Mother's Pension Plan is Being Terminated - Help with Options Needed

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
Topic Author
AllMostThere
Posts: 142
Joined: Sat Dec 31, 2016 2:04 pm

Mother's Pension Plan is Being Terminated - Help with Options Needed

Post by AllMostThere »

Hi Bogleheads community. My 81 year old mother (82 in Nov) just received notification that her former employers pension plan is being terminated effective Oct 2, 2019. She has been drawing on this same pension ~ $554/mo for the past twenty years and still lives on her own with me or my sister within <10 minute drive. She needs to make a choice between the options below by Sept 30th. Options:

1) Do nothing and continue receiving $554/mo in an immediate annuity from a TBD annuity company.
2) Accept Lump Sum of $47,575 in one of four methods:
- Cash directly payable to her in form a check (assume this will be taxable option). She currently receives ~ $48K annually between her pension, deceased Father's pension, SS and RMD's, so she really doesn't need to lump sum paid now. RMD's are just added to savings.
- Rollover to an eligible sponsored retirement plan. I don't really see this a viable as any prior 401K funds have already been rolled to her tIRA.
- Rollover to a Roth IRA (assume this too will be a taxable option).
- Rollover to Traditional IRA (assume this to be a non-taxable option). If rolled to tIRA, does it need to be new account or can it be deposited to current accounts?

Of all the options, we believe the Lump Sum rolled over to a tIRA is best option, but wanted confirmation. Rationale, which she is aligned, is that her health is really fragile (multiple hospital stays last several years for 1 - 2 weeks duration) with multitude of serious conditions. Any break-even would be ~ 85 months. We both believe that lump sum would best option as this could be rolled over to her tIRA, for conservative investing. Additionally, these funds could be used for her longer term care, should it be needed in the future or could pass to me and sister upon her passing. Any recommendations?
Last edited by AllMostThere on Wed Aug 28, 2019 7:34 pm, edited 1 time in total.
User avatar
cheese_breath
Posts: 9838
Joined: Wed Sep 14, 2011 7:08 pm

Re: Mother's Pension Plan is Being Terminated - Help with Options Needed

Post by cheese_breath »

AllMostThere wrote: Wed Aug 28, 2019 6:13 pm Hi Bogleheads community. My 81 year old mother (82 in Nov) just received notification that her former employers pension plan is being terminated effective Oct 2, 2019. She has been drawing on this same pension < $600/mo for the past twenty years...
How much less? Maybe $46 less?

When GM terminated it's salaried pension program one of the options I was offered was an annuity paying the same amount as my pension.
The surest way to know the future is when it becomes the past.
stlutz
Posts: 5573
Joined: Fri Jan 02, 2009 1:08 am

Re: Mother's Pension Plan is Being Terminated - Help with Options Needed

Post by stlutz »

Not sure that there really is a right answer between the annuity, the traditional IRA or the Roth IRA.

With the Roth the question is whether it's better to pay that taxes at her rate now or at your rate later (assuming she doesn't use the money before then).

With the annuity, people often live a lot longer than you think, so an 81 month breakeven is not unreasonable. Looking an immediateannuities.com, if you tried to buy a SPIA with $47,875 on the open market now, she would get $434/mo, so the $554 is not bad.

GIven that she has other income, I would probably go the tIRA route if was my mother, so I think you're on a good track.
delamer
Posts: 10519
Joined: Tue Feb 08, 2011 6:13 pm

Re: Mother's Pension Plan is Being Terminated - Help with Options Needed

Post by delamer »

At her age, with fragile health, and RMDs not being spent, I agree that a rollover to a TIRA is a good idea as opposed to the annuity). She could use the same account.

Although, it might make sense to pay the taxes to due a Roth conversion — with an eye toward inheritance — depending on her tax rates (federal and state). You can use the TaxCaster app to see what the federal taxes would be. If she is in the 12% marginal bracket, she’d owe about $5,700 in federal taxes.
Topic Author
AllMostThere
Posts: 142
Joined: Sat Dec 31, 2016 2:04 pm

Re: Mother's Pension Plan is Being Terminated - Help with Options Needed

Post by AllMostThere »

cheese_breath wrote: Wed Aug 28, 2019 7:04 pm How much less? Maybe $46 less?
Cheese Breath. My Mother had stated her payment has been < $600/mo, but after review of the documentation, it appears that there will NOT be any change in her monthly benefit. I made the change to my original post. Thanks.
Topic Author
AllMostThere
Posts: 142
Joined: Sat Dec 31, 2016 2:04 pm

Re: Mother's Pension Plan is Being Terminated - Help with Options Needed

Post by AllMostThere »

delamer wrote: Wed Aug 28, 2019 7:19 pm At her age, with fragile health, and RMDs not being spent, I agree that a rollover to a TIRA is a good idea as opposed to the annuity). She could use the same account.

Although, it might make sense to pay the taxes to due a Roth conversion — with an eye toward inheritance — depending on her tax rates (federal and state). You can use the TaxCaster app to see what the federal taxes would be. If she is in the 12% marginal bracket, she’d owe about $5,700 in federal taxes.
Yes, the Roth option does look appealing. If this was pursued, would she then be at risk of Medicare IRMMA penalty? IRMMA question is totally out of my realm and may be too off-topic..... :oops:
delamer
Posts: 10519
Joined: Tue Feb 08, 2011 6:13 pm

Re: Mother's Pension Plan is Being Terminated - Help with Options Needed

Post by delamer »

AllMostThere wrote: Wed Aug 28, 2019 7:43 pm
delamer wrote: Wed Aug 28, 2019 7:19 pm At her age, with fragile health, and RMDs not being spent, I agree that a rollover to a TIRA is a good idea as opposed to the annuity). She could use the same account.

Although, it might make sense to pay the taxes to due a Roth conversion — with an eye toward inheritance — depending on her tax rates (federal and state). You can use the TaxCaster app to see what the federal taxes would be. If she is in the 12% marginal bracket, she’d owe about $5,700 in federal taxes.
Yes, the Roth option does look appealing. If this was pursued, would she then be at risk of Medicare IRMMA penalty? IRMMA question is totally out of my realm and may be too off-topic..... :oops:
I don’t know the particulars on the IRMMA for single people. But it’s good question that depends on the extent of her other income. Should be easily discoverable via a web search.

She could split the conversion over a few years if the IRMMA is a problem with a one-year conversion.
chalet
Posts: 61
Joined: Wed Aug 28, 2019 9:59 pm

Re: Mother's Pension Plan is Being Terminated - Help with Options Needed

Post by chalet »

take the annuity. simple, lifelong, nothing changes.
User avatar
Stinky
Posts: 5548
Joined: Mon Jun 12, 2017 11:38 am
Location: Sweet Home Alabama

Re: Mother's Pension Plan is Being Terminated - Help with Options Needed

Post by Stinky »

AllMostThere wrote: Wed Aug 28, 2019 6:13 pm
Of all the options, we believe the Lump Sum rolled over to a tIRA is best option, but wanted confirmation. Rationale, which she is aligned, is that her health is really fragile (multiple hospital stays last several years for 1 - 2 weeks duration) with multitude of serious conditions. Any break-even would be ~ 85 months. We both believe that lump sum would best option as this could be rolled over to her tIRA, for conservative investing. Additionally, these funds could be used for her longer term care, should it be needed in the future or could pass to me and sister upon her passing.
The plan is offering a continuation of the current monthly benefit. Alternatively, she can get a lump sum. The lump sum is calculated using “average” mortality for a cohort of 81 year old females.

If you believe that your mothers health is worse than the average 81 year old, then you’re making the right choice. Roll the lump sum to the IRA.

This is one of those rare times when you can “select against” the pension plan, by taking advantage of your knowledge of mom’s health. There’s nothing wrong with doing that.
It's a GREAT day to be alive - Travis Tritt
misterno
Posts: 526
Joined: Sat Mar 08, 2014 7:55 am

Re: Mother's Pension Plan is Being Terminated - Help with Options Needed

Post by misterno »

This is a dumb question but I am curious. First you said pension plan is terminated but then you are saying she will keep getting the monthly payment?

I am not understanding.
Beehave
Posts: 807
Joined: Mon Jun 19, 2017 12:46 pm

Re: Mother's Pension Plan is Being Terminated - Help with Options Needed

Post by Beehave »

As I understand it there are strict requirements that "secure" pensions that are transferred by companies over to insurance companies. So I'd think the annuity payments from the insurance company will be secure.

If this were my mom I would keep the annuity whether she had other funds or not. She does not need growth, she needs secure income. She can't get that from bonds today. How will you feel if you invest a lump sum in stocks and the market tanks right away? How will she feel?

Keep the status quo. This is about her. The steady monthly income is the best path for her.

My opinion. Best wishes.
User avatar
celia
Posts: 11403
Joined: Sun Mar 09, 2008 6:32 am
Location: SoCal

Re: Mother's Pension Plan is Being Terminated - Help with Options Needed

Post by celia »

If she rolls it over to a new tIRA, her RMD will be distributed next year (age 83) at a 6.1% withdrawal rate (which increases each year). In dollars, she will need to withdraw $2918 per year or $243 per month. That is a little less than half her monthly pension, but it will increase as she gets older and RMDs will continue (by the heirs) after she dies.

If she doesn't need the money for living expenses, I would convert some of it this year, for benefit of her heirs, but save half of it to be used for expensive health care needs in her final years.

It doesn't matter if she adds it to a new IRA or an existing one.
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.
Valuethinker
Posts: 41152
Joined: Fri May 11, 2007 11:07 am

Re: Mother's Pension Plan is Being Terminated - Help with Options Needed

Post by Valuethinker »

AllMostThere wrote: Wed Aug 28, 2019 6:13 pm Hi Bogleheads community. My 81 year old mother (82 in Nov) just received notification that her former employers pension plan is being terminated effective Oct 2, 2019. She has been drawing on this same pension ~ $554/mo for the past twenty years and still lives on her own with me or my sister within <10 minute drive. She needs to make a choice between the options below by Sept 30th. Options:

1) Do nothing and continue receiving $554/mo in an immediate annuity from a TBD annuity company.
2) Accept Lump Sum of $47,575 in one of four methods:
- Cash directly payable to her in form a check (assume this will be taxable option). She currently receives ~ $48K annually between her pension, deceased Father's pension, SS and RMD's, so she really doesn't need to lump sum paid now. RMD's are just added to savings.
- Rollover to an eligible sponsored retirement plan. I don't really see this a viable as any prior 401K funds have already been rolled to her tIRA.
- Rollover to a Roth IRA (assume this too will be a taxable option).
- Rollover to Traditional IRA (assume this to be a non-taxable option). If rolled to tIRA, does it need to be new account or can it be deposited to current accounts?

Of all the options, we believe the Lump Sum rolled over to a tIRA is best option, but wanted confirmation. Rationale, which she is aligned, is that her health is really fragile (multiple hospital stays last several years for 1 - 2 weeks duration) with multitude of serious conditions. Any break-even would be ~ 85 months. We both believe that lump sum would best option as this could be rolled over to her tIRA, for conservative investing. Additionally, these funds could be used for her longer term care, should it be needed in the future or could pass to me and sister upon her passing. Any recommendations?
You know, I would be tempted to keep the payment.

You'll feel like a mug if she dies within 84 months. But would the inheritance matter so much to her heirs?

However the security and reassurance of still getting the constant sum coming in, without having to deplete capital in any way. At a time when health is so fragile.

And not having to make investment decisions.

I am not au fait with the US tax situation, but that money invested would perhaps produce 2% return (safely) or about $1000 pa. Spread that $45k over say 10 years, another $4500 pa. So somewhere around $5k pa or $425 pcm? EDIT - the after tax position might be quite different - presumably no tax on depletion of capital?

I don't know how this would work with healthcare deductibles/ uninsured expenses - whether it's better to have more capital or more income to meet those?
User avatar
cheese_breath
Posts: 9838
Joined: Wed Sep 14, 2011 7:08 pm

Re: Mother's Pension Plan is Being Terminated - Help with Options Needed

Post by cheese_breath »

misterno wrote: Wed Aug 28, 2019 10:27 pm This is a dumb question but I am curious. First you said pension plan is terminated but then you are saying she will keep getting the monthly payment?

I am not understanding.
One of the options the company is giving her is an annuity paying the same as the current pension.
The surest way to know the future is when it becomes the past.
User avatar
samsoes
Posts: 1487
Joined: Tue Mar 05, 2013 9:12 am

Re: Mother's Pension Plan is Being Terminated - Help with Options Needed

Post by samsoes »

cheese_breath wrote: Thu Aug 29, 2019 4:48 am
misterno wrote: Wed Aug 28, 2019 10:27 pm This is a dumb question but I am curious. First you said pension plan is terminated but then you are saying she will keep getting the monthly payment?

I am not understanding.
One of the options the company is giving her is an annuity paying the same as the current pension.
Of course, the annuity would not be protected by the PBGC as the pension is now. If the annuity/insurance company goes out of business, bye-bye annuity payments.
"Happiness Is Not My Companion" - Gen. Gouverneur K. Warren. | (Avatar is the statue of Gen. Warren atop Little Round Top @ Gettysburg National Military Park.)
chipperd
Posts: 733
Joined: Sat Sep 24, 2011 5:58 am

Re: Mother's Pension Plan is Being Terminated - Help with Options Needed

Post by chipperd »

This will come across as a bit callous, but in thinking about these situations, I tend to take the lump sum offered ($47,575) and divide it by the monthly amount of the annuity offered ($554). Assuming no gain in the lump sum relative to inflation, that lump sum of $47,575, would yield 85.87 months of payments in the amount of $554/month. That would mean your mom would need to live another 7.156 months, or approx 7 years and 2 more months to make the monthly payment a better financial choice vs the lump sum. That brings us to mom living to age 89 and 2 months, which brings family health history and family longevity into question. Again, that assumes that lump sum makes zero real gain over inflation, an assumption I'm sure some will take issue with, but one that might be realistic for her risk tolerance at her age. According to the social security actuarial life table, your mom, at age 82, is expected to live another 7.32 years, but with a possibility of death of just over 44% (sorry that's the callous part).
For me, I would advise my mom to take the lump sum due to our family hx and having more control over the funds.
BarbBrooklyn
Posts: 830
Joined: Fri Aug 24, 2018 9:33 am
Location: NYC

Re: Mother's Pension Plan is Being Terminated - Help with Options Needed

Post by BarbBrooklyn »

If she doesn't have LTC insurance and if you think that she may end up in a N H and in need of Medicaid funding, the lump sum could be spent down as a private pay patient, perhaps giving her better options.

Check the terms of the Medicaid program in your state to find out if this is applicable.
BarbBrooklyn | "The enemy of a good plan is the dream of a perfect plan."
student
Posts: 5159
Joined: Fri Apr 03, 2015 6:58 am

Re: Mother's Pension Plan is Being Terminated - Help with Options Needed

Post by student »

Given that the annuity will be from an unknown company, I would probably pass. I would go for a lump sum to tIRA. You asked "If rolled to tIRA, does it need to be new account or can it be deposited to current accounts?" I believe you can roll it to an existing account. Even if this is not the case, you always move it to consolidate later.
Valuethinker
Posts: 41152
Joined: Fri May 11, 2007 11:07 am

Re: Mother's Pension Plan is Being Terminated - Help with Options Needed

Post by Valuethinker »

samsoes wrote: Thu Aug 29, 2019 4:57 am
cheese_breath wrote: Thu Aug 29, 2019 4:48 am
misterno wrote: Wed Aug 28, 2019 10:27 pm This is a dumb question but I am curious. First you said pension plan is terminated but then you are saying she will keep getting the monthly payment?

I am not understanding.
One of the options the company is giving her is an annuity paying the same as the current pension.
Of course, the annuity would not be protected by the PBGC as the pension is now. If the annuity/insurance company goes out of business, bye-bye annuity payments.
Would state insurance guarantees apply in this case?

If not, I agree this is a potential deal breaker.
Valuethinker
Posts: 41152
Joined: Fri May 11, 2007 11:07 am

Re: Mother's Pension Plan is Being Terminated - Help with Options Needed

Post by Valuethinker »

chipperd wrote: Thu Aug 29, 2019 5:29 am This will come across as a bit callous, but in thinking about these situations, I tend to take the lump sum offered ($47,575) and divide it by the monthly amount of the annuity offered ($554). Assuming no gain in the lump sum relative to inflation, that lump sum of $47,575, would yield 85.87 months of payments in the amount of $554/month. That would mean your mom would need to live another 7.156 months, or approx 7 years and 2 more months to make the monthly payment a better financial choice vs the lump sum. That brings us to mom living to age 89 and 2 months, which brings family health history and family longevity into question. Again, that assumes that lump sum makes zero real gain over inflation, an assumption I'm sure some will take issue with, but one that might be realistic for her risk tolerance at her age. According to the social security actuarial life table, your mom, at age 82, is expected to live another 7.32 years, but with a possibility of death of just over 44% (sorry that's the callous part).
For me, I would advise my mom to take the lump sum due to our family hx and having more control over the funds.
I think that is not a bad way to look at it.

Assuming that OP can manage the situation so Mum has no need to be involved. My mother would find it very stressful / impossible to have to make investment decisions.
User avatar
samsoes
Posts: 1487
Joined: Tue Mar 05, 2013 9:12 am

Re: Mother's Pension Plan is Being Terminated - Help with Options Needed

Post by samsoes »

Valuethinker wrote: Thu Aug 29, 2019 7:12 am
samsoes wrote: Thu Aug 29, 2019 4:57 am
cheese_breath wrote: Thu Aug 29, 2019 4:48 am
misterno wrote: Wed Aug 28, 2019 10:27 pm This is a dumb question but I am curious. First you said pension plan is terminated but then you are saying she will keep getting the monthly payment?

I am not understanding.
One of the options the company is giving her is an annuity paying the same as the current pension.
Of course, the annuity would not be protected by the PBGC as the pension is now. If the annuity/insurance company goes out of business, bye-bye annuity payments.
Would state insurance guarantees apply in this case?

If not, I agree this is a potential deal breaker.
I suppose that depends on state laws. I'm not sure if annuities are insured at all. That's part of their risk.
"Happiness Is Not My Companion" - Gen. Gouverneur K. Warren. | (Avatar is the statue of Gen. Warren atop Little Round Top @ Gettysburg National Military Park.)
student
Posts: 5159
Joined: Fri Apr 03, 2015 6:58 am

Re: Mother's Pension Plan is Being Terminated - Help with Options Needed

Post by student »

samsoes wrote: Thu Aug 29, 2019 7:37 am
Valuethinker wrote: Thu Aug 29, 2019 7:12 am
samsoes wrote: Thu Aug 29, 2019 4:57 am
cheese_breath wrote: Thu Aug 29, 2019 4:48 am
misterno wrote: Wed Aug 28, 2019 10:27 pm This is a dumb question but I am curious. First you said pension plan is terminated but then you are saying she will keep getting the monthly payment?

I am not understanding.
One of the options the company is giving her is an annuity paying the same as the current pension.
Of course, the annuity would not be protected by the PBGC as the pension is now. If the annuity/insurance company goes out of business, bye-bye annuity payments.
Would state insurance guarantees apply in this case?

If not, I agree this is a potential deal breaker.
I suppose that depends on state laws. I'm not sure if annuities are insured at all. That's part of their risk.
That's my understanding too. https://money.usnews.com/money/blogs/on ... ed-annuity "Private annuity contracts are not guaranteed by the FDIC, SIPC, or any other federal agency. If the insurance company that issues an annuity contract fails, no one in the federal government is obligated to protect the annuitant from financial loss. Most states have guaranty associations that provide a level of protection to citizens in that state if an insurance company also doing business in that state fails. A typical limit of state protection, if it applies at all, is $100,000." See https://www.immediateannuities.com/stat ... ociations/
User avatar
Stinky
Posts: 5548
Joined: Mon Jun 12, 2017 11:38 am
Location: Sweet Home Alabama

Re: Mother's Pension Plan is Being Terminated - Help with Options Needed

Post by Stinky »

Valuethinker wrote: Thu Aug 29, 2019 7:12 am [
Would state insurance guarantees apply in this case?

If not, I agree this is a potential deal breaker.
Yes, they would apply. The single sum being insured ($47,000) is below the guaranty fund limit, so the policy would be covered.

In this case, I expect that the pension plan would choose an insurance company that has reasonably high ratings to underwrite the annuities, because the pension plan doesn't want lawsuits from annuitants if the insurance company failed.

In my experience, life insurance company failures are extremely rare. The chances that the mother doesn't receive all of her annuity payments in full and on time are dimishingly small, and I would not factor insurance company solvency into my choice amongst the options provided.

That being said, I still believe that rolling to an IRA is the better move, as I stated in an earlier post.
It's a GREAT day to be alive - Travis Tritt
User avatar
cheese_breath
Posts: 9838
Joined: Wed Sep 14, 2011 7:08 pm

Re: Mother's Pension Plan is Being Terminated - Help with Options Needed

Post by cheese_breath »

Stinky wrote: Thu Aug 29, 2019 8:24 am
Valuethinker wrote: Thu Aug 29, 2019 7:12 am [
Would state insurance guarantees apply in this case?

If not, I agree this is a potential deal breaker.
Yes, they would apply. The single sum being insured ($47,000) is below the guaranty fund limit, so the policy would be covered.
Stlutz wrote above, "if you tried to buy a SPIA with $47,875 on the open market now, she would get $434/mo". So I imagine Mom's employer is chipping in extra with the annuity option to bring her payment up to $554. That's what happened with me and my GM retirement. I couldn't buy an annuity equaling my pension payment with the lump sum they offered, but GM chipped in enough extra to pay for one that did. So I speculate something above $47,000, but less than $100,000 would be insured in Mom's case.

The big difference IMO is GM told us the annuity option would be through Prudential. So far we don't know who would be providing Mom's annuity. Also I was a lot younger than Mom when I took the annuity option.
The surest way to know the future is when it becomes the past.
jnightingale73
Posts: 9
Joined: Mon Jun 03, 2019 11:11 am

Re: Mother's Pension Plan is Being Terminated - Help with Options Needed

Post by jnightingale73 »

This seems to be the way of the world now. I had a former employer notify me over the summer of a similar thing. I can take a lump sum payout, roll over to an employer plan. etc. Being only 46, Im looking at rolling it to my 401(k) if possible. If I were older and retired, Id probably go the IRA route. Im not a fan of annuities from everything I've read and heard.
Topic Author
AllMostThere
Posts: 142
Joined: Sat Dec 31, 2016 2:04 pm

Re: Mother's Pension Plan is Being Terminated - Help with Options Needed

Post by AllMostThere »

Valuethinker wrote: Thu Aug 29, 2019 7:14 am
chipperd wrote: Thu Aug 29, 2019 5:29 am This will come across as a bit callous, but in thinking about these situations, I tend to take the lump sum offered ($47,575) and divide it by the monthly amount of the annuity offered ($554). Assuming no gain in the lump sum relative to inflation, that lump sum of $47,575, would yield 85.87 months of payments in the amount of $554/month. That would mean your mom would need to live another 7.156 months, or approx 7 years and 2 more months to make the monthly payment a better financial choice vs the lump sum. That brings us to mom living to age 89 and 2 months, which brings family health history and family longevity into question. Again, that assumes that lump sum makes zero real gain over inflation, an assumption I'm sure some will take issue with, but one that might be realistic for her risk tolerance at her age. According to the social security actuarial life table, your mom, at age 82, is expected to live another 7.32 years, but with a possibility of death of just over 44% (sorry that's the callous part).
For me, I would advise my mom to take the lump sum due to our family hx and having more control over the funds.
I think that is not a bad way to look at it.

Assuming that OP can manage the situation so Mum has no need to be involved. My mother would find it very stressful / impossible to have to make investment decisions.
Chipperd - This is the same math I did and reviewed with my DM. Very hard discussion to have, but a path we all must take either with parents, kids or even friends. The increased control of the funds is the most benefit. In essence, we both are leaning towards lump sum rolled to tIRA option.
Valuethinker - You hit the nail on the head. Since the passing of my DF 15 years ago, I have made all DM's investment decisions, RMD distributions and future financial planning. This path reduces stress on her and she has full confidence in my decisions.
Topic Author
AllMostThere
Posts: 142
Joined: Sat Dec 31, 2016 2:04 pm

Re: Mother's Pension Plan is Being Terminated - Help with Options Needed

Post by AllMostThere »

jnightingale73 wrote: Thu Aug 29, 2019 9:35 am This seems to be the way of the world now. I had a former employer notify me over the summer of a similar thing. I can take a lump sum payout, roll over to an employer plan. etc. Being only 46, Im looking at rolling it to my 401(k) if possible. If I were older and retired, Id probably go the IRA route. Im not a fan of annuities from everything I've read and heard.
I agree. DW and I are near our target $$ number to enable FIRE in next couple years. I have two pension plans with my employer and am leaning heavily towards lump sum rolled to tIRA. In my case, it's the control of funds, risk reduction, and ability to leave legacy to my kids. Don't get me wrong, I plan to spend it all :sharebeer , but nice to have option to leave something to kids whereas the Pension would be gone upon my death or pass to DW, then be gone upon her passing. As the OP, I too am not a fan of annuities, so leaning against this option with my DM. Info here has been great.
Dottie57
Posts: 9184
Joined: Thu May 19, 2016 5:43 pm
Location: Earth Northern Hemisphere

Re: Mother's Pension Plan is Being Terminated - Help with Options Needed

Post by Dottie57 »

chalet wrote: Wed Aug 28, 2019 10:06 pm take the annuity. simple, lifelong, nothing changes.
+1
cherijoh
Posts: 6591
Joined: Tue Feb 20, 2007 4:49 pm
Location: Charlotte NC

Re: Mother's Pension Plan is Being Terminated - Help with Options Needed

Post by cherijoh »

misterno wrote: Wed Aug 28, 2019 10:27 pm This is a dumb question but I am curious. First you said pension plan is terminated but then you are saying she will keep getting the monthly payment?

I am not understanding.
They buy an annuity withn an insurance company to make the same monthly payment. From the recipient's perspective as long as the insurer stays solvent it is a non-event. But it is no longer a pension on the books for the employer, so big difference from their perspective.
Topic Author
AllMostThere
Posts: 142
Joined: Sat Dec 31, 2016 2:04 pm

Re: Mother's Pension Plan is Being Terminated - Help with Options Needed

Post by AllMostThere »

Hello fellow Bogleheads. OP here with quick update. After reading all the options presented and reviewing with my Mother, she has elected to take the lump sum. Paperwork was submitted, so check will be expected mid-October. Upon receipt, we will hand-deliver the check (titled to Fidelity FBO Mom) along with letter of instruction to deposit into her current tIRA. Thanks to all for the input.
User avatar
Stinky
Posts: 5548
Joined: Mon Jun 12, 2017 11:38 am
Location: Sweet Home Alabama

Re: Mother's Pension Plan is Being Terminated - Help with Options Needed

Post by Stinky »

AllMostThere wrote: Sun Sep 15, 2019 7:54 am Hello fellow Bogleheads. OP here with quick update. After reading all the options presented and reviewing with my Mother, she has elected to take the lump sum. Paperwork was submitted, so check will be expected mid-October. Upon receipt, we will hand-deliver the check (titled to Fidelity FBO Mom) along with letter of instruction to deposit into her current tIRA. Thanks to all for the input.
Great choice.

Thanks for updating us.
It's a GREAT day to be alive - Travis Tritt
cherijoh
Posts: 6591
Joined: Tue Feb 20, 2007 4:49 pm
Location: Charlotte NC

Re: Mother's Pension Plan is Being Terminated - Help with Options Needed

Post by cherijoh »

jnightingale73 wrote: Thu Aug 29, 2019 9:35 am This seems to be the way of the world now. I had a former employer notify me over the summer of a similar thing. I can take a lump sum payout, roll over to an employer plan. etc. Being only 46, Im looking at rolling it to my 401(k) if possible. If I were older and retired, Id probably go the IRA route. Im not a fan of annuities from everything I've read and heard.
My former employer offered a pension without a lump sum option. A few years ago they wanted to divest themselves of their pension obligations, so they offered separated employees an option of a lump sum, an immediate annuity, or the status quo pension.

I would have gone with the lump sum option except for the fact that it was based on being able to draw the full pension only at 65. The pension had some favorable early retirement terms and I qualified to get my full pension amount at 60. Prior to that I could have taken my pension anytime after hitting 55 for a reduction of 4%/yr (0.333%/month). I was already over 55 when I got the letter (but still employed at a different company) and the immediate annuity option for the pension buyout was actually less than the reduced pension amount to which I was already entitled. :annoyed If your pension had any favorable early retirement rules and are offered a buyout, this is something for which to watch out. If I hadn't already requested a pension benefits projection, I might have assumed the buyout was a good deal.

So I opted to stick with the status quo and started my pension in January of this year at 60 (and after retiring). Fortuntely, inflation has been relatively tame since I separated from the company and it actually covers a good chunk of my expenses - at least for the time being.
Silk McCue
Posts: 4808
Joined: Thu Feb 25, 2016 7:11 pm

Re: Mother's Pension Plan is Being Terminated - Help with Options Needed

Post by Silk McCue »

Valuethinker wrote: Thu Aug 29, 2019 4:07 am
...

I am not au fait with the US tax situation, ..
“Au fait” is just a wee bit too “ob scure” for me. 😄

At least you made me look it up.

Cheers
student
Posts: 5159
Joined: Fri Apr 03, 2015 6:58 am

Re: Mother's Pension Plan is Being Terminated - Help with Options Needed

Post by student »

AllMostThere wrote: Sun Sep 15, 2019 7:54 am Hello fellow Bogleheads. OP here with quick update. After reading all the options presented and reviewing with my Mother, she has elected to take the lump sum. Paperwork was submitted, so check will be expected mid-October. Upon receipt, we will hand-deliver the check (titled to Fidelity FBO Mom) along with letter of instruction to deposit into her current tIRA. Thanks to all for the input.
Thanks for the update.
Post Reply