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Old 10-08-2016, 09:32 AM
 
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The rates used for calculating lump sums are segmented, based on time, and are determined by the government, as are the mortality tables used. The only real savings for the companies and plans is that once a lump sum is paid, they no longer haave any administrative expense related to tracking and sending monthly payments.
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Old 10-08-2016, 01:15 PM
 
Location: Las Vegas
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This was an option for me. I made the decision by comparing annuities I could buy to the amount of the monthly pension. The pension was much higher so I kept the pension. Even if the pension fund was to go bankrupt and ERISA took over, the pension amount was still higher than what I could get on my own.
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Old 10-08-2016, 01:57 PM
 
Location: OH>IL>CO>CT
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When my ex-employer sold their pension plan to Prudential Insurance, we were offered lump-sum buyouts. Part of the buyout plan was they set aside a "pot" of money, in the millions, to pay up to that amount in buyouts, starting with the smallest account, and working their way up until the pot ran out.

After studying the alternatives, I took the lump, and rolled it into an existing IRA. Here are my reasons why:
1. Did not need the immediate income.
2. As widower, no spouse to consider.
3. At age 65.5, I was delaying the pension to age 70 (along with SS benefits).
4. It was only recently I learned the effect that additional taxable income has on the taxability of SS benefits. As I was fast approaching the wonderful world of RMDs from IRAs, I did a lot of "what-ifs" on a Excel spreadsheet (basically a personal 1040 that I've been tweaking for over 20 years now). It showed that, in my case, an additional $1000 in taxable income (RMDs, Pensions, interest, etc) (monthly pension would have been about $9000/year) causes $120 of SS benefits to be "paid back" (just on the Fed side). (google "tax torpedo").

So basically I decided to "hide" the Pension in the IRA, thereby minimizing the SS "give back", and if I die early, leaving a "lump" for my beneficiaries. (and yes, I calculated the effect the lump had on RMDs, and it was less than taking the monthly pension)

As always, YMMV

Last edited by reed303; 10-08-2016 at 02:51 PM..
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Old 10-08-2016, 03:38 PM
 
1,573 posts, read 2,757,786 times
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Quote:
Originally Posted by bigbear99 View Post
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.
I am looking right at fidelity and showing between 2.27 for a 10 AAA and 3.63 for a 30 AAA. Add in tax effect.
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Old 10-10-2016, 09:01 AM
 
Location: Columbia SC
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I offer an over simplification but one to consider: $350 per month is $4,200 per year. How much would one need as a lump sum, conservatively invested (say a 5% return) to earn $4,200 per year? You will need about $85K at a 5% return to achieve $4,200 per year.

With the above, the question becomes do you believe you can achieve more than a 5% return?
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Old 10-10-2016, 10:39 AM
 
Location: RVA
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And that is over your lifetime. In today's markets 5% is not exactly conservative. Close though.
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Old 10-10-2016, 10:44 AM
 
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^ a 5% return is NOT considered conservative by most professionals these days. You only achieve that return if your principal is at some market risk. Annuities will have payouts above (but not hugely above) 5%, but that includes some return of principal, and is also based on expected life etc.
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Old 10-10-2016, 11:02 AM
 
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Quote:
So basically I decided to "hide" the Pension in the IRA, thereby minimizing the SS "give back",
I'm also planning ahead and keeping an eye on the tax torpedo….
Your IRA's RMDs will eventually count toward taxable income so who does you move thwart that?

Also is there limit to what can be put in an IRA annually? does that not cover pension lump sums?
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Old 10-10-2016, 11:38 AM
 
Location: OH>IL>CO>CT
5,257 posts, read 8,446,434 times
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Quote:
Originally Posted by selhars View Post
I'm also planning ahead and keeping an eye on the tax torpedo….
Your IRA's RMDs will eventually count toward taxable income so who does you move thwart that?

Also is there limit to what can be put in an IRA annually? does that not cover pension lump sums?
1. I somewhat reduced the effect of RMDs after age 70.5 by taking non-RMD withdrawals prior to age 70.5, while I was still in the 10 & 15% tax brackets. Had I not, my RMDs now would be hitting the 25% bracket. It is a process referred to as "topping up the bracket".

2. AFAIK there is no limit on IRA rollovers, from one "deferred benefit" plan to another.
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Old 10-10-2016, 12:01 PM
 
2,718 posts, read 1,558,446 times
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Quote:
Originally Posted by reed303 View Post
1. I somewhat reduced the effect of RMDs after age 70.5 by taking non-RMD withdrawals prior to age 70.5, while I was still in the 10 & 15% tax brackets. Had I not, my RMDs now would be hitting the 25% bracket. It is a process referred to as "topping up the bracket".
A wise strategy more people should pay attention to. It does get complicated, though, with taxation of social security payments as income rises. For example, your marginal tax rate could rise to 27.75% in some income ranges, before dropping back to 15 or 25%
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