Pension Payout

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fuddbogle
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Pension Payout

Post by fuddbogle »

A company I used to work for (Energy sector) went bankrupt (I already had left). Parts of it got bought out and I have a small pension with the new company.

I’ll turn 51(M) later this year and my spouse with turn 52(F).

There are a lot of different ways for a payout but here are a few relevant options:

@55 – collect $723/month until age 62 and then pension payout is complete
@60 – collect $1008/month until age 62 then collect $208/month for my lifetime
@62 - $358/month for my life or $322/month (50% to spouse on death) or 100% both lifetimes @ $288
@65 - $461/month for my life or $415 (50% to spouse on death) or 100% both lifetimes @ $369

While I don’t believe I’ll need the money at age 55, I’m leaning towards taking the payout then until age 62. I would simply roll this payout into my investments and let it grow. Any reasoning why there is a better way?
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JoeRetire
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Re: Pension Payout

Post by JoeRetire »

fuddbogle wrote: Tue Jul 23, 2019 7:33 am While I don’t believe I’ll need the money at age 55, I’m leaning towards taking the payout then until age 62.
Is that because you will need the money at 62?
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SQRT
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Re: Pension Payout

Post by SQRT »

Assuming the math is in accordance with reasonable interest and mortality assumptions, and you don’t really need the money, and are in good health, I would defer as long as possible with the highest spousal survivor percentage. (The Bogle approach?)
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Stinky
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Re: Pension Payout

Post by Stinky »

fuddbogle wrote: Tue Jul 23, 2019 7:33 am A company I used to work for (Energy sector) went bankrupt (I already had left). Parts of it got bought out and I have a small pension with the new company.

I’ll turn 51(M) later this year and my spouse with turn 52(F).

There are a lot of different ways for a payout but here are a few relevant options:

@55 – collect $723/month until age 62 and then pension payout is complete
@60 – collect $1008/month until age 62 then collect $208/month for my lifetime
@62 - $358/month for my life or $322/month (50% to spouse on death) or 100% both lifetimes @ $288
@65 - $461/month for my life or $415 (50% to spouse on death) or 100% both lifetimes @ $369

While I don’t believe I’ll need the money at age 55, I’m leaning towards taking the payout then until age 62. I would simply roll this payout into my investments and let it grow. Any reasoning why there is a better way?
I expect that the payouts are "actuarially equivalent", so the pension plan is indifferent as to which option that you take. When pension plans make calculations like this, they generally use pretty conservative assumptions.

I'm agreeing with you to take the money as soon as possible, and invest it in accordance with the allocation profile. Presuming that your investments include some portion of stocks, I expect that you'll do better on the investment side than the pension plan's assumptions.

If you find that you have a hankering for a guaranteed monthly income at age 65 or so, you can always buy a SPIA from your investment account.l
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cheese_breath
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Re: Pension Payout

Post by cheese_breath »

fuddbogle wrote: Tue Jul 23, 2019 7:33 am There are a lot of different ways for a payout....
Is lump sum rollover to an IRA one of them?
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cherijoh
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Re: Pension Payout

Post by cherijoh »

fuddbogle wrote: Tue Jul 23, 2019 7:33 am A company I used to work for (Energy sector) went bankrupt (I already had left). Parts of it got bought out and I have a small pension with the new company.

I’ll turn 51(M) later this year and my spouse with turn 52(F).

There are a lot of different ways for a payout but here are a few relevant options:

@55 – collect $723/month until age 62 and then pension payout is complete
@60 – collect $1008/month until age 62 then collect $208/month for my lifetime
@62 - $358/month for my life or $322/month (50% to spouse on death) or 100% both lifetimes @ $288
@65 - $461/month for my life or $415 (50% to spouse on death) or 100% both lifetimes @ $369

While I don’t believe I’ll need the money at age 55, I’m leaning towards taking the payout then until age 62. I would simply roll this payout into my investments and let it grow. Any reasoning why there is a better way?
Are you continuing to work or are you retired? If working at 55, pension will be taxed at your marginal tax bracket. Same for collecting at 60 and 62 if you continued to work. I was eligible to take a pension from my former employer at 55, but deferred it until this January after retiring in spring of 2018. (The pension had reached its maximum payout). I'm single and didn't need the income, so I went for the equivalent of your option #4 (which I could collect 5 years early based on my years of service at the company).

Do you have substantial assets in traditional IRA/401k? Do you plan to do any Roth conversions? A pension can limit the room you have to do cost- effective conversions. I did quite a bit of conversions last year, but it will be more expensive if I do them this year.
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fuddbogle
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Re: Pension Payout

Post by fuddbogle »

cheese_breath wrote: Tue Jul 23, 2019 8:08 am
fuddbogle wrote: Tue Jul 23, 2019 7:33 am There are a lot of different ways for a payout....
Is lump sum rollover to an IRA one of them?
It is not.
cherijoh
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Re: Pension Payout

Post by cherijoh »

cheese_breath wrote: Tue Jul 23, 2019 8:08 am
fuddbogle wrote: Tue Jul 23, 2019 7:33 am There are a lot of different ways for a payout....
Is lump sum rollover to an IRA one of them?
Good question. I assumed that if it was, OP would have mentioned it, but you know what they say about making assumptions... :wink:
Topic Author
fuddbogle
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Re: Pension Payout

Post by fuddbogle »

cherijoh wrote: Tue Jul 23, 2019 8:08 am
Are you continuing to work or are you retired? If working at 55, pension will be taxed at your marginal tax bracket. Same for collecting at 60 and 62 if you continued to work. I was eligible to take a pension from my former employer at 55, but deferred it until this January after retiring in spring of 2018. (The pension had reached its maximum payout). I'm single and didn't need the income, so I went for the equivalent of your option #4 (which I could collect 5 years early based on my years of service at the company).

Do you have substantial assets in traditional IRA/401k? Do you plan to do any Roth conversions? A pension can limit the room you have to do cost- effective conversions. I did quite a bit of conversions last year, but it will be more expensive if I do them this year.
We both would still be working. This income would be taxed at the 22% tax bracket. Estimated retirement age (at least partial) would be 60. Estimated to have in the range of 1M in IRA/401k and 300k in Roth at age 60. Your comments/questions are very helpful.

Edit: For what it's worth, we also likely wouldn't need to use any of the IRA's/401k money for living expenses at 60. We should have all of our basic living expenses covered with pensions and other taxable accounts.
Topic Author
fuddbogle
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Re: Pension Payout

Post by fuddbogle »

Stinky wrote: Tue Jul 23, 2019 8:07 am
I expect that the payouts are "actuarially equivalent", so the pension plan is indifferent as to which option that you take. When pension plans make calculations like this, they generally use pretty conservative assumptions.

I'm agreeing with you to take the money as soon as possible, and invest it in accordance with the allocation profile. Presuming that your investments include some portion of stocks, I expect that you'll do better on the investment side than the pension plan's assumptions.

If you find that you have a hankering for a guaranteed monthly income at age 65 or so, you can always buy a SPIA from your investment account.l
I'm thinking the same but it seems I'll be getting our accountant involved, I should be anyway, in this planning.
cherijoh
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Re: Pension Payout

Post by cherijoh »

fuddbogle wrote: Tue Jul 23, 2019 8:16 am
cherijoh wrote: Tue Jul 23, 2019 8:08 am
Are you continuing to work or are you retired? If working at 55, pension will be taxed at your marginal tax bracket. Same for collecting at 60 and 62 if you continued to work. I was eligible to take a pension from my former employer at 55, but deferred it until this January after retiring in spring of 2018. (The pension had reached its maximum payout). I'm single and didn't need the income, so I went for the equivalent of your option #4 (which I could collect 5 years early based on my years of service at the company).

Do you have substantial assets in traditional IRA/401k? Do you plan to do any Roth conversions? A pension can limit the room you have to do cost- effective conversions. I did quite a bit of conversions last year, but it will be more expensive if I do them this year.
We both would still be working. This income would be taxed at the 22% tax bracket. Estimated retirement age (at least partial) would be 60. Estimated to have in the range of 1M in IRA/401k and 300k in Roth at age 60. Your comments/questions are very helpful.

Edit: For what it's worth, we also likely wouldn't need to use any of the IRA's/401k money for living expenses at 60. We should have all of our basic living expenses covered with pensions and other taxable accounts.
Do you have a state income tax and how does it treat pension income? That could also influence your decision.

The rule of thumb (appropriate IMO for most people) is to spend down taxable, then traditional, then Roth. The size of your taxable account could influence which pension choice makes the most sense for you. If taking the pension extends the life of your taxable account so that you push back distributions out of your traditional accounts then it is a good idea IMO. But if you won't need to make withdrawals until RMDs that becomes less of a factor.

Assuming your pension doesn't have a COLA, then taking pension to postpone SS, is a good idea.

Do you need to make your election now (i.e., limited-time offer) or can you make up your mind later?
Topic Author
fuddbogle
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Re: Pension Payout

Post by fuddbogle »

cherijoh wrote: Tue Jul 23, 2019 8:37 am
Do you have a state income tax and how does it treat pension income? That could also influence your decision.

The rule of thumb (appropriate IMO for most people) is to spend down taxable, then traditional, then Roth. The size of your taxable account could influence which pension choice makes the most sense for you. If taking the pension extends the life of your taxable account so that you push back distributions out of your traditional accounts then it is a good idea IMO. But if you won't need to make withdrawals until RMDs that becomes less of a factor.

Assuming your pension doesn't have a COLA, then taking pension to postpone SS, is a good idea.

Do you need to make your election now (i.e., limited-time offer) or can you make up your mind later?
No rush on the decision. State tax is 6.25% but pension, social security, and most retirement income is not taxed at the state level. It's possible we move but no idea where to at the moment.

My wife's main pension will have an annual 3% COLA.

Also, I doubt our taxable account ever gets over 250k as we approach retirement. If it does, we'll just start gifting money to our children.
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