Can I/should I buyout my pension?

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Somethingwitty92912
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Joined: Mon Sep 14, 2020 9:43 pm

Can I/should I buyout my pension?

Post by Somethingwitty92912 »

Is it possible to sell my pension for a lump sum to invest directly into the market? It’s through the state. Furthermore no debt that isn’t a mortgage which I could pay off outright should I wish. Wife is gainfully employed I am medical retired living on pension.

Thanks-
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Stinky
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Re: Can I/should I buyout my pension?

Post by Stinky »

Somethingwitty92912 wrote: Mon Sep 14, 2020 9:47 pm Is it possible to sell my pension for a lump sum to invest directly into the market? It’s through the state. Furthermore no debt that isn’t a mortgage which I could pay off outright should I wish. Wife is gainfully employed I am medical retired living on pension.

Thanks-
Welcome to the Forum!

EDITED

Google “sell my pension”. Click through on some of the companies.

See the comments from others below, especially “can I” vs “should I”.
Last edited by Stinky on Tue Sep 15, 2020 5:44 am, edited 1 time in total.
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JoeRetire
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Re: Can I/should I buyout my pension?

Post by JoeRetire »

Somethingwitty92912 wrote: Mon Sep 14, 2020 9:47 pm Is it possible to sell my pension for a lump sum to invest directly into the market?
Yes, you can.

To answer the "should" part of the question requires the details and math, although you probably shouldn't. Structured settlements are seldom a good deal in the long run.

https://www.sec.gov/files/ib_income_streams.pdf
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galawdawg
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Re: Can I/should I buyout my pension?

Post by galawdawg »

Somethingwitty92912 wrote: Mon Sep 14, 2020 9:47 pm Is it possible to sell my pension for a lump sum to invest directly into the market? It’s through the state. Furthermore no debt that isn’t a mortgage which I could pay off outright should I wish. Wife is gainfully employed I am medical retired living on pension.

Thanks-
Welcome to Bogleheads!

You can certainly get a quote from some of those companies that purchase structured settlements, but there are quite a few drawbacks:
  • You will receive less than the actuarial present cash value of the pension. The company is going to make a profit and they need to produce a return for their investors. So you will come out ahead financially by keeping your pension.
  • Some pensions, such as federal government pensions, cannot be sold. There are unscrupulous companies that will skirt the laws to avoid this and when you sell such a pension and arrange the future payments according to the scheme they set up, you become a party to this misconduct.
  • You say you are "living on pension'. So how do you plan to be "living without pension", i.e., meeting your monthly income needs?
  • If you have been a serious, committed and experienced investor, you already have a healthy and diversified portfolio. In that case, the pension serves to diversify your assets and income streams. The pension may also allow you to be more aggressive with your portfolio investments, depending on how much of your portfolio, if any, is required for current and future living expenses.
  • If you have NOT been a serious, committed and experienced investor, what makes you think you can successfully invest a large lump sum in a manner that provides a better return than your current pension? What happens when your investing plan is unsuccessful and you lose the majority of your investment, or the market declines substantially and the same occurs? Taking a lump sum by selling your pension income and putting it in the market is not a wise place to start. Unlike younger employed investors, you likely don't have the time or monthly income stream to recover from investing errors that many of us have made as novice investors. You also may not have the time or ongoing income to enable your portfolio to "survive" a significant downturn in the market if you are just starting now.
So the answer to your question of "can I", the answer is maybe, it depends on your pension.

The answer to the question of "should I", is IMHO, a solid no. If you don't need your pension income to meet living expenses and want to invest it, just keep the pension and invest monthly as you receive the pension income. You have the benefit of investing in the market should you choose and the safety net of stopping or suspending your monthly investments should you require that income or you prefer not to invest it.

Good luck!
3funder
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Re: Can I/should I buyout my pension?

Post by 3funder »

All I can say is the following: My father is a bright, Ivy League educated, former CFO who understands finance and investing extremely well. He hasn’t had a lick of debt for the past 20 years and still works (albeit at a less demanding job in an entirely different industry). He has accumulated a rather substantial nest egg, makes a lot more money than he needs, lives well below his means, and has never even considered taking a lump sum on his primary pension.
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