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I just got an offer from former employer UPS for a one-time pension buyout deal. I don't know what the dollar amount would be but the monthly pension will be $350 for the rest of my life once I file. I'm 63. This is a company pension and not connected to any union pension plan.
Whatever the buyout number there's no way I would make the trade. I know it's small but I'd rather have the guaranteed $350 monthly from UPS.
But it looks like a lot of people are going to take the lump sum retirement payoff from UPS.
Depending on the amount, if invested properly it could bring in more than the $350 per month. Plus, when you die, the pension stops whereas with the lump sum, your heirs get what's left.
I wouldn't trade it unless there was a chance the company would go bankrupt in future. You are trading a sure payout to be in the market which if it turns south for awhile you might not be around for the rebound.
Depending on the amount, if invested properly it could bring in more than the $350 per month. Plus, when you die, the pension stops whereas with the lump sum, your heirs get what's left.
And how, pray tell, do you invest "properly"? This is the classic line used by "finacial advisors" AKA vultures, who prey on folks offered this choice. Guess how often it works in the retiree's favor?
IMHO, there's really only one circumstance where one might accept a lump sum. That's when the plan is badly underfunded with a risk that it can't meet it's long term obligations, AND when the monthly payout would be above the PBGC limit.
And how, pray tell, do you invest "properly"? This is the classic line used by "finacial advisors" AKA vultures, who prey on folks offered this choice. Guess how often it works in the retiree's favor?
IMHO, there's really only one circumstance where one might accept a lump sum. That's when the plan is badly underfunded with a risk that it can't meet it's long term obligations, AND when the monthly payout would be above the PBGC limit.
Geez, what's with the attitude? Have I wronged you in another life? I'm not selling anything. Investing properly means doing your math and your homework to find the investment that's right for the individual. There's no "one size fits all" answer for questions like this. You just have to do the math and figure out the right answer for each individual circumstance.
It's common to hear that kind of advice after a long bull market. If I look at my stock folio performance since mid 2008, I'm a freaking investment genius. If I look from the '90s until the bubble burst, I was also amazing. Look at 2000 through 2003.....ah..not so good. Besides selective memory, it is also so easy to fool yourself in to thinking..."yeah, but I am just so much smarter and wiser with age now, too." And no doubt, I actually DO know more about investi g and the markets than I did 20 years ago. I also know that it is never a sure thing, and not to panic during down turns. But the fact remains that no one can predict when a real bear market will start or how long it will last, and if it occurs during the beginning of your retirement and you depend on that to generate your income, then you could be royally inserted in a circular motion.
That said, the long term average after inflation return of index funds is still around 8% so if you don't require immediate access, then the lump sum invested MAY make sense, but it totally depends on your withdrawal horizon.
Fwiw, my pension plan has a partial lump sum to 401k or add to pension option. And the lump sum payback is around 16 years. So I may take that portion as a lump, since I plan to delay SS as long as I deem smart to do it. So a $60k lump sum either way makes no difference to my actually payment of non-discretionary expenses, and from 62 to 70 I want to lower my forced income to allow Roth conversions, and that helps a little.
Location: East of Seattle since 1992, 615' Elevation, Zone 8b - originally from SF Bay Area
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Assuming living to age 93, that $350/month will add up to 1.26 million. If you got that much up front, you could invest it for a much better return than $350/month, but you can't really make a good decision without knowing the lump sum amount. One relative recently took his retirement in a lump and it was close to 2 million. He spends part of each day trading on the stock market and has grown the balance while still making multiple trips abroad with his wife and adult kids.
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