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Old 10-07-2016, 08:30 AM
 
100 posts, read 65,581 times
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Quote:
Originally Posted by Hemlock140 View Post
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.
You're off a bit. $350x360 months (30 years) is only $126,000. If the lump was 1.26M, it would be a no-brainer.
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Old 10-07-2016, 09:31 AM
 
196 posts, read 118,575 times
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Lots to consider:

Can you roll over to an IRA?
How will the pension be managed and insured?
If managed by an insurance company as an annuity, how solid is that company?
Do you need the income, or can it wait till you turn 70.5?
How will inflation impact your money?
Is there a significant other to consider?
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Old 10-07-2016, 09:33 AM
 
Location: RVA
2,175 posts, read 1,274,479 times
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Should have been 1.2 hundred thousand. Or a $3500/mo pension. A 2 million lump sum buyout would be for about $10k/month pension. Hard choice still, IMHO. When the numbers get that large, it is REALLY hard to focus on the long term payback!!

My partial lump sum, as mentioned is predicted to be $55-60k. Or they would add between $275-300/mo to the pension, which is less than 10% of the pension amount.

Last edited by Perryinva; 10-07-2016 at 09:42 AM..
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Old 10-07-2016, 09:36 AM
 
Location: NYC
2,929 posts, read 1,600,561 times
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My mother was offered a similar scheme from where she worked for 10 years. She doesn't have much savings & took SS @ 62. My father encouraged her to go with the continued pension & not the lump sum. She turns 90 in 2 weeks & that few hundred dollars each month long ago exceeded the payout amount, she mentions this quite often. A real life saver for her.
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Old 10-07-2016, 09:53 AM
 
Location: Somewhere in deep in Maine
3,665 posts, read 2,822,824 times
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There is a reason why they offer buyouts. And the reason is not to help you, or be especially nice to you.
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Old 10-07-2016, 11:19 AM
 
Location: Ypsilanti, MI
2,461 posts, read 3,679,533 times
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In almost all cases the 'pension' is the better deal. I placed the word within quotation marks because quite often these sudden decisions to offer lump sums to employees are accompanied by a less obvious change, that of making the former pension an annuity.



I went contrary to the normal decision because:
  • I was young (56) and planned on working another 9 years.
  • The annuity amount if I left at age 65 would be the same as at age 56
  • I gambled (and won) that I could secure an equivalent job in a few weeks time
  • We already had a financial Planner with whom we had worked for 15 years, so I was confident the lump sum could grow nicely during the 9 years until I was ready for retirement.
So I resigned via the retirement plan, collected my former pension as a lump sum, invested that lump sum with our Financial Planner, and found another similar job.


But you are correct that there is mental security in receiving a nearly guaranteed check each month for life with no additional effort by you.
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Old 10-07-2016, 11:40 AM
 
2,716 posts, read 1,558,446 times
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Quote:
Originally Posted by Stratman View Post
You're off a bit. $350x360 months (30 years) is only $126,000. If the lump was 1.26M, it would be a no-brainer.
yes, but...

The value of an annuity stream, which is how finance describes the monthly payments, is calculated using a discount rate. The discount rate adjusts for the time value of money, where a dollar today is worth more than a dollar in the future (think inflation or investment returns).

Hopefully most of you know this. You probably also know that investment returns vary pretty wildly by year. See http://pages.stern.nyu.edu/~adamodar...histretSP.html for more information.

Without knowing the buyout amount, it is hard to tell which is the better deal, even with reasonable assumptions.

Perhaps a better way to view this is: How much does the retiree need the income? If not having it would hurt, take the payment stream. If it does not matter much, then the retiree can gamble (a, uh, invest) the money.

You can also get an idea of the value of the lump sum by seeing what kind of immediate annuity that sum of money could buy.
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Old 10-07-2016, 12:03 PM
 
Location: RVA
2,175 posts, read 1,274,479 times
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Thats a very good point. When the time comes, it would make sense to see what the partial lump sum could purchase.
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Old 10-07-2016, 12:16 PM
 
1,573 posts, read 2,757,786 times
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Quote:
Originally Posted by azoria View Post
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.

(Long thread with low literacy, but relevant)
UPS Special Pension Payment Offer | BrownCafe - UPSers talking about UPS


Any thoughts?
A low risk municipal bond (tax free depending on municipality) will net you up to 4% so do the math. Approx 100k will net you $350 a month never touching principal. Work up from there.
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Old 10-07-2016, 01:40 PM
 
2,716 posts, read 1,558,446 times
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Quote:
Originally Posted by ponytrekker View Post
A low risk municipal bond (tax free depending on municipality) will net you up to 4% so do the math. Approx 100k will net you $350 a month never touching principal. Work up from there.
According to this website, https://www.fmsbonds.com/market-yields/ current yields for AAA rated munis are 1.6 for ten year, up to 2.3 for 30 year. Move two levels down to singe A, and yields are 2.1 for 10, 2.9 for thirty.

Your 4% must be down among the CCC bonds.

The problem with the longer term bonds is duration risk. Held to maturity, they'll pay out as scheduled, but if interest rates rise, their principal value drops, IF TRADED.
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