## Another Pension Lump Sum Help Needed

### Another Pension Lump Sum Help Needed

Hopefully #Cruncher or some other excel wiz can run what return i would need to get for the different ending ages of 82, 90, 100.

Age 45

Pension Lump Sum $138,400

Single Life Annuity at 65: $2161/m no COLA

So assuming i live to 82(expectancy), 90 and 100 what is the return i need to get to self fund equal to the annuity? I came up with rates +/- 5% but dont trust my calculations!

Thank you in advance!

Age 45

Pension Lump Sum $138,400

Single Life Annuity at 65: $2161/m no COLA

So assuming i live to 82(expectancy), 90 and 100 what is the return i need to get to self fund equal to the annuity? I came up with rates +/- 5% but dont trust my calculations!

Thank you in advance!

### Re: Another Pension Lump Sum Help Needed

Is the buyout $ 138,400 the buyout amount available now at your age age 45 or the anticipated buyout at age 65 (based on current rates)?

The closest helping hand is at the end of your own arm.

### Re: Another Pension Lump Sum Help Needed

5% is pretty close, Falco. An easy way to calculate it is with the Excel IRR function as shown in the following table that computes the return for living to every age from 68 to 100.

Code: Select all

```
Col A Col B Col C
Row Age Amount IRR
```

Code: Select all

```
2 45 (138,400)
3 46 0
4 47 0
5 48 0
6 49 0
7 50 0
8 51 0
9 52 0
10 53 0
11 54 0
12 55 0
13 56 0
14 57 0
15 58 0
16 59 0
17 60 0
18 61 0
19 62 0
20 63 0
21 64 0
22 65 25,932
23 66 25,932
24 67 25,932
25 68 25,932 (1.3%) [*]
26 69 25,932 (0.3%)
27 70 25,932 0.5%
28 71 25,932 1.2%
29 72 25,932 1.7%
30 73 25,932 2.2%
31 74 25,932 2.6%
32 75 25,932 3.0%
33 76 25,932 3.3%
34 77 25,932 3.5%
35 78 25,932 3.7%
36 79 25,932 4.0%
37 80 25,932 4.1%
38 81 25,932 4.3%
39 82 25,932 4.5% <--
40 83 25,932 4.6%
41 84 25,932 4.7%
42 85 25,932 4.8%
43 86 25,932 4.9%
44 87 25,932 5.0%
45 88 25,932 5.1%
46 89 25,932 5.2%
47 90 25,932 5.2% <--
48 91 25,932 5.3%
49 92 25,932 5.3%
50 93 25,932 5.4%
51 94 25,932 5.4%
52 95 25,932 5.5%
53 96 25,932 5.5%
54 97 25,932 5.6%
55 98 25,932 5.6%
56 99 25,932 5.6%
57 100 25,932 5.7% <--
```

C25: -1.3% = IRR(B$2:B25)

### Re: Another Pension Lump Sum Help Needed

Thank you #Cruncher. Do these calculations assume i take the $138,400 now, invest it then beginning when i am 65 in 20y i start taking $2161/m out? And then the interest rate is the annual return i would need to get through the entire horizon from today age 45 until the ages indicated?

If so, then this lump sum option looks much more like one to take over keeping with the pension and annuitizing. Many other threads i read had a 6.5 to almost 8% needed. To need only mid 4% return over a ~40y horizon and mid 5% over a 50y horizon, even in today's lower outlook market, seems fairly feasible.

Of note pension is over 90% funded and with a large multinational bank.

Ami thinking about this the correct way?

If so, then this lump sum option looks much more like one to take over keeping with the pension and annuitizing. Many other threads i read had a 6.5 to almost 8% needed. To need only mid 4% return over a ~40y horizon and mid 5% over a 50y horizon, even in today's lower outlook market, seems fairly feasible.

Of note pension is over 90% funded and with a large multinational bank.

Ami thinking about this the correct way?

### Re: Another Pension Lump Sum Help Needed

Yes. Assume at age 45 you deposit $138,400 into a savings account paying 4.450923% [*] interest at the end of each year. In 19 years this would grow to $316,570. The next year at age 65 you'd begin withdrawing $25,932 (12 X 2161) at the end of each year while still earning the same interest rate. You could do this until age 82 before exhausting the money in the savings account.Falco wrote: ↑Tue Oct 17, 2017 9:29 amDo these calculations assume i take the $138,400 now, invest it then beginning when i am 65 in 20y i start taking $2161/m out? And then the interest rate is the annual return i would need to get through the entire horizon from today age 45 until the ages indicated?

Code: Select all

` Age Interest Withdrawal Balance`

Code: Select all

```
45 138,400
46 6,160 0 144,560
47 6,434 0 150,994
48 6,721 0 157,715
49 7,020 0 164,735
50 7,332 0 172,067
51 7,659 0 179,726
52 7,999 0 187,725
53 8,355 0 196,080
54 8,727 0 204,808
55 9,116 0 213,924
56 9,522 0 223,445
57 9,945 0 233,391
58 10,388 0 243,779
59 10,850 0 254,629
60 11,333 0 265,962
61 11,838 0 277,800
62 12,365 0 290,165
63 12,915 0 303,080
64 13,490 0 316,570
65 14,090 25,932 304,728
66 13,563 25,932 292,359
67 13,013 25,932 279,440
68 12,438 25,932 265,946
69 11,837 25,932 251,851
70 11,210 25,932 237,128
71 10,554 25,932 221,751
72 9,870 25,932 205,689
73 9,155 25,932 188,912
74 8,408 25,932 171,388
75 7,628 25,932 153,084
76 6,814 25,932 133,966
77 5,963 25,932 113,997
78 5,074 25,932 93,139
79 4,146 25,932 71,352
80 3,176 25,932 48,596
81 2,163 25,932 24,827
82 1,105 25,932 0
------- -------
Total 328,376 466,776
```

A couple of comments:Falco, continuing in same post," wrote:If so, then this lump sum option looks much more like one to take over keeping with the pension and annuitizing. Many other threads i read had a 6.5 to almost 8% needed. To need only mid 4% return over a ~40y horizon and mid 5% over a 50y horizon, even in today's lower outlook market, seems fairly feasible.

- You've been looking at different pension vs lump sum threads than I have. The ones I've seen typically have the pension returning 4% to 5%, not the 6.5% to 8% you mention.
- While the pension's return is, indeed, low for one beginning so far in the future, it's still better than what you'd get from a commercial annuity. For example, ImmediateAnnuities shows $138,400 buying a 45 year old male a $1,565 monthly annuity beginning in 20 years. This is $600 less than the $2,161 monthly pension.

### Re: Another Pension Lump Sum Help Needed

Thank you.

I did check immediate annuities and saw the same thing. Also saw that for a 65yo today you would need just shy of 400k to get 2161...or close to a 5.4% return for the next 20y.

Seems like the annuity is pretty good, but then also I only see 3 rolling 20y periods less than 5% and they were 1927, 28 and 29 if I remember correctly.

I did check immediate annuities and saw the same thing. Also saw that for a 65yo today you would need just shy of 400k to get 2161...or close to a 5.4% return for the next 20y.

Seems like the annuity is pretty good, but then also I only see 3 rolling 20y periods less than 5% and they were 1927, 28 and 29 if I remember correctly.

### Re: Another Pension Lump Sum Help Needed

Hi. For what it's worth, I think $400k is the amount that an immediate annuity would cost. That is, one that starts paying out $2,161 per month starting at age 45 rather than starting at age 65. The $130k-$150k figure looks more reasonable to me.Falco wrote: ↑Tue Oct 17, 2017 9:26 pmThank you.

I did check immediate annuities and saw the same thing. Also saw that for a 65yo today you would need just shy of 400k to get 2161...or close to a 5.4% return for the next 20y.

Seems like the annuity is pretty good, but then also I only see 3 rolling 20y periods less than 5% and they were 1927, 28 and 29 if I remember correctly.

Source: Am pension actuary.

-g$$

### Re: Another Pension Lump Sum Help Needed

Crunching the numbers seems to show that the annuity is relatively generous (you would be "buying" it at a very reasonable price). Next issue is the risk-reward comparison, because even if the annuity is nicely priced, that alone is not proof it is the right thing.

Annuity Plusses:

Guaranteed lifetime income. If you live a long time, this is a major plus.

If you take the lump sum and invest it, the investments may lose value in a deflation and you may not recover sufficiently over time, and meanwhile the value of the annuity would have increased.

Annuity Minuses:

The provider may go under and you may not be made whole. This is a twenty year period so the risk is there that one thing or another goes wrong and the annuity won't be collected.

There may be a significant inflation which lowers the value of the annuity payments, whereas your lump sum investment may increase nicely with the inflation.

I'm sure there are other considerations, but seeing as we just can't know, here's my thought.

An annuity or pension is a wonderful thing, especially if you can buy it at a discount. If you are fairly sure of long term employment, then you will be able to accumulate other assets which greatly reduce any of the risks of buyng the annuity/pension and I'd say do not take the lump sum.

However, if you are not sure about your long-term steady employment prospects I'd say avoid the annuity risk and take the lump sum.

Best wishes.

Annuity Plusses:

Guaranteed lifetime income. If you live a long time, this is a major plus.

If you take the lump sum and invest it, the investments may lose value in a deflation and you may not recover sufficiently over time, and meanwhile the value of the annuity would have increased.

Annuity Minuses:

The provider may go under and you may not be made whole. This is a twenty year period so the risk is there that one thing or another goes wrong and the annuity won't be collected.

There may be a significant inflation which lowers the value of the annuity payments, whereas your lump sum investment may increase nicely with the inflation.

I'm sure there are other considerations, but seeing as we just can't know, here's my thought.

An annuity or pension is a wonderful thing, especially if you can buy it at a discount. If you are fairly sure of long term employment, then you will be able to accumulate other assets which greatly reduce any of the risks of buyng the annuity/pension and I'd say do not take the lump sum.

However, if you are not sure about your long-term steady employment prospects I'd say avoid the annuity risk and take the lump sum.

Best wishes.

### Re: Another Pension Lump Sum Help Needed

Thank you all for the responses. Given there isn't a clear advantage either way I will likely take the bird in hand and do the lump sum. I don't have a family history of anyone living past 90 so my goal is to actually retire early.

And Beehives comment about the long time frame rings true...20y is a long time. If I was 5 or 10y away the annuity would be more attractive as it is guaranteeing a 5%+ return over that short time frame

If I get less than 4.5% return I on average lose out doing this.

These are tough but good decisions to have!

And Beehives comment about the long time frame rings true...20y is a long time. If I was 5 or 10y away the annuity would be more attractive as it is guaranteeing a 5%+ return over that short time frame

If I get less than 4.5% return I on average lose out doing this.

These are tough but good decisions to have!