Monthly Pension or Lump Sum ?

[trek83]

My former employer is doing a “plan termination” of their defined benefit pension plan & will be “ transferring the assets” to a qualified insurance company.

I had 19.3 years of credited service in this pension. I did not actively contribute any dollars directly to this pension.

I retired in 2021 at age 62. I’m 64 now

The pension was “Frozen” in 2009. Their 403(b) match was enhanced at that time.

Options are threefold -
1. Take a lump sum of ~ $173,000 If chosen, would be rolled over to a traditional IRA

2. Take a monthly pension starting July 1,2023 - Single life 10 yr guaranteed = $1173/mo 100% J&S = $1061/mo
There are other amounts with single life annuity ( $1215/mo ), 50% & 75% Joint & Survivor $ per month

3. Monthly pension beginning April 1, 2024 ( 65 yo - benefit does not increase above 65 yo )
Single life 10 year guaranteed = $1235 100% J&S = $ 1115 / mo

Currently Have ~ $425,000 in Rollover IRA where the additional lump sum of $173k would go = $600 k. RMD’s down the road.
Paid for house =$400 k No debt, no loans
Other liquid / invested assets currently at Vanguard = ~ $750k Total currently @ Vanguard = $1.175
Haven’t started SS yet - maybe start at age 67 @ about $3300/ mo
Live in Relatively low cost Midwest region.

Spouse currently receives SS benefits @ $850/ mo ( personal earnings) - will switch to spousal benefit when I start SS.

What choice would you make ?

[delamer]

You currently have $1.6 million in liquid assets. You don’t need more liquidity.

The monthly pension is a good deal. Speaking as a pensioned retiree, having that monthly deposit that covers a chunk of your expenses reduces anxiety about the markets and finances significantly.

[Nicolas]

I took the monthly annuity rather than a lump sum and psychologically and financially it carried me to age 70 and a fully realized Social Security payment. Absent that I might’ve bolted during several intervening bear markets. It was nice getting that monthly check. It met all current expenses.

[bertilak]

Please check with https://www.immediateannuities.com/ to see what annuity you can get for that lump sum. That will at lest tell you if you are getting a fair offer. You can then better judge what path you want to take. There are other places to check annuity prices. I leave it as an exercise to find them! (But that's the place I used.)

EDIT: Arrgh! Fixed at least three typos!

[JazzTime]

2. Take a monthly pension starting July 1,2023 - Single life 10 yr guaranteed = $1173/mo 100% J&S = $1061/mo
There are other amounts with single life annuity ( $1215/mo ), 50% & 75% Joint & Survivor $ per month

3. Monthly pension beginning April 1, 2024 ( 65 yo - benefit does not increase above 65 yo )
Single life 10 year guaranteed = $1235 100% J&S = $ 1115 / mo

The 100% J&S benefit looks pretty good and should give you peace of mind.

Out of curiosity, I Googled a retirement calculator. When I plugged in $173K, 5% growth and 25 years distribution, it said you could withdraw about $11K per year. So an annuity that provides $1061/mo for as long as you/spouse live looks pretty good by comparison.

Full disclosure: I took a lump sum, but there was some question on company solvency. Also, I had plenty of other assets, including another pension and my wife's pension.

[pizzy]

Unless these numbers blow https://www.immediateannuities.com/ out the water, I'd probably take the lump sum and get my own annuity (assuming annuity is the desired option).

[steadyosmosis]

My former employer is doing a “plan termination” of their defined benefit pension plan & will be “ transferring the assets” to a qualified insurance company.

I had 19.3 years of credited service in this pension. I did not actively contribute any dollars directly to this pension.

I retired in 2021 at age 62. I’m 64 now

The pension was “Frozen” in 2009. Their 403(b) match was enhanced at that time.

Options are threefold -
1. Take a lump sum of ~ $173,000 If chosen, would be rolled over to a traditional IRA

2. Take a monthly pension starting July 1,2023 - Single life 10 yr guaranteed = $1173/mo 100% J&S = $1061/mo
There are other amounts with single life annuity ( $1215/mo ), 50% & 75% Joint & Survivor $ per month

3. Monthly pension beginning April 1, 2024 ( 65 yo - benefit does not increase above 65 yo )
Single life 10 year guaranteed = $1235 100% J&S = $ 1115 / mo

Currently Have ~ $425,000 in Rollover IRA where the additional lump sum of $173k would go = $600 k. RMD’s down the road.
Paid for house =$400 k No debt, no loans
Other liquid / invested assets currently at Vanguard = ~ $750k Total currently @ Vanguard = $1.175
Haven’t started SS yet - maybe start at age 67 @ about $3300/ mo
Live in Relatively low cost Midwest region.

Spouse currently receives SS benefits @ $850/ mo ( personal earnings) - will switch to spousal benefit when I start SS.

What choice would you make ?

I chose option 1 myself, because I wanted to do Roth conversions each year until I take SS at age 70.
I did not want un-needed taxable income 'getting in the way' and increasing the cost of my Roth conversions.
Multiple years into my plan and happy with it so far.

[Watty]

Monthly Pension or Lump Sum ?

I like to turn this question around and ask, "I have $173K in an IRA, should I use that to buy a single premium immediate annuity(SPIA) with these terms?". That is really the same but when phrased this way at least to me the SPIA sounds less appealing. Keep that in mind when you are making your choice, a large company might be able to negotiate slightly better terms when they buy a SPIA for you than you can buy but they will not be dramatically better.

When looking at the choice people often try figure out which option is mathematically best but for most private pension plans the formula for the various options is defined by law and pretty fair so they are mathematically more or less equal so just by looking at the numbers there is likely not an easy choice. (Possible exceptions are some union or government contracts which could have different rules)

The question then is what is best for your situation.

Some factors that may not have been mentioned yet are;

1) Taking a traditional pension may limit your ability to do Roth conversions in a low tax bracket.

2) Once you start Social Security and later RMDs with the way Social Security is taxed you could end up in a higher than expected tax bracket and there would be little that you could do about it.

https://www.bogleheads.org/wiki/Taxatio ... s#top-page

3) Once you start Social Security you may not have any need for the extra income that pension will give you since your other investments will be generating a lot in interest and dividends.

There is an old saying, "Buying an elephant for a dime is only a good deal if you need an elephant and have a dime." Buying a SPIA or taking a traditional pension is sort of like buying longevity insurance, but I do not see that you have a lot of need for it.

What choice would you make ?

My numbers were a bit different from yours but I had a similar old pension with similar choices. My wife had also started her modest Social Security at 62 like yours did.

A big part of my figuring out what to do with my pension was to make that decision in conjunction with deciding when to start Social Security.

I used the Open Social Security website to see when it suggest that I should start Social Security and it suggested that I should wait until turned 70. A nice thing about it is that after you get the suggested optimal stragety you can then compare that to other alternate strategies and it will even give you a color graph showing your the percent difference. In my case starting at my full retirement age gave me about 98% of the adjusted lifetime expected amount I would get starting it at 70. The Open Social Security website understandably does not try to adjust for things like taxes or other personal factors which could be a lot more important than getting that extra 2%.

https://opensocialsecurity.com/

If you looked at that web site a year or two ago when interest rates were eltra low you need to rerun your numbers again since current higher interest rates can change the results.

I ended up starting my SS at my FRA and my wife then also started getting higher spousal benefits. Since we also have a paid of house that will be enough to cover our core retirement budget.

One thing I did not realize before I dug into it was that the spousal benefit does not also increase if you delay starting SS beyond your full retirement age(FRA). This means that if you delay your SS until you are 70 that your spouse would then get the same spousal benefit(adjusted for inflation) as they would have gotten if you have started at your FRA.

With her spousal benefit when be are both alive and getting two Social Security checks that would give us about $50K in inflation adjusted income so with our other investments we had little need for the monthly pension check. I rolled the lump sum out to an IRA. It is possible that I might buy a SPIA when I am more like 75 or 80.

[bertilak]

This means that if you delay your SS until you are 70 that your spouse would then get the same spousal benefit(adjusted for inflation) as they would have gotten if you have started at your FRA.

What matters is the age at which your spouse starts taking benefits. It doesn't have to be the same age nor the same date you take benefits.

[delamer]

My former employer is doing a “plan termination” of their defined benefit pension plan & will be “ transferring the assets” to a qualified insurance company.

I had 19.3 years of credited service in this pension. I did not actively contribute any dollars directly to this pension.

I retired in 2021 at age 62. I’m 64 now

The pension was “Frozen” in 2009. Their 403(b) match was enhanced at that time.

Options are threefold -
1. Take a lump sum of ~ $173,000 If chosen, would be rolled over to a traditional IRA

2. Take a monthly pension starting July 1,2023 - Single life 10 yr guaranteed = $1173/mo 100% J&S = $1061/mo
There are other amounts with single life annuity ( $1215/mo ), 50% & 75% Joint & Survivor $ per month

3. Monthly pension beginning April 1, 2024 ( 65 yo - benefit does not increase above 65 yo )
Single life 10 year guaranteed = $1235 100% J&S = $ 1115 / mo

Currently Have ~ $425,000 in Rollover IRA where the additional lump sum of $173k would go = $600 k. RMD’s down the road.
Paid for house =$400 k No debt, no loans
Other liquid / invested assets currently at Vanguard = ~ $750k Total currently @ Vanguard = $1.175
Haven’t started SS yet - maybe start at age 67 @ about $3300/ mo
Live in Relatively low cost Midwest region.

Spouse currently receives SS benefits @ $850/ mo ( personal earnings) - will switch to spousal benefit when I start SS.

What choice would you make ?

I chose option 1 myself, because I wanted to do Roth conversions each year until I take SS at age 70.
I did not want un-needed taxable income 'getting in the way' and increasing the cost of my Roth conversions.
Multiple years into my plan and happy with it so far.

But you increased your balances that needed conversion by taking the lump sum.

So it really depends on individual numbers, as always.

[Stinky]

Options are threefold -
1. Take a lump sum of ~ $173,000 If chosen, would be rolled over to a traditional IRA

2. Take a monthly pension starting July 1,2023 - Single life 10 yr guaranteed = $1173/mo 100% J&S = $1061/mo
There are other amounts with single life annuity ( $1215/mo ), 50% & 75% Joint & Survivor $ per month

Per immediateannuities.com, a premium of $173,000, purchasing a 100% joint and survivor annuity for a male age 64 and a female age 62, would get a monthly benefit for life of $894 per month. With a 10 year certain clause, it would be $888 per month.

Your pension plan will give you $1,061 per month.

If it were my decision, I'd take the monthly benefit from the pension plan - 100% joint and survivor.

[Wiggums]

If it were my decision, I'd take the monthly benefit from the pension plan - 100% joint and survivor.

I agree. The pension annuity is a great option to go with your social security. We are doing Roth conversions to before FRA.

[Wiggums]

If it were my decision, I'd take the monthly benefit from the pension plan - 100% joint and survivor.

I agree. The pension annuity is a great option to go with your social security. We are doing Roth conversions to before FRA.

[Wiggums]

Duplicate

[Wiggums]

Duplicate

[trek83]

I’ve just now read through the responses - so many good comments, questions to think about & consider. Thanks to all.

Mathematically it’s a pretty close race b/w the annuity or the lump sum.

Behaviorally it’s probably a personality evaluation, along with a comfort factor of that monthly check vs. a pot of money to invest & withdrawal simultaneously.

Definitely some pros & cons with either decision. And……….. can’t lose with either approach,

unless one makes poor investment choices. That is whole different discussion. I’m dedicated to simple index ETF’s @ Vanguard.

Thank you for the references about the annuity calculations/ comparison. Taxes are definitely something to ponder - and Roth conversions, which I can do now regardless of this situation.

[trek83]

You currently have $1.6 million in liquid assets. You don’t need more liquidity.

The monthly pension is a good deal. Speaking as a pensioned retiree, having that monthly deposit that covers a chunk of your expenses reduces anxiety about the markets and finances significantly.

Very wise assessment - especially liquidity & market anxiety. Best not to pay too much attention to markets, but impossible to do so.
Thanks

[trek83]

Monthly Pension or Lump Sum ?

I like to turn this question around and ask, "I have $173K in an IRA, should I use that to buy a single premium immediate annuity(SPIA) with these terms?". That is really the same but when phrased this way at least to me the SPIA sounds less appealing. Keep that in mind when you are making your choice, a large company might be able to negotiate slightly better terms when they buy a SPIA for you than you can buy but they will not be dramatically better.

When looking at the choice people often try figure out which option is mathematically best but for most private pension plans the formula for the various options is defined by law and pretty fair so they are mathematically more or less equal so just by looking at the numbers there is likely not an easy choice. (Possible exceptions are some union or government contracts which could have different rules)

The question then is what is best for your situation.

Some factors that may not have been mentioned yet are;

1) Taking a traditional pension may limit your ability to do Roth conversions in a low tax bracket.

2) Once you start Social Security and later RMDs with the way Social Security is taxed you could end up in a higher than expected tax bracket and there would be little that you could do about it.

https://www.bogleheads.org/wiki/Taxatio ... s#top-page

3) Once you start Social Security you may not have any need for the extra income that pension will give you since your other investments will be generating a lot in interest and dividends.

There is an old saying, "Buying an elephant for a dime is only a good deal if you need an elephant and have a dime." Buying a SPIA or taking a traditional pension is sort of like buying longevity insurance, but I do not see that you have a lot of need for it.

What choice would you make ?

My numbers were a bit different from yours but I had a similar old pension with similar choices. My wife had also started her modest Social Security at 62 like yours did.

A big part of my figuring out what to do with my pension was to make that decision in conjunction with deciding when to start Social Security.

I used the Open Social Security website to see when it suggest that I should start Social Security and it suggested that I should wait until turned 70. A nice thing about it is that after you get the suggested optimal stragety you can then compare that to other alternate strategies and it will even give you a color graph showing your the percent difference. In my case starting at my full retirement age gave me about 98% of the adjusted lifetime expected amount I would get starting it at 70. The Open Social Security website understandably does not try to adjust for things like taxes or other personal factors which could be a lot more important than getting that extra 2%.

https://opensocialsecurity.com/

If you looked at that web site a year or two ago when interest rates were eltra low you need to rerun your numbers again since current higher interest rates can change the results.

I ended up starting my SS at my FRA and my wife then also started getting higher spousal benefits. Since we also have a paid of house that will be enough to cover our core retirement budget.

One thing I did not realize before I dug into it was that the spousal benefit does not also increase if you delay starting SS beyond your full retirement age(FRA). This means that if you delay your SS until you are 70 that your spouse would then get the same spousal benefit(adjusted for inflation) as they would have gotten if you have started at your FRA.

With her spousal benefit when be are both alive and getting two Social Security checks that would give us about $50K in inflation adjusted income so with our other investments we had little need for the monthly pension check. I rolled the lump sum out to an IRA. It is possible that I might buy a SPIA when I am more like 75 or 80.

Lots of good thoughts here , Watty.
The SPIA is an option to consider.
I’ve looked at Opensocialsecurity about a year ago - very helpful.
Thanks

[CapeLinda]

Trek83

I am also in the group who has a defined benefit pension and I took SSA early (gasp). Both of these cover all my expenses and I have no need to withdraw at this time from my investments.

The lack of worry re the markets is 'Priceless" in my opinion. I focus on my health, eating healthy, travel, socializing etc.

Happy Retirement!

[Watty]

This means that if you delay your SS until you are 70 that your spouse would then get the same spousal benefit(adjusted for inflation) as they would have gotten if you have started at your FRA.

What matters is the age at which your spouse starts taking benefits. It doesn't have to be the same age nor the same date you take benefits.

An example of what I was referring to was that if your Social Security might be $1000 a month at your FRA of 67 then your spouse could get a benefit of $500 a month, subject to reductions for starting it early.

If you delay starting SS until you are 68 your monthly benefit would increase by 8% to be $1080 but you spouse's benefit would not increase still be the same $500. Even if you delayed starting SS until you were 70 your spouse would still just get $500 as a spousal benefit. (All numbers would be adjusted for inflation)

[trek83]

This means that if you delay your SS until you are 70 that your spouse would then get the same spousal benefit(adjusted for inflation) as they would have gotten if you have started at your FRA.

What matters is the age at which your spouse starts taking benefits. It doesn't have to be the same age nor the same date you take benefits.

An example of what I was referring to was that if your Social Security might be $1000 a month at your FRA of 67 then your spouse could get a benefit of $500 a month, subject to reductions for starting it early.

If you delay starting SS until you are 68 your monthly benefit would increase by 8% to be $1080 but you spouse's benefit would not increase still be the same $500. Even if you delayed starting SS until you were 70 your spouse would still just get $500 as a spousal benefit. (All numbers would be adjusted for inflation)

Thanks, Watty. That is information I was not aware of - that the spousal benefit maxes out at FRA. Good to know.

[the_wiki]

Is the pension inflation adjusted? That makes a huge difference in my calculation.

[Valuethinker]

This means that if you delay your SS until you are 70 that your spouse would then get the same spousal benefit(adjusted for inflation) as they would have gotten if you have started at your FRA.

What matters is the age at which your spouse starts taking benefits. It doesn't have to be the same age nor the same date you take benefits.

An example of what I was referring to was that if your Social Security might be $1000 a month at your FRA of 67 then your spouse could get a benefit of $500 a month, subject to reductions for starting it early.

If you delay starting SS until you are 68 your monthly benefit would increase by 8% to be $1080 but you spouse's benefit would not increase still be the same $500. Even if you delayed starting SS until you were 70 your spouse would still just get $500 as a spousal benefit. (All numbers would be adjusted for inflation)

Thanks, Watty. That is information I was not aware of - that the spousal benefit maxes out at FRA. Good to know.

I am not US based and cannot parse the SS & tax implications.

However

- generally a regular pension income leads to superior satisfaction over a lump sum. The research on pensions & pensioners supports that pretty universally

- a company scheme is almost always a better bet than an individual SPIA because there is adverse selection (and higher admin costs) for the insurance company in the latter: the buyers of SPIAs live longer than the average pool of pensioners

- 100% survivor benefit is usually the best choice unless spouse has very good pension arrangements themselves. My father's was 60% I think, and he died very unexpectedly - it's been a big help to my mother since

- inflation is your biggest long term risk (besides poor stock market performance) as a retiree. If this pension is inflation indexed (unlikely?) then it's something of a no-brainer. If not, then it's a tradeoff. What in effect it allows you to do is to take a higher percentage of inflation correlated assets (TIPS, ibonds, equities: principally) in your asset allocation.

This latter is the certainty effect that having a diversified income stream that does not rely on your bond-equity portfolio gives you. That's a portfolio point. Again see research that this is a much better position for almost all retirees from a psychological viewpoint.

The big risk is inflation and that is something to be considered carefully. Deferring Social Security is an inflation risk strategy, because you start your CPI indexed benefits at a higher level, and inflation is primarily a long term risk to a retiree-- although this past year has contradicted that assumption.

[tonyclifton]

I am guessing the answer is “no”. But, does your annuity option have a built in cost of living or inflation adjustment? If so, that will make it that much more valuable.

[trek83]

Is the pension inflation adjusted? That makes a huge difference in my calculation.

No inflation adjustment - The Pension does NOT have a COLA provision. tonyclifton, you are correct - none.

And yes, that’s a huge factor of this decision process. I apologize for not stating this initially.

[trek83]

This means that if you delay your SS until you are 70 that your spouse would then get the same spousal benefit(adjusted for inflation) as they would have gotten if you have started at your FRA.

What matters is the age at which your spouse starts taking benefits. It doesn't have to be the same age nor the same date you take benefits.

An example of what I was referring to was that if your Social Security might be $1000 a month at your FRA of 67 then your spouse could get a benefit of $500 a month, subject to reductions for starting it early.

If you delay starting SS until you are 68 your monthly benefit would increase by 8% to be $1080 but you spouse's benefit would not increase still be the same $500. Even if you delayed starting SS until you were 70 your spouse would still just get $500 as a spousal benefit. (All numbers would be adjusted for inflation)

Thanks, Watty. That is information I was not aware of - that the spousal benefit maxes out at FRA. Good to know.

I am not US based and cannot parse the SS & tax implications.

However

- generally a regular pension income leads to superior satisfaction over a lump sum. The research on pensions & pensioners supports that pretty universally

- a company scheme is almost always a better bet than an individual SPIA because there is adverse selection (and higher admin costs) for the insurance company in the latter: the buyers of SPIAs live longer than the average pool of pensioners

- 100% survivor benefit is usually the best choice unless spouse has very good pension arrangements themselves. My father's was 60% I think, and he died very unexpectedly - it's been a big help to my mother since

- inflation is your biggest long term risk (besides poor stock market performance) as a retiree. If this pension is inflation indexed (unlikely?) then it's something of a no-brainer. If not, then it's a tradeoff. What in effect it allows you to do is to take a higher percentage of inflation correlated assets (TIPS, ibonds, equities: principally) in your asset allocation.

This latter is the certainty effect that having a diversified income stream that does not rely on your bond-equity portfolio gives you. That's a portfolio point. Again see research that this is a much better position for almost all retirees from a psychological viewpoint.

The big risk is inflation and that is something to be considered carefully. Deferring Social Security is an inflation risk strategy, because you start your CPI indexed benefits at a higher level, and inflation is primarily a long term risk to a retiree-- although this past year has contradicted that assumption.

A lot of good thoughts here, Valuethinker - thanks.

I wonder why a SPIA buyers live longer ?
And, how has this past year contradicted the inflation assumption? ( 8.7% SS adjustment ? )

[Stinky]

I wonder why a SPIA buyers live longer ?

Because those who are sick don’t buy SPIAs.

So, on average, the SPIA population is healthier than the general population.

[backpacker61]

pension does NOT have a COLA provision. tonyclifton, you are correct - none.

Most private employer pensions haven't had CoLA's. Neither did my father's pension from a state judicial district.

I'm kind of surprised you don''t have the option to delay filing for it for a larger benefit. I am planning to file for a small pension I qualify for at 75 (from the Secure Act 2.0 change).

FWIW, for the options you listed, I would go with 3); J&S. I'm treating as longevity insurance.

[Jovby]

Options are threefold -
1. Take a lump sum of ~ $173,000 If chosen, would be rolled over to a traditional IRA

2. Take a monthly pension starting July 1,2023 - Single life 10 yr guaranteed = $1173/mo 100% J&S = $1061/mo
There are other amounts with single life annuity ( $1215/mo ), 50% & 75% Joint & Survivor $ per month

3. Monthly pension beginning April 1, 2024 ( 65 yo - benefit does not increase above 65 yo )
Single life 10 year guaranteed = $1235 100% J&S = $ 1115 / mo


What choice would you make ?

I would go with 3, or 2 100% J&S. As others have said, it’s competitive, brings peace of mind, and provides some inflation protection.

I would delay Social Security until 70, unless you are both in poor health. It’s your best tool to fight inflation, I wouldn’t want to give up a 24% boost.

[Chip Munk]

This means that if you delay your SS until you are 70 that your spouse would then get the same spousal benefit(adjusted for inflation) as they would have gotten if you have started at your FRA.

What matters is the age at which your spouse starts taking benefits. It doesn't have to be the same age nor the same date you take benefits.

An example of what I was referring to was that if your Social Security might be $1000 a month at your FRA of 67 then your spouse could get a benefit of $500 a month, subject to reductions for starting it early.

If you delay starting SS until you are 68 your monthly benefit would increase by 8% to be $1080 but you spouse's benefit would not increase still be the same $500. Even if you delayed starting SS until you were 70 your spouse would still just get $500 as a spousal benefit. (All numbers would be adjusted for inflation)

Thanks, Watty. That is information I was not aware of - that the spousal benefit maxes out at FRA. Good to know.

Another consideration is that the Social Security survivor benefit your spouse will receive if you predecease her does not max out at your FRA. It will be greater if you delay collecting Social Security until after your FRA. My husband has a higher Social Security PIA than I do and opted to wait until age 70 to collect to provide me with the highest possible survivor benefit if he passes away first.

[trek83]

Stinky, Jovby, backpacker61, Chip Munk - Thank you. SPIA buyers health status makes perfect sense.

I wish the pension offering did have COLA built in - that would make it a no brainer for sure.

[Beehave]

Stinky, Jovby, backpacker61, Chip Munk - Thank you. SPIA buyers health status makes perfect sense.

I wish the pension offering did have COLA built in - that would make it a no brainer for sure.

I took the pension/annuity. There's no COLA. DW and I are very happy with the choice.

My experience regarding the non-COLA aspect of the pension is this. Initially it was a big concern. Retired now for over a decade I view it differently. We have some monthly costs that are either fixed or else limited by law as to how much they can rise annually. We have other expenses that grow with inflation. Our monthly income from Social Security (we pretty much maxed out both of ours) grows nicely with inflation. The non-Cola'd pension covers the "fixed" expenses.

Viewing the pension and SS together as a pool that covers the monthly expenses and as a whole and has a reasonable COLA factor overall gives a feeling of security regarding both the "sleep well at night" factor and comfort with a more aggressive stock allocation than we would almost surely have with our other assets absent the pension income.

Best wishes, hope this helps.

[Dave5280]

I’ve seen several people take annuities that later became worthless after the insurance companies went bankrupt. I don’t like giving up control of the principal, so I would favor taking the cash payout.

[GuyInFL]

I’ve seen several people take annuities that later became worthless after the insurance companies went bankrupt. I don’t like giving up control of the principal, so I would favor taking the cash payout.

I thought states typically guaranteed them up to around $300K?

[Stinky]

I’ve seen several people take annuities that later became worthless after the insurance companies went bankrupt. I don’t like giving up control of the principal, so I would favor taking the cash payout.

Can you share which insurance companies issued annuities that turned out to be worthless?

I would have thought that insurance company annuities would be covered - maybe fully, but for sure partially - by insurance guaranty funds.

[trek83]

Stinky, Jovby, backpacker61, Chip Munk - Thank you. SPIA buyers health status makes perfect sense.

I wish the pension offering did have COLA built in - that would make it a no brainer for sure.

I took the pension/annuity. There's no COLA. DW and I are very happy with the choice.

My experience regarding the non-COLA aspect of the pension is this. Initially it was a big concern. Retired now for over a decade I view it differently. We have some monthly costs that are either fixed or else limited by law as to how much they can rise annually. We have other expenses that grow with inflation. Our monthly income from Social Security (we pretty much maxed out both of ours) grows nicely with inflation. The non-Cola'd pension covers the "fixed" expenses.

Viewing the pension and SS together as a pool that covers the monthly expenses and as a whole and has a reasonable COLA factor overall gives a feeling of security regarding both the "sleep well at night" factor and comfort with a more aggressive stock allocation than we would almost surely have with our other assets absent the pension income.

Best wishes, hope this helps.

We’ll spoken analysis. SS and a pension do appear to be a good combination. Thanks

[trek83]

Stinky, Jovby, backpacker61, Chip Munk - Thank you. SPIA buyers health status makes perfect sense.

I wish the pension offering did have COLA built in - that would make it a no brainer for sure.

I took the pension/annuity. There's no COLA. DW and I are very happy with the choice.

My experience regarding the non-COLA aspect of the pension is this. Initially it was a big concern. Retired now for over a decade I view it differently. We have some monthly costs that are either fixed or else limited by law as to how much they can rise annually. We have other expenses that grow with inflation. Our monthly income from Social Security (we pretty much maxed out both of ours) grows nicely with inflation. The non-Cola'd pension covers the "fixed" expenses.

Viewing the pension and SS together as a pool that covers the monthly expenses and as a whole and has a reasonable COLA factor overall gives a feeling of security regarding both the "sleep well at night" factor and comfort with a more aggressive stock allocation than we would almost surely have with our other assets absent the pension income.

Best wishes, hope this helps.

We’ll spoken analysis. SS and a pension do appear to be a good combination. Thanks

[trek83]

I’ve seen several people take annuities that later became worthless after the insurance companies went bankrupt. I don’t like giving up control of the principal, so I would favor taking the cash payout.

Definitely a pro for taking the lump sum, which I’m leaning toward - then invest & withdrawal a modest amount periodically as

needed. Both the monthly pension check & the lump sum each have their appeal.

[queenofthemadhouse]

If the pension is PBGC covered, particularly if it is a single employer plan, I would be less concerned about default with the company pension. Even if the company AND the trust go belly up, there's still the gov't backstop, and your benefit amounts are low enough that they should be guaranteed.

[rgs92]

If the pension is PBGC covered, particularly if it is a single employer plan, I would be less concerned about default with the company pension. Even if the company AND the trust go belly up, there's still the gov't backstop, and your benefit amounts are low enough that they should be guaranteed.

PBGC coverage is being taken away from many corporate pension holders more and more frequently as the companies are selling their pensions to insurance companies, basically turning them into SPIAs. (Yes, these are single employer plans.)

[trek83]

If the pension is PBGC covered, particularly if it is a single employer plan, I would be less concerned about default with the company pension. Even if the company AND the trust go belly up, there's still the gov't backstop, and your benefit amounts are low enough that they should be guaranteed.

PBGC will cease coverage and when transferred / sold to an insurance company, a state guarantee association will backstop.

The booklet mailing to me references this very clearly, saying the State Guarantee Association may provide full, partial, or no reimbursement if the insurance company fails. But I agree with your statement about a high likelihood of guaranteed benefits.

[trek83]

If the pension is PBGC covered, particularly if it is a single employer plan, I would be less concerned about default with the company pension. Even if the company AND the trust go belly up, there's still the gov't backstop, and your benefit amounts are low enough that they should be guaranteed.

PBGC will cease coverage and when transferred / sold to an insurance company, a state guarantee association will backstop.

The booklet mailing to me references this very clearly, saying the State Guarantee Association may provide full, partial, or no reimbursement if the insurance company fails. But I agree with your statement about a high likelihood of guaranteed benefits.

[queenofthemadhouse]

Ah. Sorry, I didn’t realize they were already engaging in a risk transfer. PP is right that is an option that is happening more often, but I missed that it was already occurring. Do they disclose the insurance company.

[trek83]

Ah. Sorry, I didn’t realize they were already engaging in a risk transfer. PP is right that is an option that is happening more often, but I missed that it was already occurring. Do they disclose the insurance company.

Not yet - a long list of insurance companies is in the booklet mailed to me.

[trek83]

Decided to take the lump sum. Since the Pension annuity did not have a cost of living adjustment, my spouse & I decide to invest the proceeds of the lump sum. We will withdraw as needed & truthfully won’t likely touch any of this money for 5-10 years. Hopefully it will slowly grow into something beautiful & useful for our family , charity, or other purposes.
Thanks for all of the input.

[Dave5280]

I’ve seen several people take annuities that later became worthless after the insurance companies went bankrupt. I don’t like giving up control of the principal, so I would favor taking the cash payout.

Can you share which insurance companies issued annuities that turned out to be worthless?

I would have thought that insurance company annuities would be covered - maybe fully, but for sure partially - by insurance guaranty funds.

Executive Life Insurance Company and Mutual Benefit Life Insurance Company.

[Stinky]

I’ve seen several people take annuities that later became worthless after the insurance companies went bankrupt. I don’t like giving up control of the principal, so I would favor taking the cash payout.

Can you share which insurance companies issued annuities that turned out to be worthless?

I would have thought that insurance company annuities would be covered - maybe fully, but for sure partially - by insurance guaranty funds.

Executive Life Insurance Company and Mutual Benefit Life Insurance Company.

It’s my understanding that policyholders of both of these companies received some or all of the benefits promised by their policies, through the actions of state guaranty funds.

In other words, some of the policies were “worth less” than the originally promised amount. But they were not “worthless”, which means no recovery at all.

[FiveK]

Mathematically it’s a pretty close race b/w the annuity or the lump sum.

Behaviorally it’s probably a personality evaluation, along with a comfort factor of that monthly check vs. a pot of money to invest & withdrawal simultaneously.

Definitely some pros & cons with either decision. And……….. can’t lose with either approach,

Yes to all that. Another way to look at it (don't know if would help or not) is the following, based on "J&S = $1061/mo":



If you can use Excel, adjust cells B101 and/or B102 on the 'Misc. calcs' tab of the personal finance toolbox to see other scenarios (the chart starts near cell M97).

[trek83]

Thanks FiveK. A higher ROI favors the lump sum, at least the way I see it.

[FiveK]

Thanks FiveK. A higher ROI favors the lump sum, at least the way I see it.

Correct. The blue curve is when the choices are (mathematically) identical, e.g., a 20 year life expectancy while getting a 4% return.