her, nonetheless - I do not want her to be financially BETTER OFF if I die first. Neither would I not expect her to want me to be financially better off if she pre-deceases me. :oops:

In these discussions, she does not believe my "Dating Expenses" if she dies first should count towards my financial needs. :confused
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Re: Which Pension choice should I make?

Postby midareff » Sat Aug 31, 2013 12:41 pm

A major consideration will have to be the tax rate hit and the tax rate you will be subject to in the year the lump payout is received as well as the "damage" to other normal income that tax year. Can the lump be rolled to an IRA to avoid the tax hit?

Additional math you might want to do includes impact to your monthly costs of living. Does the pension and SS pay the nut and ROI pay the trips, frills and luxuries?
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Re: Which Pension choice should I make?

Postby Carl53 » Sat Aug 31, 2013 7:12 pm

willybiggs wrote:My Co. is listed among the top 5 overfunded pensions in the Fortune 500. I know this doesn't mean things couldn't go South in a heartbeat, but I feel reasonably good even if it ends up with PBGC fund since my payout is still below the max PGBC will pay. That said, my interest is in how others might calculate their long range outcomes given the non-cola annuity or investing the lump to get some return to offset inflation while still getting the fixed $1185 for life. Thanks for the reply.


If it is currently overfunded I probably would feel pretty good too. Just know that since you apparently are no older than 60, that if your pension got turned over to PGBC today and if you are 60 you would receive a pension of 3113.35 with no spousal coverage or 2802.02 with 50% spousal coverage. These numbers go up each year with some sort of an inflation adjustment. If you were currently 65 and the pension failed then you would be fully covered.

http://www.pbgc.gov/wr/benefits/guarant ... antee.html

Regarding how I would compare long range outcomes, I would do as I did (for a somewhat different analysis) and set up an personalized spreadsheet looking at future cash flows, taxes etc. and assuming a certain real return on investment.
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Re: Which Pension choice should I make?

Postby BolderBoy » Sat Aug 31, 2013 7:26 pm

willybiggs wrote:If I decide to retire at 60, here are the two choices I am looking at:
1. $3862/mo with 100% pop up to 4470 if my wife predeceases (she gets the 3862 if I go first)

2. Lump Sum with annuity: $528,000 Lump Sum plus $1185/mo

This is a non-COLA'd pension. Which represents the best choice to you? We do have substantial investment assets, so not totally dependent on the pension.

Probably not enough info, but if the lump sum is fully taxable, I'd likely go with #1.
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Re: Which Pension choice should I make?

Postby ourbrooks » Sat Aug 31, 2013 9:26 pm

Do you know that the two options are financially equivalent?

One way to find out is to go to a site like www.immediateannuities.com and see what it costs to buy an equivalent amount of income for the two options.

You might be surprised to find that the larger pension takes more to purchase at age 60 than what you could buy with the lump sum. For a variety of reasons, corporate pensions often offer better terms than annuities purchased directly.
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Re: Which Pension choice should I make?

Postby willybiggs » Sun Sep 01, 2013 1:46 pm

I am 59.75 with a possibility of getting offered an early Ret. package near year-end (wishful thinking?). There is a cost reduction initiative underway for this year and 2014 the reason I think they might want to thin the herd. The Pension options are probably the two I would narrow down to (there are at least 20 options). On the lump sum choice, I would roll it over with the 401K into an IRA along with the severance. Therefore it would not be taxable until withdrawn. I know my wife would prefer the annuity for obvious reasons. Joint and Surv. is only something like $8/mo. more than the 100% pop-up which would give her the full amount and enable me to "pop up" to the much higher payout. Your replies have been immensely helpful in reassuring me that either choice would be ok, with other things to consider. I will plug the #'s into the spreadsheet and do an analysis for likely outcomes. Thanks for the PBGC rules governing ages and what kicks in and when.
If no package, I'll just keep plugging along doing the 401k max til I'm 62 when I'll definitely hang it all up. By then, savings will have grown to some level and will help put last child through College ( he is shooting for Stanford). It's a long shot, but if anyone can get in he can. So wish us luck....
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Re: Which Pension choice should I make?

Postby gerntz » Sun Sep 01, 2013 7:43 pm

Can the Lump Sum be rolled into an IRA? No tax on distribution then.
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Re: Which Pension choice should I make?

Postby DallasGuy » Sat Sep 07, 2013 10:52 am

A 4% annual withdrawal on 500k is 20k; much less than the annual annuity amount.
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