pension plan terminating

[haapai]

I need to decide whether to take the lump-sum option now and invest it or opt for the annuity when I turn 65 in nine and a half years.  Most of the information that I am encountering seems to be targeted towards folks who are retiring at an age when they could begin collecting pension payments. 

I'm pretty sure that I have to make some sort of adjustment to account for those nine and a half years and I can't figure out how to do it.  There are some discount rates mentioned in the material that I have received.  I'm wondering if these are what I need to know.  The rates in question are 5.45% in the first five years, 5.52% in years 5 through 20, and 5.43% after twenty years.

Have any of you ever looked at correspondence like this?  Have they really done the math for me?  Can I just look at those discount rates and just assume that I can do better investing it?

[jerseygirl]

I took a lump sum and investments have done very well. We won’t spend much of it . Our kids will inherit remainder
If you take a pension , it disappears either on your death or death of your direct beneficiary.

I prefer to have the money continue after I’m gone so lump sum was best for me. Not sure but with my investments I might also be getting more now rather than with the pension

[haapai]

For what it is worth, the pension is pretty tiny, $222 a month or about $19K rolled over into an IRA now.  It's not the huge life-changing amount of money that you might be imagining. 

I really don't want to take this question to a financial advisor.  I'm single and don't need help considering the survivor options.  Plus, I majored in accounting and my dad is a retired CPA.  I should be able to figure this one out on my own. 

[minnesotapaintlady]

I would just take the lump sum and have control of the money.  It's a small amount and I'd rather have the bird in the hand.

[resolution]

Jun 27, 2024 14:31:16 GMT -5 haapai said:

For what it is worth, the pension is pretty tiny, $222 a month or about $19K rolled over into an IRA now.  It's not the huge life-changing amount of money that you might be imagining. 

I really don't want to take this question to a financial advisor.  I'm single and don't need help considering the survivor options.  Plus, I majored in accounting and my dad is a retired CPA.  I should be able to figure this one out on my own. 

I don't know how to figure out the percentages, but I threw the numbers into a deferred annuity estimator and they are saying for a 55 yo woman, a 19k investment will result in a $190 per month annuity that starts in 10 years. So it doesn't look like they are trying to rip you off with the lump sum amount.  www.schwab.com/annuities/fixed-income-annuity-calculator

According to my Phil Script, a lump sum investment of $19,000.00 bearing an annual return of 11% could grow to $53,949.00 in 10 years! If you believe in the Phil Script, this would get you a withdrawal of $180 per month (at a 4% withdrawal rate) and you would still have your principle.

Personally, after living through the no returns of 2000-2010, I don't have faith that the market will produce 11% in a 10 year timeframe. But I would probably lean toward the lump sum anyway, since they are already making changes to the pension. Who is to say that they won't make more in the next 10 years?

[ArchietheDragon]

keep it in the pension and every month you get it buy yourself a $222 luxury gift. 

[haapai]

Jun 27, 2024 15:08:08 GMT -5 ArchietheDragon said:

keep it in the pension and every month you get it buy yourself a $222 luxury gift. 

Bad accountant!  But since I'm paying nothing for your advice ....

[finnime]

The lump sum is enough to have some meaning, especially invested for 10 years. Will you be wanting a car, or a roof, or to go on a cruise in 10 or more years? The less than $200/month, not so much. Maybe a pesky bill or two. I'd go with the lump sum and take control. And jerseygirl has a good point about it ending when you do, regardless of how long you've been getting it as a pension.

[haapai]

Jun 28, 2024 6:56:17 GMT -5 finnime said:

The lump sum is enough to have some meaning, especially invested for 10 years. Will you be wanting a car, or a roof, or to go on a cruise in 10 or more years? The less than $200/month, not so much. Maybe a pesky bill or two. I'd go with the lump sum and take control. And jerseygirl has a good point about it ending when you do, regardless of how long you've been getting it as a pension.

I think that you are right about the lump sum being more useful.  In addition to all of the reasons that you have mentioned, I can also withdraw from it without penalty when I turn 59 1/2.  I hope that I will never have to do that, but it is an option and options are good. 

On the other hand, there is one pesky bill that the $222/mo amount would cover.  My mortgage note is $221.63 a month.  The similarity of those amounts always gave me a bit of comfort and took the sting out of the size of the pension.  I'll sorta miss that coinkydink when it is gone. 

I'm still leaning toward the lump sum. 

[minnesotapaintlady]

Jun 28, 2024 11:55:55 GMT -5 haapai said:

Jun 28, 2024 6:56:17 GMT -5 finnime said:

The lump sum is enough to have some meaning, especially invested for 10 years. Will you be wanting a car, or a roof, or to go on a cruise in 10 or more years? The less than $200/month, not so much. Maybe a pesky bill or two. I'd go with the lump sum and take control. And jerseygirl has a good point about it ending when you do, regardless of how long you've been getting it as a pension.

I think that you are right about the lump sum being more useful.  In addition to all of the reasons that you have mentioned, I can also withdraw from it without penalty when I turn 59 1/2.  I hope that I will never have to do that, but it is an option and options are good. 

On the other hand, there is one pesky bill that the $222/mo amount would cover.  My mortgage note is $221.63 a month.  The similarity of those amounts always gave me a bit of comfort and took the sting out of the size of the pension.  I'll sorta miss that coinkydink when it is gone. 

I'm still leaning toward the lump sum. 

How much is left on the mortgage?

[haapai]

A tad more that $34K.  It has a maturity date of one month before I turn 72 and a 3.75% rate. 

I'm not gonna pay it off early unless there's a way to pay it off, marry my partner, and give him half of the house and somehow not have the taxable value of the place reset to the assessed value when I die.  That would be quite valuable to him.  (I live in Michigan, the land of cheap houses and high property taxes.  Not having the taxable value of the house reset to the assessed value would keep the property taxes from increasing 50% in the first year after I "no longer own the house"  and quite substantially in subsequent years.) 

I've kinda noticed how the value of $19K invested in equities is almost certainly gonna touch up with the payoff amount of the mortgage but I have not calculated when that might occur with various rates of return.  On the other hand, I'm pretty sure that those lines will cross before I turn 65 and could possibly collect anything from an annuity. 

ETA:  I am not proud of the language that I used in the second sentence of this post.  I should have spoken about re-titling the house, and opting for the "married with rights of survivorship" option instead of saying something about giving him half. 

[minnesotapaintlady]

Jun 28, 2024 13:10:56 GMT -5 haapai said:

A tad more that $34K.  It has a maturity date of one month before I turn 72 and a 3.75% rate. 

I'm not gonna pay it off early unless there's a way to pay it off, marry my partner, and give him half of the house and somehow not have the taxable value of the place reset to the assessed value when I die.  That would be quite valuable to him.  (I live in Michigan, the land of cheap houses and high property taxes.  Not having the taxable value of the house reset to the assessed value would keep the property taxes from increasing 50% in the first year after I "no longer own the house"  and quite substantially in subsequent years.) 

I've kinda noticed how the value of $19K invested in equities is almost certainly gonna touch up with the payoff amount of the mortgage but I have not calculated when that might occur with various rates of return.  On the other hand, I'm pretty sure that those lines will cross before I turn 65 and could possibly collect anything from an annuity. 

With a 6% annual return on the 19K the paths would cross in probably 5 years.

[CCL]

I'd take the cash option and be done with it.

[The Walk of the Penguin Mich]

When I left my job in TX, I was vested in the pension.  Not contributing any more, it would have paid out $400/mo when I hit 65.  The account had about $30k of my contributions, $30k of my employers.  I chose to pull it out, I only got my contributions.

24 years later and no further contributions, the account has around $150k.  This was with it parked in a Target fund.  

[Opti]

Jun 27, 2024 14:31:16 GMT -5 haapai said:

For what it is worth, the pension is pretty tiny, $222 a month or about $19K rolled over into an IRA now.  It's not the huge life-changing amount of money that you might be imagining. 

I really don't want to take this question to a financial advisor.  I'm single and don't need help considering the survivor options.  Plus, I majored in accounting and my dad is a retired CPA.  I should be able to figure this one out on my own. 

Since I plan to live longer than average, I chose the pay me option. I should be getting $200/mo in a year or so. That was from my first employer after college fwiw. 

No other advice, I'm single and 64 wishing I was 46. I have a job that does not pay well enough for me to live indoors and buy a crap car, so your math might be different than mine. Good luck whatever you decide. I kind of wish it was starting now as I would use it for a crap car loan and car insurance.

[CCL]

Jun 28, 2024 18:24:40 GMT -5 The Walk of the Penguin Mich said:

When I left my job in TX, I was vested in the pension.  Not contributing any more, it would have paid out $400/mo when I hit 65.  The account had about $30k of my contributions, $30k of my employers.  I chose to pull it out, I only got my contributions.

24 years later and no further contributions, the account has around $150k.  This was with it parked in a Target fund.  

Hmmm... I always thought if you were vested, you would get to keep the employer's contributions along with your own.

[The Walk of the Penguin Mich]

Jun 28, 2024 19:13:42 GMT -5 CCL said:

Jun 28, 2024 18:24:40 GMT -5 The Walk of the Penguin Mich said:

When I left my job in TX, I was vested in the pension.  Not contributing any more, it would have paid out $400/mo when I hit 65.  The account had about $30k of my contributions, $30k of my employers.  I chose to pull it out, I only got my contributions.

24 years later and no further contributions, the account has around $150k.  This was with it parked in a Target fund.  

Hmmm... I always thought if you were vested, you would get to keep the employer's contributions along with your own.

Not in this pension plan.  

[resolution]

Jun 28, 2024 19:48:36 GMT -5 The Walk of the Penguin Mich said:

Jun 28, 2024 19:13:42 GMT -5 CCL said:

Hmmm... I always thought if you were vested, you would get to keep the employer's contributions along with your own.

Not in this pension plan.  

My dad worked for AZ Dept of Corrections, and their pension was like that as well. He worked there for six years and they were just going to give him his contributions back with no interest and no employer contributions. Fortunately he was able to buy credit for his military time, which got him to the 10 year mark and a half pension.

[haapai]

I had not realized, when I started this thread, how much the gap between when you have to make a choice between taking the annuity or the lump-sum option and when you can begin receiving the annuity drives the choice. 

If I were 45 1/2 instead of ten years older, this choice would have been a slam-dunk -- take the lump sum and invest it instead of effectively investing 100% of that lump-sum in bonds.   

Being able to take advantage of that window of time when you can get it into much more aggressive investments and get much better survivor benefits which are under your control pretty much cinches it.  The only catch is whether you or your survivors have the good sense and the wherewithal to keep their mitts off the moola until it has expanded.