Small pension - Should I take now, later, lump sum?

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MedEngineer
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Small pension - Should I take now, later, lump sum?

Post by MedEngineer »

[Topic is now in Personal Finance (Not Investing) - mod mkc]

I've got a small pension from a previous employer and I can start taking it already at age 61, its probably 5% or less than my current portfolio, I know the numbers ultimately matter, but is there a general rule of thumb to use to evaluate this?
Silk McCue
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Re: Small pension - Should I take now, later, lump sum?

Post by Silk McCue »

Why look for a general rule of thumb when you know the numbers ultimately matter? Take the time to evaluate this within the context of your entire retirement financial picture.

Cheers
LittleMaggieMae
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Re: Small pension - Should I take now, later, lump sum?

Post by LittleMaggieMae »

In the vein of Silk McCue's post -

Some things to think about (if you didn't think of these already):
If married how does your retirement income change for the surviving spouse? How does the small pension play into their income/possible healthcare?
If single, how does the small pension play into your long term retirement income (how does it play with with your SS benefits if your nest egg dwindles and you are facing long term care of some sort).

I know you can't predict the mid term or long term future (as well as you can predict the short term future).
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Watty
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Re: Small pension - Should I take now, later, lump sum?

Post by Watty »

MedEngineer wrote: Mon Oct 28, 2024 7:36 pm I know the numbers ultimately matter, but is there a general rule of thumb to use to evaluate this?
You could write a phd. thesis on what the rules should be.

That said a couple of very general things to look at.

1) If the pension adjusted for inflation? That is worth a lot.

2) If you take the lump sum will you lose any retiree benefits like healthcare?

3) Would taking the lump sum allow you to delay starting Social Security until the optimal age, or at least longer?

https://opensocialsecurity.com/

4) Turn the money around and ask, "I have the lump sum amount in an IRA, would I buy a single premium immediate annuity with it?"
mnnice
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Re: Small pension - Should I take now, later, lump sum?

Post by mnnice »

We really need the numbers.

Lump sum vs monthly.

And taking as soon as possible vs waiting until a later great.
Valuethinker
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Re: Small pension - Should I take now, later, lump sum?

Post by Valuethinker »

Watty wrote: Mon Oct 28, 2024 8:41 pm
MedEngineer wrote: Mon Oct 28, 2024 7:36 pm I know the numbers ultimately matter, but is there a general rule of thumb to use to evaluate this?
You could write a phd. thesis on what the rules should be.

That said a couple of very general things to look at.

1) If the pension adjusted for inflation? That is worth a lot.

2) If you take the lump sum will you lose any retiree benefits like healthcare?

3) Would taking the lump sum allow you to delay starting Social Security until the optimal age, or at least longer?

https://opensocialsecurity.com/

4) Turn the money around and ask, "I have the lump sum amount in an IRA, would I buy a single premium immediate annuity with it?"
Good list.

Add survivor benefit - if any, and if relevant to poster.
IowaFarmBoy
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Re: Small pension - Should I take now, later, lump sum?

Post by IowaFarmBoy »

And another to add- is the benefit reduced for taking it at 61 and how much? At my employer, we could start drawing pension at 55 but it was reduced 5% for every year before 61 and 10% for taking it at 61 vs 62. I never understood why 61 took such a hit but that is what it was.
Topic Author
MedEngineer
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Re: Small pension - Should I take now, later, lump sum?

Post by MedEngineer »

Watty wrote: Mon Oct 28, 2024 8:41 pm
MedEngineer wrote: Mon Oct 28, 2024 7:36 pm I know the numbers ultimately matter, but is there a general rule of thumb to use to evaluate this?
You could write a phd. thesis on what the rules should be.

That said a couple of very general things to look at.

1) If the pension adjusted for inflation? That is worth a lot.

2) If you take the lump sum will you lose any retiree benefits like healthcare?

3) Would taking the lump sum allow you to delay starting Social Security until the optimal age, or at least longer?

https://opensocialsecurity.com/

4) Turn the money around and ask, "I have the lump sum amount in an IRA, would I buy a single premium immediate annuity with it?"
Thank you @Watty for some ideas to look into, as you said there are many rules, I just need a starting point as I'm inclined to just leave it alone until I retire. Up until this point I've only included the current pension value in my retirement calculations as a lump sum rather than monthly income.

#2 & #3 don't apply, need to investigate #1.

I think it is a cash value pension, I need to read more to confirm this, it talks about annuities, etc and has a calculation tool which generates scenarios which I still need to digest.
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Stinky
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Re: Small pension - Should I take now, later, lump sum?

Post by Stinky »

MedEngineer wrote: Tue Oct 29, 2024 12:44 pm….I'm inclined to just leave it alone until I retire.
That sounds like a fine approach.

Revisit your choices when you do retire.
Retired life insurance company financial executive who sincerely believes that ”It’s a GREAT day to be alive!”
Valuethinker
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Re: Small pension - Should I take now, later, lump sum?

Post by Valuethinker »

MedEngineer wrote: Tue Oct 29, 2024 12:44 pm
Watty wrote: Mon Oct 28, 2024 8:41 pm

You could write a phd. thesis on what the rules should be.

That said a couple of very general things to look at.

1) If the pension adjusted for inflation? That is worth a lot.

2) If you take the lump sum will you lose any retiree benefits like healthcare?

3) Would taking the lump sum allow you to delay starting Social Security until the optimal age, or at least longer?

https://opensocialsecurity.com/

4) Turn the money around and ask, "I have the lump sum amount in an IRA, would I buy a single premium immediate annuity with it?"
Thank you @Watty for some ideas to look into, as you said there are many rules, I just need a starting point as I'm inclined to just leave it alone until I retire. Up until this point I've only included the current pension value in my retirement calculations as a lump sum rather than monthly income.

#2 & #3 don't apply, need to investigate #1.

I think it is a cash value pension, I need to read more to confirm this, it talks about annuities, etc and has a calculation tool which generates scenarios which I still need to digest.
Unless you worked in the public sector it is quite unlikely to be CPI indexed. But one can always hope ... (roughly speaking, at retirement, CPI indexation doubles the present value of the pension (that is a *very* rough rule of thumb) assuming you have a normal life expectancy).

Also survivor benefit. I am not sure how to estimate the present value of that, but it can be worth quite a lot. For example if your spouse is not particularly conversant with managing portfolios etc, or had a long career break to have children. (If the spouse is female, the value of survivor benefit is increased due to longer life expectancy at at 65 -- the right tail on that is scary, in that over age 95 women outnumber men at least 10:1 (? I may be making that number up, but it is certainly a big ratio)).
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Chip Munk
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Re: Small pension - Should I take now, later, lump sum?

Post by Chip Munk »

Watty wrote: Mon Oct 28, 2024 8:41 pm 4) Turn the money around and ask, "I have the lump sum amount in an IRA, would I buy a single premium immediate annuity with it?"
Another thing to consider is whether the company pension is a better deal than any single premium immediate annuity you could buy. This is especially true for women whose company pension is gender neutral since purchased annuities are not and pay less per month to women vs men. In my case, the monthly pension payment was better than anything I could buy with the lump sum so I decided to take advantage of that.
Last edited by Chip Munk on Tue Oct 29, 2024 6:52 pm, edited 1 time in total.
GAAP
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Re: Small pension - Should I take now, later, lump sum?

Post by GAAP »

My own approach has been to wait until there is no benefit in delaying the choice. This allows room for other things like Roth conversions in the interim.

Nominal vs real would make a difference, but truly real pensions are pretty rare. Some have a "COLA", but it rarely is truly real.

You really can't make a rational decision without knowing all of the factors involved -- start with self-education.
“Adapt what is useful, reject what is useless, and add what is specifically your own.” ― Bruce Lee
Topic Author
MedEngineer
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Re: Small pension - Should I take now, later, lump sum?

Post by MedEngineer »

I did a little digging last night and it looks like its worth it to wait, the payouts do continue to increase. What I did find interesting are the number of retirement payout options, 100%, 50% with survivor, 66.6% survivor, 100% with 120 months survivor, its more to digest, but it looks like I have at least another few years to decide.
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Stinky
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Re: Small pension - Should I take now, later, lump sum?

Post by Stinky »

MedEngineer wrote: Wed Oct 30, 2024 10:59 am I did a little digging last night and it looks like its worth it to wait, the payouts do continue to increase. What I did find interesting are the number of retirement payout options, 100%, 50% with survivor, 66.6% survivor, 100% with 120 months survivor, its more to digest, but it looks like I have at least another few years to decide.
Sounds like a good decision to me.
Retired life insurance company financial executive who sincerely believes that ”It’s a GREAT day to be alive!”
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