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Old 06-04-2010, 07:28 PM
 
386 posts, read 1,170,065 times
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Hi - I would like to get some advice about taking a pension early. I was displaced last year and the end of my severance is about to end. I was notified by my company that due to my years of service & age I was eligible to receive my pension. I believe I can get it monthly or as a lump sum, I am waiting for the paperwork. My question is - if you were able to take a lump sum pension, would you? I know the taxes taken may be about 20% (still researching) but I am tempted to take the money. I would like to have control of the money and invest it myself. I don't have faith company pensions will be there in 20 years and would like to know anyone's thoughts about taking a lump sum pension early. Also, if you are familar with this type of scenario, feel free to pass along any info.

Thx bunches!
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Old 06-04-2010, 08:00 PM
 
Location: So. of Rosarito, Baja, Mexico
6,652 posts, read 18,667,875 times
Reputation: 6101
I'm reminded of old George Burns when asked about a contract to appear in Las Vegas in a few yrs his answer was " I'm not sure they may be around then".

A bird in the hand is better then two in the bush.

I'd go for the lump and invest carefully watching the dollar value on the way.
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Old 06-04-2010, 08:03 PM
 
Location: SE Florida
1,194 posts, read 3,688,352 times
Reputation: 754
Compare both options.
I retired early at 55 and I am receiving a pension 66% of my full salary which is not bad at all.
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Old 06-04-2010, 09:49 PM
 
14,253 posts, read 15,324,963 times
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It depends on a number of different factors.

First ... do you have confidence the company will be around in 20-30 years and in a position to honor their pension commitment?

Second ... what do you estimate your life expectancy at? The longer you think you will live, the better the pension looks.

Third ... what will be the marginal rate you pay tax on the lump sum and what will be the rate you pay on pension income?

Finally, can you get a relatively risk free return investing the lump sum that will be broadly equivalent to the pension you receive?
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Old 06-04-2010, 09:50 PM
 
9,830 posts, read 19,569,470 times
Reputation: 7604
Quote:
Originally Posted by dmwlakewylie View Post
Hi - I would like to get some advice about taking a pension early. I was displaced last year and the end of my severance is about to end. I was notified by my company that due to my years of service & age I was eligible to receive my pension. I believe I can get it monthly or as a lump sum, I am waiting for the paperwork. My question is - if you were able to take a lump sum pension, would you? I know the taxes taken may be about 20% (still researching) but I am tempted to take the money. I would like to have control of the money and invest it myself. I don't have faith company pensions will be there in 20 years and would like to know anyone's thoughts about taking a lump sum pension early. Also, if you are familar with this type of scenario, feel free to pass along any info.

Thx bunches!
Unfortunately all the people I have ever heard of taking a lump sum, ended up wizzing it all away either through poor money management or poor investment skills.

If you have strong investment skills go for the lump sum.

It might be you already have other investments and the pension may be a part of diversifying.
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Old 06-05-2010, 04:38 AM
 
20,793 posts, read 53,962,236 times
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If you don't need the money I would take it and roll it into an IRA. The pension can't be that much monthly.
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Old 06-05-2010, 05:10 AM
 
386 posts, read 1,170,065 times
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Thanks everyone, good things to think about.
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Old 06-05-2010, 05:14 AM
 
Location: Fairfield, CT
5,842 posts, read 8,600,793 times
Reputation: 6286
Quote:
Originally Posted by dmwlakewylie View Post
Hi - I would like to get some advice about taking a pension early. I was displaced last year and the end of my severance is about to end. I was notified by my company that due to my years of service & age I was eligible to receive my pension. I believe I can get it monthly or as a lump sum, I am waiting for the paperwork. My question is - if you were able to take a lump sum pension, would you? I know the taxes taken may be about 20% (still researching) but I am tempted to take the money. I would like to have control of the money and invest it myself. I don't have faith company pensions will be there in 20 years and would like to know anyone's thoughts about taking a lump sum pension early. Also, if you are familar with this type of scenario, feel free to pass along any info.

Thx bunches!
To really do an intelligent analysis, you need to look at actualy numbers. How much is the lump sum, versus how much will you get per month if you take the monthly option. When would the monthly payments start?

I would guess the taxes taken from the lump sum would be a lot more than 20%. Still, the expectation that tax rates will go up significantly over the coming years is a good reason to take the lump sum.

Still, you need to know how much of a discount you're getting by taking the lump sum vs. monthly payout before you can make an intelligent decision.

There's also the factor of what type of person you are. Will you get the lump sum money and blow it? Can you be trusted to hold onto large amounts of cash? How solvent is the company's pension fund?

If you don't have faith in the company, you could take the lump sum and buy an annuity, to replicate the monthly income. There are several options.
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Old 06-05-2010, 06:38 AM
 
48,516 posts, read 83,890,268 times
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Yep;if its a guaranteed lifetime annunity pension then you need to think carefully and have aplace to roll it over. I saw a PBS program study that showed very few can equal the investment of those pensions on their own.
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Old 06-05-2010, 08:01 AM
 
8,266 posts, read 10,705,471 times
Reputation: 4769
WHat others said - can't answer without getting very personal in your business by having actual hard numbers, as well as viability of the pension since if you're not gov't and your company went under it would be the pension guar fund paying it and it could possibly be less.

Good luck, sounds like you have a nice problem to have.
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