Evaluation of Pension Default Risk

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in2bait
Posts: 8
Joined: Mon Mar 17, 2014 12:11 pm

Evaluation of Pension Default Risk

Post by in2bait » Wed Oct 10, 2018 9:14 am

Planning to retire early next year at 52 and evaluating the annuity vs cash out of a pension for a large county owned hospital. The pension plan is currently funded at 90% and appears healthy. Because is is government owned is is not insured by the PBGC

Yearly inflation adjusted payment is $18,600
Cash Payout is $240,000
We are electing to take one of the retirement plans now because it allows us to remain on the hospital health insurance plan through medicare age saving us nearly $25,000/year.

Running the math, the monthly payments are the better option if I or my spouse lives longer than age 67, which is highly likely.

Either way we have enough to meet our annual expenses, but we would like to maximize our dollars in retirement.

So with that in mind, what say the Bogleheads on the risk of pension plan default or reduction vs the guaranteed money up front ?

Nate79
Posts: 3478
Joined: Thu Aug 11, 2016 6:24 pm
Location: Portland, OR

Re: Evaluation of Pension Default Risk

Post by Nate79 » Wed Oct 10, 2018 10:07 am

I will just throw this little thought out there, not really in support or against the pension. But consider that at age 52 you may live 40+ more years. Specifically concerning the health of the pension it is not just today's health but it's health for the next 40+ years. Of course look at the health today of the pension but how about the trajectory? Are things getting better or worse?

in2bait
Posts: 8
Joined: Mon Mar 17, 2014 12:11 pm

Re: Evaluation of Pension Default Risk

Post by in2bait » Wed Oct 10, 2018 6:16 pm

Thanks Nate,
I think I may be over-analyzing this because either way our needs are met.
I do have concerns about the financial stability of the pension looking forward 40 years, hence the question to see if anyone else has crossed this bridge.
The old "Bird in the hand is worth two in the bush" seems to be at play here.

yohac
Posts: 47
Joined: Sat Sep 01, 2018 1:42 pm

Re: Evaluation of Pension Default Risk

Post by yohac » Wed Oct 10, 2018 6:39 pm

If there's no PBGC, I'd probably take a lump sum. Even if it's supposedly guaranteed by the county or state. The unfunded pension liabilities in this country are staggering.

TheDDC
Posts: 199
Joined: Mon Jan 08, 2018 11:11 am

Re: Evaluation of Pension Default Risk

Post by TheDDC » Wed Oct 10, 2018 6:54 pm

in2bait wrote:
Wed Oct 10, 2018 9:14 am
Planning to retire early next year at 52 and evaluating the annuity vs cash out of a pension for a large county owned hospital. The pension plan is currently funded at 90% and appears healthy. Because is is government owned is is not insured by the PBGC

Yearly inflation adjusted payment is $18,600
Cash Payout is $240,000
We are electing to take one of the retirement plans now because it allows us to remain on the hospital health insurance plan through medicare age saving us nearly $25,000/year.

Running the math, the monthly payments are the better option if I or my spouse lives longer than age 67, which is highly likely.

Either way we have enough to meet our annual expenses, but we would like to maximize our dollars in retirement.

So with that in mind, what say the Bogleheads on the risk of pension plan default or reduction vs the guaranteed money up front ?
You're retiring at 52. Take the pension. Even if you live 30 years that's over half a million overall payout.

Once again, those who want the govt to reneg on a protected contract are wishcasting. Govt will take theirs first to balance the books if their wish come true anyway.

PBGC is useless and is not guaranteed to pay anything once corporate America closes up shop and runs off with the parachutes. Be glad they are not in the mix in this calculation.

-TheDDC

Tier1Capital
Posts: 116
Joined: Sun Apr 03, 2011 5:27 pm

Re: Evaluation of Pension Default Risk

Post by Tier1Capital » Wed Oct 10, 2018 7:02 pm

The unfunded pension liabilities for the entire country aren't relevant to one municipality's pension plan.

megabad
Posts: 574
Joined: Fri Jun 01, 2018 4:00 pm

Re: Evaluation of Pension Default Risk

Post by megabad » Thu Oct 11, 2018 2:30 pm

in2bait wrote:
Wed Oct 10, 2018 9:14 am
Planning to retire early next year at 52 and evaluating the annuity vs cash out of a pension for a large county owned hospital. The pension plan is currently funded at 90% and appears healthy. Because is is government owned is is not insured by the PBGC

Yearly inflation adjusted payment is $18,600
Cash Payout is $240,000
We are electing to take one of the retirement plans now because it allows us to remain on the hospital health insurance plan through medicare age saving us nearly $25,000/year.

Running the math, the monthly payments are the better option if I or my spouse lives longer than age 67, which is highly likely.

Either way we have enough to meet our annual expenses, but we would like to maximize our dollars in retirement.

So with that in mind, what say the Bogleheads on the risk of pension plan default or reduction vs the guaranteed money up front ?
Agree with you on taking the lifetime inflation adjusted annuity. I am assuming this is a state pension (which narrows it down if it is 90% funded) which means that your share of it is very small. I consider a 90% funded state funded pension significantly safer than any PBGC backed plan. I would rate it as "pretty safe". There are only two safer options in my mind: state pensions that legislatively require funding (there are a few), or FERS.

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