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Old 11-15-2018, 04:23 PM
 
Location: Miami, The Magic City
2,901 posts, read 2,014,749 times
Reputation: 1914

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Greetings:

I am leaning towards taking the monthly single annuity payout for the rest of my life, rather than the lump sum, as I am single with no heirs.

The current annual payout, taking the monthly payout option, from the firm managing my company's pension fund equates to 6.2% (annual income divided by lump sum payout).

I ran the 6.2% figure past one of my financial advisors who said that is a good return.

Is that a fair percentage return?....can I get a better rate of return on my lump sum from a different, reputable company without significantly increasing my risk (recognizing I am covered up to $60K annually by PBIC)?....not looking to invest the money in the stock market--looking for my pension to generate a steady and consistent stream of income for the rest of my life.

I am not planning to take my pension income until January 2020 so I have plenty of time to shop around and consider my options.

Thanks
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Old 11-15-2018, 04:30 PM
 
10,060 posts, read 4,665,478 times
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age? the higher "return" might be due to them returning part of your money too.

run calculations based on drawing down principle in addition to any gains, see if they compare
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Old 11-15-2018, 04:51 PM
 
6,594 posts, read 1,357,711 times
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This, of course, is just my very personal opinion based on a very small pension. I also collect social security and still work an average of about 12 hours a week by choice.

Three years ago, when I was 62, I had the choice of taking the lump sum of about $20,000 or a monthly amount of $101. I chose the monthly amount because I knew that the lump sum would be just lumped in (literally) with the rest of our savings and because my recent ancestors were very long-lived. Anyway, I know that might not have been the wisest financial decision, but I am nevertheless happy with it. We keep a separate account for my pension, my part-time job earnings, and any other miscellaneous checks that come in (like rebates) and it is amazing how quickly that account has grown in three years! We have not withdrawn from it in three years since we opened it, but the money is there and very easily obtainable without penalty if we ever do need it or want to splurge,
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Old 11-15-2018, 05:54 PM
 
Location: Florida
4,365 posts, read 3,702,696 times
Reputation: 4111
Quote:
Originally Posted by elchevere View Post
Greetings:

I am leaning towards taking the monthly single annuity payout for the rest of my life, rather than the lump sum, as I am single with no heirs.

The current annual payout, taking the monthly payout option, from the firm managing my company's pension fund equates to 6.2% (annual income divided by lump sum payout).

I ran the 6.2% figure past one of my financial advisors who said that is a good return.

Is that a fair percentage return?....can I get a better rate of return on my lump sum from a different, reputable company without significantly increasing my risk (recognizing I am covered up to $60K annually by PBIC)?....not looking to invest the money in the stock market--looking for my pension to generate a steady and consistent stream of income for the rest of my life.

I am not planning to take my pension income until January 2020 so I have plenty of time to shop around and consider my options.

Thanks
The 6.2% sounds like a good rate (I have no expertise) and I think it will increase as the Fed increases the interest rates so it should be a little better at retirement.


Go to the Vanguard and Fidelity mutual fund sites and complete the forms for prices on a Fixed annuity. These are generally low cost sellers and will give you actual prices to compare.


Inflation will affect your buying power so make sure you consider that when you make your decision to retire.


I think the monthly payment is a good idea as you do not have to worry about market fluctuations.
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Old 11-15-2018, 06:21 PM
Status: "Re-edit status" (set 19 days ago)
 
Location: Was Midvalley Oregon; Now Eastside Seattle area
4,181 posts, read 1,901,069 times
Reputation: 3206
Shop around.
My wife and I have GLWB annuities. She is 71.5yo.
-1)One annuity is 10 years old, took last income step-up a few days ago. It pays 5% for life based on Income value of last policy anniversary (Nov 10 2018). We have not done anything yet, and will probably push the decision forward into 2019.
-2)Another annuity she purchased in August 2108, single life, she has the following options:
-- 5.5% if held for age 72 (May2019);
-- 7% of highest Income Value, age 72, with 4% residual after Actual account runs to $0;
-- 8% of highest Income Value, age 72, with 3% residual after Actual account runs to $0. All annuities have remainder returned to heirs if there is any Actual account value.
-3) A third GLWB annuity that she started taking withdrawals for the 6.5% at age 70, and no reduction when account value =$0.
-4)or hold and take the minimum GLWB 5% simple interest stepups on Income Account, annually until she thinks she will need the funds.
--5)or purchase a SPIA. the rate would be close to 7% of purchased amount @72yo. The payout rate will increase at purchase if she delays purchase. There is no residuals on death, single life.

*I am not sure if we will take the 5% GLWB annuity or move the funds to a SPIA or to something else. We don't need the money-Income, at this time; However 10 years ago, I had envision taking this income from this "income" annuity.

Depends on your circumstances. Be thoroughly versed on your alternatives.

Last edited by leastprime; 11-15-2018 at 06:41 PM..
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Old 11-15-2018, 11:07 PM
 
Location: Spring, Texas
137 posts, read 65,438 times
Reputation: 274
OP
Is pension COLA?
I have same options and I lean towards Lump Sum due to inflation concerns
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Old 11-16-2018, 09:34 AM
Status: "Loving life, wife and job!" (set 11 days ago)
 
Location: USA
999 posts, read 386,414 times
Reputation: 2715
My company controls my pension and is responsible for the monthly payment. It's not an option now but if something changes between now and the time I retire and they do offer a lump-sum payout, I'll likely take it. A bird in the hand so to speak....
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Old 11-16-2018, 09:54 AM
 
Location: Forests of Maine
30,685 posts, read 49,462,974 times
Reputation: 19134
Quote:
Originally Posted by MLSFan View Post
... run calculations based on drawing down principle in addition to any gains, see if they compare
I would never 'draw down' my principal.
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Old 11-16-2018, 10:00 AM
 
Location: OH>IL>CO>CT
5,237 posts, read 8,409,707 times
Reputation: 7191
When considering the lump sum payout, be careful to consider the effect it may have on income taxes for the year of payout.

1. It may push you into a higher tax bracket
2. If on Medicare, your Part B premium may increase due to IRMAA
3. If receiving SS benefits, the taxability of benefits may increase

Consider "rolling over" the lump into an IRA to lessen these effects.
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Old 11-16-2018, 10:12 AM
 
Location: Florida -
8,764 posts, read 10,845,692 times
Reputation: 16639
There is probably no single 'best' answer, but, there are a number of important factors:

1. Your current age, versus lifetime expectation
2. Does pension have a COLA or is it fixed at the starting rate? (Many education pensions, for example, allow one to select lump sum or monthly payout, but, have a COLA to offset inflation).
3. Is there a death benefit associated with your pension/annuity? - Even though you are single, will there be a payout to your estate if you die early?
4. How will your pension/annuity be calculated at 70-1/2 when your RMD's are due? -
5. Is this pension/annuity your total income/savings base for retirement or do you have other funds? (What about significant healthcare issues, etc?)
6. Does your pension/annuity have any special provisions for long-term care (ie; 2X or 3X payments for a period of time).
7. Are there other immediate annuities that might pay you more?
8. What type of ongoing management fees must you pay for your pension/annuity.

Two major issues with most annuities are (1) loss of control over your funds; and (2) high 'management' costs and fees. There are others, but, typically, a one-time decision is final, so it is worthwhile to investigate these and other considerations. (BTW, I've also got a lifetime annuity)

Last edited by jghorton; 11-16-2018 at 10:29 AM..
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