Another lump sum vs monthly pension question

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vzguy
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Another lump sum vs monthly pension question

Post by vzguy »

So I am going to be 55 end of this year, and will be retiring in a couple of months.I have an option for a lump sum of roughly $440k, or a monthly of $2500 with a 50% survivor to my wife. I also have a 401k of $500k. My wife works full time, and gets paid pretty well, and also has a small 401k. We have no mortgage either. I plan on working part time. We could actually get by just fine on her salary alone, but who couldn't use a little more $? SO my question is the usual take the lump, roll it over into an ira? Or take the monthly so we have extra $ for whatever, or just reinvest, if we dont need it? Thanks
Colorado Guy
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Re: Another lump sum vs monthly pension question

Post by Colorado Guy »

Lots of threads on BH on this topic. I don't know if there is a perfect answer for everyone. Frequently https://www.immediateannuities.com/info ... tep-1.html is recommended on BH to gauge if the lump sum would buy you an equivalent annuity on the open market.

You may value the security of knowing a fixed monthly payment is always there, both before you qualify for SS, and after, or if you expect/believe/hope that the stock market (or whatever you invest the lump sum in) will generate $$ over time than a fixed annuity payment.

As you are young, you could take the lump sum and move it from the 401k to a Roth account over time and save (?) on tax impacts.

A personal red flag for me is if the offered annuity is a COLA annuity, or a fixed payment. Inflation could be a tough hurdle to overcome over a lifetime. A fixed non-COLA annuity would push me to take the lump sum. Another is if there are survivor benefits (X years certain payouts), which may not be a consideration if you are young and in good health.

You may also want to check if you can delay activating your pension until you are age 62/66/70. If you are, and if you believe your company is stable, you may want to do that. When I was evaluating pension options, I was able to get estimates of what my pension would be (lump sum or monthly payout) at various ages. That influenced my personal decision.

Good luck.
vested1
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Re: Another lump sum vs monthly pension question

Post by vested1 »

Compared to the options I had, your lump sum compares much more favorably to your 50% monthly pension amount. You didn't provide other information though, like if the pension is protected by cola, and if the monthly pension payout would be a larger amount if you waited to claim it until your mid 60's. Also be aware that since interest rates are high right now, your lump sum payment will (may) be lower than it would be if interest rates were lower, which may also be a reason to consider delaying a payout.

You mention you don't need it, which gives you more options. Personally, I would take the lump sum if there is no cola, then roll it immediately into an IRA to avoid having it being subject to tax. Many here suggest you input your numbers at immediateannuities.com to see how much would have to be paid up front to get a monthly payment of $2,500.

I just checked using fictitious numbers, and guessing your state of residence. A couple (inheritance rights) at age 55 would have to buy an annuity with a non-refundable $529,255 to receive a monthly payment of $2,500. That means your lump sum payment is better than the money you would have to give the annuity company for a commercial annuity with the same monthly payout.

Using the calculator on that site a different way, if you gave the annuity company $440,000 you could get an annuity paying $2,078 a month, which also proves the lump sum is better.
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vzguy
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Re: Another lump sum vs monthly pension question

Post by vzguy »

No cola option. Also, no way I can delay the lump sum. Once I retire, I either need to take the lump, or monthly. I am not worried about leaving $ to anyone, other than my wife when i die also.
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Watty
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Re: Another lump sum vs monthly pension question

Post by Watty »

vzguy wrote: Mon Apr 01, 2024 8:03 am or a monthly of $2500 with a 50% survivor to my wife.
Be sure to check to see if you have other options for the pension like getting a lower monthly amount and having your wife get 100% if she survives you.
vzguy wrote: Mon Apr 01, 2024 8:03 am I have an option for a lump sum of roughly $440k.
$2,500 a month is $30,000 a year. If your wife survives you she would then get $15,000 a year.

If you roll the lump sum out to and IRA and put the $440K into 5% CDs within an IRA that would generate $22,000 a year.

I am not a pension guru or anything but those numbers don't feel right to me so it would be good to double check that the numbers are correct.

If the pension would only get you and extra $8,000 before taxes, or maybe $5,000 a year after taxes then I would not be at all tempted by it since your wife would get less if she survives you and your estate would get nothing.
zie
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Re: Another lump sum vs monthly pension question

Post by zie »

I haven't done the math, but your pension people certainly have done the math and I'm betting it's basically a wash financially from the pensions perspective. So financially speaking I'm betting they are equal from a money perspective(you should double check the math by using a NPV calculation).


So then it just becomes a question of which makes the most sense for you and your wife. Usually pensions work out better if you live longer, so if you and your wife are in excellent health and expect to stay that way, a pension might make more sense. If you are age 100, the pension will still pay you the money every month as promised. Pensions pretty much remove longevity risk, much like social security.

My advice: assuming the math is equal, make it an emotional decision. Which one feels better for you and your wife?
Whether rich or poor, a young woman should know how a bank account works, understand the composition of mortgages and bonds, and know the value of interest and how it accumulates. -Hetty Green
Atomsplitter
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Re: Another lump sum vs monthly pension question

Post by Atomsplitter »

Working on same decision myself, sort of, my issue is that if unluckily the DW and I meet our end together any time before the 15 year point (breakeven not even counting any kind of interest, with her getting 100% survivor plan) after we start our payments then it all goes away (I actually have kids I would like anything left over to go to, not promising anything just "here you go". Looks like your 100% breakeven is almost 15 years too, to many variables to do a 50%, well if you die one month (payment) in...it looks like 29 years for no interest break even :(

Seem like taking and converting money you don't need to Roth from age 59.5 on (that way you can pay conversion out of IRA, just going with no out of pocket cost, not best way to do it) will give nice potential nest egg for the sad rainy day should it ever come, or hopefully it give you many extra $$$ when she decides to retire too!

If you do go the Roth route and don't have one now start with small conversion or contribution now to start the 5yr clock for account existence. Amount won't really matter since you will be over 59.5 before you use it.

I am leaning on going lump, but my situation like yours is different from everyone else's!
birdsong
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Re: Another lump sum vs monthly pension question

Post by birdsong »

When my husband retired at 55 he weighed all options. His background was accounting but the year prior he consulted with a long time CPA friend, providing all our financial info to confirm we were in good financial shape for him to be able to retire the next year. He told me he did all this as he figured otherwise, I would not be convinced he could retire. He said I could retire too but I chose not to as he was right about my questions. He wanted to do lump sum of his pension but that was not an option. He wanted to do 120 payment option but I knew my pension was going to be much smaller and I wanted to be sure (due to my family longevity) I would always have some part of his pension so 50% of his non COLA pension was settled on. March of the following year he retired. Two months later, unexpectedly he died of a heart attack.

So, he drew his pension for 2 months and I've drawn 1/2 for 20+ years. He said when he retired with his luck, a recession would follow. Well, the recession of 2000 followed so he was right. I was glad I was still working as with a paid off house, my salary and his pension covered all my bills with money left over to continue to save. Later, with several inheritances and good boglehead index investing, I think 2024 income will subject me to NIIT.

I am very charitable but might be doublely so from RMDs this year. I mention this in case any of you think I'm not charitable and should be.

You save all your life and plan well but nothing is a guarantee for the future. I know the struggle of the OP to try and make the best decision. Good that the OP came here to get the input from the many wise bogleheads good with numbers and experience.
Atomsplitter
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Re: Another lump sum vs monthly pension question

Post by Atomsplitter »

birdsong wrote: Mon Apr 01, 2024 1:25 pm You save all your life and plan well but nothing is a guarantee for the future. I know the struggle of the OP to try and make the best decision. Good that the OP came here to get the input from the many wise bogleheads good with numbers and experience.
Thank you for sharing your experience!

If I can ask, what would you do if he had the option of getting a lump sum and you could do it over? I know the facts of know how things turned have probably changed some of your thoughts on the situation. Do you think it would have been better had you gotten the lump all those years ago? You have an insight on this topic that may would like to hear about!

Again thank you for sharing and the wise words of advice!
birdsong
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Re: Another lump sum vs monthly pension question

Post by birdsong »

Atomsplitter, I think the lump sum would not have been a bad choice, in retrospect. The pension option of set amount no matter the survivor a friend told me later was the option he should have selected. For my particular situation, what I lost in the 2000 recession was returned dollar wise to me in an inheritance from his last parent in 2003. To me, that insured my own future so that 3 years later when my boss retired I could retire, too.

Remember the wise words from bogleheads to plan for your own retirement and don't count on an inheritance! My husband and I never did but knew we would receive something (he was an only child) from each of our parents at some future date. My Dad died at 100 and I think after retirement in 1980 reinvested all taxable dividends and his RMDs into taxable as he lived easily off his great pension from Shell Oil and a smaller pension from my mother and his social security. The only advice I would impart in this thread is to never underestimate the value of a pension. I was grateful that with my two pensions I could then plan around those two set things with my investment portfolio. I do think women value some set guaranteed income but how much, everybody is different. Whatever my husband decided, even if it had been a lump sum if he had been able to, I'd have been ok.

I"ll add one last comment. In 2018 my twin brother and only sibling died 4 months before my Dad so I ended up inheriting everything from my Dad.That unexpected turn of events leads to my probable NIIT this year. An FYI to bogleheads is that if you inherit from an old,old person who was a saver, it will be a big taxable account to handle! Happened to me in both cases. With my Dad's (all at Vanguard) I liquidated the taxable as soon as I could. I thought long and hard for months before I decided to engage Vanguard PAS. They had a lot of taxable cash to build a plan around my already indexed taxable account. I've been happy with the PAS arrangement.
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Metsfan91
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Re: Another lump sum vs monthly pension question

Post by Metsfan91 »

vzguy wrote: Mon Apr 01, 2024 9:51 am No cola option. Also, no way I can delay the lump sum. Once I retire, I either need to take the lump, or monthly. I am not worried about leaving $ to anyone, other than my wife when i die also.
Take lump sum. and invest. It'll be better. Pension loses value as time passes.
"Know what you own, and know why you own it." — Peter Lynch
LotsaGray
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Re: Another lump sum vs monthly pension question

Post by LotsaGray »

Atomsplitter wrote: Mon Apr 01, 2024 2:24 pm
birdsong wrote: Mon Apr 01, 2024 1:25 pm You save all your life and plan well but nothing is a guarantee for the future. I know the struggle of the OP to try and make the best decision. Good that the OP came here to get the input from the many wise bogleheads good with numbers and experience.
Thank you for sharing your experience!

If I can ask, what would you do if he had the option of getting a lump sum and you could do it over? I know the facts of know how things turned have probably changed some of your thoughts on the situation. Do you think it would have been better had you gotten the lump all those years ago? You have an insight on this topic that may would like to hear about!

Again thank you for sharing and the wise words of advice!
For birdsong, due to the unfortunate timing, the lump sum almost definitely would have been better. But you can never know those things in advance.

Here is a comparable situation. A husband and wife are weighing options for an old pension. Default is 50% survivor annuity. Lump sum is one option at 300k. They decide on lump sum but papers have aged and new ones must be issued. Husband, primary annuitant passes.

So wife automatically gets 50% survivor but company will still offer a lump sum. But now it is based on 50% annuity and only her life expectancy. So now the lump sum offer is only 120K

Smaller payment for likely less projected time yields much smaller lump sum even when actuarially neutral choices.
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Re: Another lump sum vs monthly pension question

Post by Beehave »

Do not reject a pension because it fails to protect adequately against inflation without first also weighing the fact that it provides incredibly wonderful deflation protection. Stocks and bonds went down badly at the same time just very recently. A pension or annuity payment was a delight to have rather than having to sell bond and stock holdings when they were low rather than having monthly income to live on and even buy assets when others were forced to sell low.

Anyone faced with the pension-lump sum decision should, in my opinion, try to diversify holdings to protect as best as possible against all possibilities. None of what I wrote above is intended to say that pension is the right decision. Future Inflation is a serious concern. But with respect to retirement, sequence of returns risk makes deflation a serious issue too, even if inflation is more likely over time.

Best wishes.
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Re: Another lump sum vs monthly pension question

Post by Beehave »

Delete duplicate
heyyou
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Re: Another lump sum vs monthly pension question

Post by heyyou »

An alternative spending method is applying your age-based RMD percentages to any lump sum as a do-it-yourself, slightly variable pension (plus spending the annual dividends and interest). I have no opinion about what is best for the OP, I'm just showing there is a method to spend down a lump sum over time, without paying an intermediary to administer those payouts, so if you expire early, your heirs would inherit the remaining principal.
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Re: Another lump sum vs monthly pension question

Post by Valuethinker »

Beehave wrote: Tue Apr 02, 2024 1:38 am Do not reject a pension because it fails to protect adequately against inflation without first also weighing the fact that it provides incredibly wonderful deflation protection. Stocks and bonds went down badly at the same time just very recently. A pension or annuity payment was a delight to have rather than having to sell bond and stock holdings when they were low rather than having monthly income to live on and even buy assets when others were forced to sell low.

Anyone faced with the pension-lump sum decision should, in my opinion, try to diversify holdings to protect as best as possible against all possibilities. None of what I wrote above is intended to say that pension is the right decision. Future Inflation is a serious concern. But with respect to retirement, sequence of returns risk makes deflation a serious issue too, even if inflation is more likely over time.

Best wishes.
Probably this is just language.

But ""deflation" means, usually, a fall in prices. Since the 1930s there has not been a *sustained* fall in prices (CPI) in the USA. I mean I think it did fall in certain months 2008-09 (and there was a sharp recession in 1945-46 arising from demobilisation). But it wasn't sustained even in the 40s/50s for more than a year.

I agree that the big advantage of a pension is immunity to market movements -- which is how you are using the term "deflation". Just to caution you that that's not the standard usage.
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Re: Another lump sum vs monthly pension question

Post by Stinky »

vzguy wrote: Mon Apr 01, 2024 9:51 am No cola option. Also, no way I can delay the lump sum. Once I retire, I either need to take the lump, or monthly. I am not worried about leaving $ to anyone, other than my wife when i die also.
I wouldn’t be a fan of taking a pension I don’t need for monthly income purposes at age 55 (a pretty young age to start pension payments).

I’d rather have you roll the lump sum into an IRA and invest per your targeted asset allocation. Maybe 60/40 overall, including both 401k in the mix.

If you decide that you want a guaranteed monthly income, you’ll have plenty of time to buy a SPIA later.
Retired life insurance company financial executive who sincerely believes that ”It’s a GREAT day to be alive!”
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vzguy
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Re: Another lump sum vs monthly pension question

Post by vzguy »

Thanks everyone for all the advice. Wife is pushing me towards the monthly payment, I am back and forth depending on the day. As stated, I am not concerned at all leaving anyone else, other than my wife $. Just want to live our lives for us, and with enough $ for us. Another option I guess would be the 72(t) option. Sort of a best of both worlds. Could take about $30k for next 5 years, and have that lump of whats in an IRA hopefully earning. I have already opened a Roth IRA so its ready for a lump deposit if needed. I do plan on working a few days a week doing something, probably min wage though. Still have another 2 months to figure this out. Another side note is I get to keep my medical from my old company, so I have that covered until medicaid kicks in.
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Watty
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Re: Another lump sum vs monthly pension question

Post by Watty »

vzguy wrote: Tue Apr 02, 2024 8:01 am Another side note is I get to keep my medical from my old company, so I have that covered until medicaid kicks in.
Medicare not Medicaid

Check to make sure that you will still get the medical insurance if you take the lump sum, sometimes that is linked to taking the pension option.
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Re: Another lump sum vs monthly pension question

Post by Thesaints »

Taxes: I imagine you can roll the lump sum into an IRA, whereas pension payments would be immediately taxed on top of your wife’s and yours salaries. Depending on amounts and how long you both planning to work, that could be the most important factor
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Re: Another lump sum vs monthly pension question

Post by Stinky »

Watty wrote: Tue Apr 02, 2024 9:38 am
Check to make sure that you will still get the medical insurance if you take the lump sum, sometimes that is linked to taking the pension option.
Excellent observation.

If continued medical coverage for you depends on taking the pension, that might heavily tilt you toward taking the monthly income.

Of course, you’ll also need to take into account whether your wife’s employer offers medical coverage for you.
Retired life insurance company financial executive who sincerely believes that ”It’s a GREAT day to be alive!”
LotsaGray
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Re: Another lump sum vs monthly pension question

Post by LotsaGray »

vzguy wrote: Tue Apr 02, 2024 8:01 am Thanks everyone for all the advice. Wife is pushing me towards the monthly payment, I am back and forth depending on the day. As stated, I am not concerned at all leaving anyone else, other than my wife $. Just want to live our lives for us, and with enough $ for us. Another option I guess would be the 72(t) option. Sort of a best of both worlds. Could take about $30k for next 5 years, and have that lump of whats in an IRA hopefully earning. I have already opened a Roth IRA so its ready for a lump deposit if needed. I do plan on working a few days a week doing something, probably min wage though. Still have another 2 months to figure this out. Another side note is I get to keep my medical from my old company, so I have that covered until medicaid kicks in.
Time out!!!

Unless I missed something, you do not want to roll your lump sum pension into a Roth IRA. If you do that you will pay income tax this year on 100% of the lump sum. Iow you will be creating a relatively huge tax bill.

If you choose the lump sum roll it into a tIRA which is tax free. Then if you want you can do Roth conversions and target a tax bracket over the next xx years.

There are very few situations where I might recommend rolling a lump sum pension into a Roth. Those are few, probably even somewhat contrived and n/a for op imo.
Marq1
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Re: Another lump sum vs monthly pension question

Post by Marq1 »

With the lump sum you have it all, with the pension payments the down side is a lot less.

No debate on what I will do when I am faced with the exact situation.
delamer
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Re: Another lump sum vs monthly pension question

Post by delamer »

Look ahead to a time when both your & your wife are fully retired.

If you can cover your basic expenses (or more) with a combination of Social Security at that point, you’ll not suffer a lot of the angst that many people who are dependent on their portfolios to cover those expenses go through.

Asset allocation and withdrawal rates become less critical the more your portfolio is used for discretionary, not basic, expenses.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
Beehave
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Re: Another lump sum vs monthly pension question

Post by Beehave »

Valuethinker wrote: Tue Apr 02, 2024 3:24 am
Beehave wrote: Tue Apr 02, 2024 1:38 am Do not reject a pension because it fails to protect adequately against inflation without first also weighing the fact that it provides incredibly wonderful deflation protection. Stocks and bonds went down badly at the same time just very recently. A pension or annuity payment was a delight to have rather than having to sell bond and stock holdings when they were low rather than having monthly income to live on and even buy assets when others were forced to sell low.

Anyone faced with the pension-lump sum decision should, in my opinion, try to diversify holdings to protect as best as possible against all possibilities. None of what I wrote above is intended to say that pension is the right decision. Future Inflation is a serious concern. But with respect to retirement, sequence of returns risk makes deflation a serious issue too, even if inflation is more likely over time.

Best wishes.
Probably this is just language.

But ""deflation" means, usually, a fall in prices. Since the 1930s there has not been a *sustained* fall in prices (CPI) in the USA. I mean I think it did fall in certain months 2008-09 (and there was a sharp recession in 1945-46 arising from demobilisation). But it wasn't sustained even in the 40s/50s for more than a year.

I agree that the big advantage of a pension is immunity to market movements -- which is how you are using the term "deflation". Just to caution you that that's not the standard usage.
You are right, and your terminology of "immunity to market movements" captures the idea quite elegantly because there's immunity in the financial sense of increased probability of not having to sell assets when the market is down as well as immunity in the sense that you may well have "sleep well at night" emotional calm when others are stressed by market conditions.

In my view the pension or annuity provides the retiree valuable protection against damaging sequence of return risk early and midway into retirement and longevity risk later in retirement. However, the pension itself is vulnerable to inflation which will almost certainly diminish these positive attributes over time. As I see it, the answer to whether to take a pension or lump sum involves understanding these trade-offs and applying that understanding to one's own financial and emotional conditions to come up with a strategy.
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vzguy
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Re: Another lump sum vs monthly pension question

Post by vzguy »

Not sure what happened, i wrote a long reply, and it got deleted. Anyway, I will keep my employers insurance with lump, or monthly. Also get a $200k life insurance policy. Wife is pushing me towards the monthly, so we don't have to stress while I search for a new job. We definitely can get by on her salary alone, but i feel like I should be contributing. Again, I also dont care about leaving anything to anyone, other than my wife when Im gone. She feels the same way. I am also looking into a 72(t), maybe best of both worlds? Could take about $28k a year for next 5 years, while the rest of the lump sum hopefully earns in the roth. That would bring me to 60, and more options then for taking $ out if needed.
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Stinky
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Re: Another lump sum vs monthly pension question

Post by Stinky »

vzguy wrote: Wed Apr 03, 2024 7:26 am Wife is pushing me towards the monthly, so we don't have to stress while I search for a new job.
Another way to look at this -

“Happy wife, happy life”
Retired life insurance company financial executive who sincerely believes that ”It’s a GREAT day to be alive!”
delamer
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Re: Another lump sum vs monthly pension question

Post by delamer »

vzguy wrote: Wed Apr 03, 2024 7:26 am Not sure what happened, i wrote a long reply, and it got deleted. Anyway, I will keep my employers insurance with lump, or monthly. Also get a $200k life insurance policy. Wife is pushing me towards the monthly, so we don't have to stress while I search for a new job. We definitely can get by on her salary alone, but i feel like I should be contributing. Again, I also dont care about leaving anything to anyone, other than my wife when Im gone. She feels the same way. I am also looking into a 72(t), maybe best of both worlds? Could take about $28k a year for next 5 years, while the rest of the lump sum hopefully earns in the roth. That would bring me to 60, and more options then for taking $ out if needed.
If your wife is pushing for the monthly pension and you are on the fence, then it seems that she’s given you the answer. Especially so if there’s a strong probability that she’ll outlive you.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
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vzguy
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Re: Another lump sum vs monthly pension question

Post by vzguy »

delamer wrote: Wed Apr 03, 2024 9:49 am

Especially so if there’s a strong probability that she’ll outlive you.
Well,that's always debatable. We are both in fairly good health. Family history on my side is not good though.
delamer
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Re: Another lump sum vs monthly pension question

Post by delamer »

vzguy wrote: Wed Apr 03, 2024 9:52 am
delamer wrote: Wed Apr 03, 2024 9:49 am

Especially so if there’s a strong probability that she’ll outlive you.
Well,that's always debatable. We are both in fairly good health. Family history on my side is not good though.
Yes, that’s the “if” part. On average, women live longer then men. But the relevance of that statistic to any given married couple is questionable.

With my parents and their siblings — 7 married couples total — in 5 of the marriages, the husbands outlived their wives by at least a few years. (In all couples, the husband was the same age or older than their wife.)
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
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vzguy
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Re: Another lump sum vs monthly pension question

Post by vzguy »

I am going to go out on a limb, and say she will outlive me. She is 2 years older than me, but she has a good family history of long life, and the men in my family have a terrible history. I feel like I am on borrowed time...LOL. I think she would be just fine with the $500k from my 401k, plus the $200k in life insurance, and the half pay of $1250 of my pension if I were to pass.
delamer
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Re: Another lump sum vs monthly pension question

Post by delamer »

vzguy wrote: Thu Apr 04, 2024 8:00 am I am going to go out on a limb, and say she will outlive me. She is 2 years older than me, but she has a good family history of long life, and the men in my family have a terrible history. I feel like I am on borrowed time...LOL. I think she would be just fine with the $500k from my 401k, plus the $200k in life insurance, and the half pay of $1250 of my pension if I were to pass.
Is the $200,000 life insurance policy valid for the rest of your life?

If you think the odds are good that she will outlive you, then all the more reason to go with her preference for the pension.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
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vzguy
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Re: Another lump sum vs monthly pension question

Post by vzguy »

delamer wrote: Thu Apr 04, 2024 9:33 am
Is the $200,000 life insurance policy valid for the rest of your life?
Yes.
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Re: Another lump sum vs monthly pension question

Post by LotsaGray »

delamer wrote: Thu Apr 04, 2024 9:33 am
vzguy wrote: Thu Apr 04, 2024 8:00 am I am going to go out on a limb, and say she will outlive me. She is 2 years older than me, but she has a good family history of long life, and the men in my family have a terrible history. I feel like I am on borrowed time...LOL. I think she would be just fine with the $500k from my 401k, plus the $200k in life insurance, and the half pay of $1250 of my pension if I were to pass.
Is the $200,000 life insurance policy valid for the rest of your life?

If you think the odds are good that she will outlive you, then all the more reason to go with her preference for the pension.
actually the annuity vs. lump sum calculation already considers odds of spouse surviving, and the % survivor benefit. They will be actuarily equal. What matters are the likelihood of you/spouse combination dying before/after your expectancies. As my DW is a smoker and basically refuses to see a doctor, even though few years younger than myself, I don't expect her out live me. At least not as much as the expectancy tables used would indicate. So for us, lump sum is probably better. But it is one of those things you never know until after the fact.
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vzguy
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Re: Another lump sum vs monthly pension question

Post by vzguy »

Colorado Guy wrote: Mon Apr 01, 2024 9:00 am Lots of threads on BH on this topic. I don't know if there is a perfect answer for everyone. Frequently https://www.immediateannuities.com/info ... tep-1.html is recommended on BH to gauge if the lump sum would buy you an equivalent annuity on the open market.

Good luck.
That gives me exactly what my monthly from my job gives. I guess my company has this figured out pretty well.
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vzguy
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Re: Another lump sum vs monthly pension question

Post by vzguy »

Another thing to note, is my in my 401k company stock pays decent dividends. Roughly $1k a month. I could take that $1k a month without penalty, bringing my monthly income to about $3500.
delamer
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Re: Another lump sum vs monthly pension question

Post by delamer »

LotsaGray wrote: Thu Apr 04, 2024 8:51 pm
delamer wrote: Thu Apr 04, 2024 9:33 am
vzguy wrote: Thu Apr 04, 2024 8:00 am I am going to go out on a limb, and say she will outlive me. She is 2 years older than me, but she has a good family history of long life, and the men in my family have a terrible history. I feel like I am on borrowed time...LOL. I think she would be just fine with the $500k from my 401k, plus the $200k in life insurance, and the half pay of $1250 of my pension if I were to pass.
Is the $200,000 life insurance policy valid for the rest of your life?

If you think the odds are good that she will outlive you, then all the more reason to go with her preference for the pension.
actually the annuity vs. lump sum calculation already considers odds of spouse surviving, and the % survivor benefit. They will be actuarily equal. What matters are the likelihood of you/spouse combination dying before/after your expectancies. As my DW is a smoker and basically refuses to see a doctor, even though few years younger than myself, I don't expect her out live me. At least not as much as the expectancy tables used would indicate. So for us, lump sum is probably better. But it is one of those things you never know until after the fact.
Yes, of course the options are actuarially neutral over the population for the OP’S retirement plan.

But as you note, that doesn’t really have any bearing on the OP’s personal decision. Or yours, given your wife’s smoking habit.

Another factor that should be considered is whether the survivor has any interest in (or ability to) manage a lump sum. And, just in general, it’s harder to get ripped off by a financial advisor when your income is largely annuitized.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
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BrooklynInvest
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Re: Another lump sum vs monthly pension question

Post by BrooklynInvest »

OP,

The question I'd ask myself is how much guaranteed income I want relative to my hard costs.

If social security covered all my basic bills (housing, car, food) then I'd lean towards lump sum and investing it. If not I'd consider the additional guaranteed income valuable.

In my case I have rent and eventual social security that'd cover my basics so market meltdowns won't put me on the street. It might cause me to tighten the purse strings a bit but I won't go hungry.

Good luck OP. Either way you look to be in fine fettle!
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vzguy
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Re: Another lump sum vs monthly pension question

Post by vzguy »

delamer wrote: Fri Apr 05, 2024 10:40 am Another factor that should be considered is whether the survivor has any interest in (or ability to) manage a lump sum. And, just in general, it’s harder to get ripped off by a financial advisor when your income is largely annuitized.
Yup, I do worry about being ripped off from an advisor. It happens more than people realize
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