Anyone (now) regret choosing a lump sum vs. annuity option?

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bestplans
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Anyone (now) regret choosing a lump sum vs. annuity option?

Post by bestplans » Fri Mar 20, 2020 3:35 am

I recall during the financial crisis discussing with coworkers the pros/cons of each choice regarding this long running debate, assuming one foresees having a life span in line with making each option equivalent from an actuarial standpoint. It seemed to me that assuming the employer annuity was a decent deal (i.e., higher than one could get on the open market) and within PBGC limits, folks gravitated much more toward the "sure thing" given the prospect of low inflation and lack of confidence with exceeding the risk free rate on their investments during the market turmoil. During the ensuing (alas now defunct) bull market however, most advice I've seen (and saw folks implement) advocated taking the lump sum because of the flexibility in managing one's own investments.

For those of you chose the annuity option at retirement, I would bet that assuming you actually need the money to live on, you are probably happy with your choice now. To those that chose the lump sum (and also intend to rely on this money as part of your living expenses), is this choice something you now regret? And for those close to making the choice themselves, will the recent humbling meltdown and near term prospects for the market and economy potentially sway your decision to the annuity option?

tealeaves
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Re: Anyone (now) regret choosing a lump sum vs. annuity option?

Post by tealeaves » Fri Mar 20, 2020 4:12 am

Close to that point and was leaning toward the annuity option because of my lack of confidence in consistently exceeding its implied IRR over my assumed lifetime, plus considering he large component of risk in my other assets. So yes, this latest debacle and my generally gloomy economic outlook over the next few years does help reinforce my preference to go the annuity route when the time comes. And this is coming from someone who does want to leave an inheritance (I think this decision will optimize my ability to leave that inheritance at the end of my assumed life span).

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tvubpwcisla
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Re: Anyone (now) regret choosing a lump sum vs. annuity option?

Post by tvubpwcisla » Fri Mar 20, 2020 4:30 am

I think you should do both if you have the opportunity. For example, say you have 100K to invest. You could Lump Sum $50,000.00 and then DCA the other $50,000.00 over 12 months or another time frame you are comfortable with. I'm a do both kind of investor. Get the best of both worlds! When receiving cash, I would take the Lump Sum so I can get it invested in the portfolio that I like. Not an annuity fan as I don't feel comfortable relying on an insurance company for payments.
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MN-Investor
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Re: Anyone (now) regret choosing a lump sum vs. annuity option?

Post by MN-Investor » Fri Mar 20, 2020 5:43 am

Absolutely no regrets.

My husband retired in 2016 and thought long and hard about taking the annuity vs. getting a lump sum. One of his main concerns was the future financial health of the insurance company paying out the annuity.

My sweetie passed away in 2018 and I’m more glad than ever that we had the lump sum. This coming economic downturn is going to be hard on insurance companies and I’m very comfortable with our shift from 90% stock while my husband worked to the 40% allocation to stocks that we moved to when he retired.
The key to success - Save early, save often, invest well.

Dandy
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Re: Anyone (now) regret choosing a lump sum vs. annuity option?

Post by Dandy » Fri Mar 20, 2020 5:46 am

I would lean heavily toward annuities/pensions vs lump sums. But, keep in mind the firm backing the annuity or pension is dealing with historic low interest rates and in some cases survival as a firm given all that is going on. The best "annuity" is probably waiting as long as possible to collect Social Security.

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Third Son
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Re: Anyone (now) regret choosing a lump sum vs. annuity option?

Post by Third Son » Fri Mar 20, 2020 6:59 am

I am awaiting a lump sum payout in the coming weeks. This decision was made after considering that the crossover point of fixed annuity vs payout was 16.6 years. I thought it was a no brainer. The annuity offered had no COLA built into it which made my decision easier. It comforts me to know that I will have that cash in my IRA until I decide what to do with it. No regrets.
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Wiggums
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Re: Anyone (now) regret choosing a lump sum vs. annuity option?

Post by Wiggums » Fri Mar 20, 2020 7:12 am

Our company originally had a pension annuity only. In recent years, new hires are only given a cash option, which saves the company money and is less costly to administer. Its still a good deal, since all the contributions come from the employer.

I do like having a combination of guaranteed fixed income and stocks. Its easy to take too much risk if you are not paying attention. I’m sure that you can find cases that support either option.
Last edited by Wiggums on Fri Mar 20, 2020 7:16 am, edited 1 time in total.

GoldenFinch
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Re: Anyone (now) regret choosing a lump sum vs. annuity option?

Post by GoldenFinch » Fri Mar 20, 2020 7:15 am

No regrets.

eldinerocheapo
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Re: Anyone (now) regret choosing a lump sum vs. annuity option?

Post by eldinerocheapo » Fri Mar 20, 2020 7:28 am

I agonized over this decision six years ago, and chose to roll the lump sum to my TIRA. It has more than doubled in value, and is now down some 20%, so we're still ahead of the game. Yes, the losses hurt and are a source of concern, but we try to look forward long term and diversify between three other sources of revenue so we can choose to pull from the optimal source each month.

The pension/annuity was rejected due to lack of a COLA, lack of ability to include the value in estate planning for heirs, and lack of trust that the parent company would actually honor the payment schedule in the future. Our cash reserves alone are sufficient for another six years.

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NoblesvilleIN
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Re: Anyone (now) regret choosing a lump sum vs. annuity option?

Post by NoblesvilleIN » Fri Mar 20, 2020 7:57 am

My first job out of college 40 years ago was with a company that had a pension. I stayed there 15+ years and was vested when I left over 20 years ago. In the last 20 years or so, the company has offered a lump sum buyout 2 or 3 times, most recently about 5 years ago. I calculated what a 4% SWR would be on that amount vs. the vested pension amount. I probably should have looked at what I could have purchased an annuity for, but I didn't think of that. My conclusion was that I was better off with the pension. I became eligible for the pension several years ago, but I have not taken it yet. I am planning on waiting until I'm 65 when it maxes out. Our plan is for me to take the pension at 65 and use that money to help me avoid taking Social Security until I'm 70. My wife is 7 years younger than me and my Social Security payment will be the larger amount. We figure the best option for us is the single life (ends when I die) with a 5 year period certain - my wife will have to sign papers agreeing to give up the joint life option. Based on the most recent annual statement (received earlier this year), the pension is adequately funded and relatively safe.

We have significant savings from 401k (now in an IRA) and do not "need" additional investments from a lump sum. My thoughts on that, over the years, were that the pension would be there if our investments don't do as well as we expected (in other words, I screwed up :oops: ). It is somewhat comforting to think that someone else is responsible for investing the pension funds and I don't have to worry too much about it. The plan is still to defer my SS until 70 and my pension until 65. I turn 62 next month and become eligible for SS. I'm currently eligible for a reduced pension at anytime. If all heck breaks loose and the income from our investments isn't enough to live on, we would take my pension first (it does not have a COLA) and SS second. To help us get there, we have 2 years of expenses in CD's that mature at various times over the next 2 years and an additional 3 years of expenses in short term and intermediate term treasury funds. Our plan (hope) is that we can get to 65 before taking the pension and 70 before taking SS. Because I only worked there 16 years, the monthly pension is not a large amount but it will nicely supplement our investment income.

Side note: in 1983 (I think) the company started offering a 401k. The plant manager, sales manager, and controller brought in a financial planner that they all used to conduct a few investment seminars. That got me on the path to savings. The controller pulled me aside during that time (I was still the new kid on the block and somewhat intimidated by him) and TOLD me to get in the 401k. I wish he was still alive so I could thank him!

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Stinky
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Re: Anyone (now) regret choosing a lump sum vs. annuity option?

Post by Stinky » Fri Mar 20, 2020 8:23 am

Loving my annuity.

A deposit is made to my checking account on the first of each month. No matter what happens in the outside world.

Loving my annuity.
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louiethelilac
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Re: Anyone (now) regret choosing a lump sum vs. annuity option?

Post by louiethelilac » Fri Mar 20, 2020 8:33 am

Was just discussing this with a retired friend, who said that if he had to make the decision all over again he would go with the annuity (joint survivor) so that if he were no longer around in times like these it would be much less stressful for his wife if she had a regular check coming in. The psychological aspect of this should not be underestimated.

GlennK
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Re: Anyone (now) regret choosing a lump sum vs. annuity option?

Post by GlennK » Fri Mar 20, 2020 9:16 am

My company only recently (5 years or so?) began offering the buyout option. They also stopped offering the pension to new hires about 15 years ago. So only those of us with over 27 years now have to make this decision.

I am planning on retiring at age 60 which is in 1.5 years (may delay a few years if my 401K does not recover some of these losses by then). I am (fairly) recently widowed so I can simply take the 100% pension annuity. I have discussed the annuity versus buyout with many people at my company. I am the only one I have talked to (out of 10 others) that is planning on the annuity. My decision was based on having over 1M from my 401K and Roth IRA already invested in stocks and bonds. I would rather have the knowledge that I will have a monthly payout for life. I realize I could lose out on some money, but the peace of mind that there is some definite money available regardless of the stock market ups and downs is priceless to me.

My company's pension is well funded (as of now) and the pension annuity beats the fixed annuities at immediateannuities.com. And the pension annuity is under the PBGA limits.

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bertilak
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Re: Anyone (now) regret choosing a lump sum vs. annuity option?

Post by bertilak » Fri Mar 20, 2020 9:27 am

Stinky wrote:
Fri Mar 20, 2020 8:23 am
Loving my annuity.

A deposit is made to my checking account on the first of each month. No matter what happens in the outside world.

Loving my annuity.
Same here.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet

BigJohn
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Re: Anyone (now) regret choosing a lump sum vs. annuity option?

Post by BigJohn » Fri Mar 20, 2020 10:01 am

Took a lump sum when I retired 5 years ago. Having won the game, I used Bill Bernstein's LMP approach and invested at an AA of 35/65. Still sleeping well at night, sold bonds and bought stocks to rebalance back to that target last week, no regrets here :beer

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WoodSpinner
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Re: Anyone (now) regret choosing a lump sum vs. annuity option?

Post by WoodSpinner » Fri Mar 20, 2020 11:19 am

OP,

Timely post! Made the decision in Dec2017 to take the pension rather than the lump sum. Lot’s of good advice and financial analysis helped us make it. That said, I have been kicking myself a bit as the bull market raged on triggering loads of self doubt.

That said, the most important factor in helping us make the decision was a short exercise my wife and I did in coming up with 5 key Retirement goals and ranking them in priority order. It became really clear that a secure Retirement where we could afford to travel and really enjoy life was much more important to both of us than having a boatload of money to leave to our heirs. Had to fall back on this narrative many times as the bull market continued and many (including myself) questioned our decision.

Feeling much more secure at this point with the decision — at this point more concerned with how my daughter and my nieces and nephews will weather the storm.

All-in-all, I liked the Bull Market better!

WoodSpinner

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Frugal Al
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Re: Anyone (now) regret choosing a lump sum vs. annuity option?

Post by Frugal Al » Fri Mar 20, 2020 11:59 am

No regrets with taking a lump sum. I did not accept the first offer from the company, but took it later at more favorable terms/segment rates. Regardless of what happens I'm confident I'll still be happy with the decision--I have an appropriately conservative portfolio. Relying on the solvency of insurance companies, PBGC backstops, and low inflation seemed a more worrisome problem to me, and I have a legacy intent. I can always take SS before age 70 if I choose to. And I also have a plan to consider a commercial annuity between age 75 and 80. Many options--no worries.

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