What should I do with my pension lump sum?

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happysoul
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Joined: Mon Aug 20, 2018 4:17 pm

What should I do with my pension lump sum?

Post by happysoul »

Hello,

I am new to Bogleheads. Apologies if my query is incomplete.

I have a pension lumpsum in the amount of $480K coming to me next month. I can take the money now, or defer for two years, at which time I will receive $530k. I need to know when I should take it, and whether I should put it into bonds or invest aggressively in the stock market for a few years before converting to bonds. Based on interest rates and general climate, what do you think is the wisest course of action? I will retire within the next six years, and this pension is an important part of my retirement goals.

Thank you for your help.
PFInterest
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Re: What should I do with my pension lump sum?

Post by PFInterest »

you have an investing policy statement and plan (https://www.bogleheads.org/wiki/Investm ... _statement)?
if you dont, get one.
what are you already doing with your money? make it work in that plan.
i would defer the pension. thats 5%/yr, not terrible.

without specifics, thats about as specific as it gets.
123
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Re: What should I do with my pension lump sum?

Post by 123 »

To avoid a potential large immediate tax hit you should consider rolling it over to an IRA and invest within that account.
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Gill
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Re: What should I do with my pension lump sum?

Post by Gill »

I would agree about taking the two year deferral. Your comment about aggressively investing for a relatively short period worries me. Sounds like a dangerous approach with your retirement savings.
Gill
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skor99
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Re: What should I do with my pension lump sum?

Post by skor99 »

Wasn’t there an annuity option ? Why take the risk of investing yourself when you can let the company take that risk and guarantee you a nice monthly amount ?
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Tyler Aspect
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Re: What should I do with my pension lump sum?

Post by Tyler Aspect »

Take the two year deferment since that is entirely without risks.
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Valuethinker
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Re: What should I do with my pension lump sum?

Post by Valuethinker »

Tyler Aspect wrote: Tue Aug 21, 2018 12:47 am Take the two year deferment since that is entirely without risks.
Is it?

What if the employer goes broke or the pension fund falls under the PBGC in the meantime?

Why is the difference so large -- seems a high return for 2 years?
Valuethinker
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Re: What should I do with my pension lump sum?

Post by Valuethinker »

happysoul wrote: Mon Aug 20, 2018 4:30 pm Hello,

I am new to Bogleheads. Apologies if my query is incomplete.

I have a pension lumpsum in the amount of $480K coming to me next month. I can take the money now, or defer for two years, at which time I will receive $530k. I need to know when I should take it, and whether I should put it into bonds or invest aggressively in the stock market for a few years before converting to bonds. Based on interest rates and general climate, what do you think is the wisest course of action? I will retire within the next six years, and this pension is an important part of my retirement goals.

Thank you for your help.
If you can roll it into a tax deferred account like an IRA you should.

What are the risks of waiting 2 years because that is otherwise a good, safe return.

Otherwise you need to invest it according to your Investment Policy Statement/ target asset allocation. With 6 years to retirement I would suggest it needs to be at least 50% in bonds - US Intermediate Term Treasury bonds or TIPS.
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JoeRetire
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Re: What should I do with my pension lump sum?

Post by JoeRetire »

happysoul wrote: Mon Aug 20, 2018 4:30 pm I have a pension lumpsum in the amount of $480K coming to me next month. I can take the money now, or defer for two years, at which time I will receive $530k. I need to know when I should take it, and whether I should put it into bonds or invest aggressively in the stock market for a few years before converting to bonds. Based on interest rates and general climate, what do you think is the wisest course of action? I will retire within the next six years, and this pension is an important part of my retirement goals.
It's hard to see a reason for taking it now, rather than waiting 2 years and collecting the additional $50k. But perhaps there are unstated factors that could influence your decision.

With this decision, as with all others, you need to consider your goals. Your goals will help guide you on how aggressive or how conservative you should be.

Since you don't know what to do, and since you haven't got a sense of bonds versus aggressive investments in the market, you probably could benefit from a bit of professional help rather than just internet strangers. That's particularly important where you are a short period away from retirement and this money is important to you.

Find a good fee-only fiduciary financial planner. Spend a few hours going over your finances more holistically. You should be able to come out of it with a more full-featured plan for not only this money, but all other aspects of your financial life (investing, social security claiming, planned withdrawal rates, estate planning, etc, etc.)
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Earl Lemongrab
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Re: What should I do with my pension lump sum?

Post by Earl Lemongrab »

I'd definitely take the >10% two-year gain. After that, it depends. One problem with rolling a big lump into an IRA is if you are or will be needing to use the backdoor Roth. The IRA will effectively remove that option. Do you have a 401(k) or similar account that would take the rollover?

I second the bit about checking on an annuity payout.
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g$$
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Re: What should I do with my pension lump sum?

Post by g$$ »

Consider taking it as an annuity?
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sergeant
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Re: What should I do with my pension lump sum?

Post by sergeant »

Is the lump sum now or two years from now the only option? Based on the extremely limited information, I would wait the two years and then have it put in a low-cost IRA consisting of an appropriate target date retirement fund.
For the ashes of his fathers, And the temples of his gods. | Pensions= 2X yearly expenses. Portfolio= 40X yearly expenses.
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