Anyone take the Annuity

For people that have been fortunate to have retired with over twenty years at Merck, have you heard of many people taking the annuity? It seems most have taken the lump sum. My planner speaks highly of the annuity amount relative to the lump sum.... I plan to retire in a year and am leaning toward the monthly annuity. Have other saving over the years , just my Spouse and me. Both are in good health.. I feel like I am the only one not going for the lump sum...have you had co workers that have taken the annuity?

 

It is a very difficult decision to make. Take a look at the math. I am also leaning towards the annuity. I looked at the lump sum and how much I can generate in revenue from the lump sum. It is not close to the annuity. If you get the lump sum how will you invest it? What type of returns can you make and what type of risks are you taking to get that return? If you take the annuity what guarantees to do have it will always be paid?

Look at the options and speak with your accountant and other professionals. Keep in mind some financial planners may tell you to take the lump sum so the planner can make income from selecting funds for you to invest in. There are conflicts with some planners.

Good luck.

 

Most retires struggle with that decision. The rate on the annuity is quite good but it means you are "all in" with your pension. Many take the lump sum and invest a portion in an annuity for the income and the rest across equities and bonds for growth and stability.
Also, with aging, your good health today can change quickly. And Merck may follow other large corporations and outsource their pension benefits to insurance companies to reduce costs. The fact that the vast majority of retirees take the lump sum suggests that is the more prudent pension option.

 

Thank you, both your posts are helpful to me.

 

I must agree with this post. YOU have more control with the lump sum. Perhaps you might get a part time job doing something you enjoy, just enough dollars to fund your day to day expenses. Meanwhile, your lump is nicely tucked away when YOU decide you need dollars. Some may not need the annuity immediately if a spouse has retirement also or there is a foreseen inheritance within a few years. Touchy subject but the monthly annuity could reak havoc on your taxes. I think our company is solid for the next few years but also fear pension will be outsourced in a decade or so. Take the lump, you earned it!

 

It is a difficult decision and there needs to be more dialogue around this topic on CP.
One thing to consider is that the annuity is not adjusted for cost of living (cola) so what you get now is what you get in 10 years. If we have an annual inflation of 3%, then 10 years later that annuity will be worth 1/3 less per month than when you started drawing on it. The lump sum could keep up with inflation.

Another possibility is that Merck may not want to keep cutting checks and keep retirees on the books which cost the company money. Merck could offer a lump sum down the road to cut you loose, like GM did. That lump sum would be less than the original amount because you have already received part of it in an annuity. Of course this is speculation but the company maintains control to change the rules when you have the annuity.

Annuities are guaranteed by the government through the PBGC. The government would step in and pay the annuity in the event Merck defaulted. The only problem is that the PBGC only has to pay 50% of the pension benefit. So now you may get half of the annuity. Also, I believe that the PBGC is broke or underfunded at this time.

If you invest the lump sum properly and spread it out you should be able to weather the storms in the market. There will be years where you could have to draw less income or if you simply learn to live on say 4% consistently you may be o.k.

If you have been able to accumulate enough money through personal investments, savings and 401K's then I think the annuity makes sense as another form of income.

I am leaning toward the lump sum, using my investment manager and hoping for the best. Hopefully I will have something left for my heirs.

 

If you took the same monthly amount from your lump sum that the annuity pays, how long would it last? That's a money-under-the-mattress scenario, where you'd have no income from that money. It's your worst-case scenario for making the money last. When you think about the many number of years that the money would last and then consider that you can earn far more than 0% with some real safety, the lump sum starts looking better and better. I don't trust Merck, the government, nor any Merck-government insurance arrangement.

 

If you have substantial 401k/IRA/Roth/other investments, then take the annuity - it offers additional risk diversification.

If you don't have substantial 401k/IRA/Roth/other investments, then take the lump sum and invest in a risk appropriate asset allocation. A goof fee-based (non sales) financial advisor can determine the mix for you.

 

The company likely buys you the annuity from an insurance company rather than paying you monthly itself. They are done with you. This is a good interest rate climate for the lump sum as the assumption rate is very low. The lower the assumption rate the more they have to pay for your annuity. That translates into a higher lump.

I've been through all of this

Get a financial advisor to mange your money if you are not market savvy. It's worth the 1-1.5% for the piece of mind. For that they also do you estate planning.

 

If you decide that an annuity is best, then take the lump sum and buy your OWN annuity.

 

I think the decision is simple. If you take an annuity and you die and then your spouse dies their is no additional benefit paid out. If you take the lump sum and invest it and the same thing happens you have money to leave your kids, donate, etc. Talk to a financial planner for sure.

 

ALWAYS take the lump for control. You can get a better annuity rate yourself through most large insurance companies. Also, are you looking at the sole annuity rate or the lower rate that has survivor benefits. When I go, my wife gets everything as I took the lump. I also calculated the rate of return of the annuity versus the lump. It works out to 6% of the lump to generate the value of the monthly annuity payment. I earned 9% last year being VERY conservative with only 30% in stocks.

 

Agreed, but the last two years have been exceptional...what happens in years like 2007-2010? Can you get a 6+ annuity now moving forward? Consistently...

 

Just got my figures...my lump sum would pay me the same as the annuity for 17 years if it earned nothing...Merck is screwing the employees by using the government projections of interest rates over the next 10 years...three segment shit...the last segment is over 5% and screws everyone! Lump sums would be a lot higher if the company did not do this dog and pony show! That's why so many retired in 2000 when Merck started the second show to reduce the amount they pay out...next will be the FPGC and completely giving up on a pension as many others have.. Bend over and hire to retire!

 

Lump sum not an option for Legacy SP

 

It's more like "Hire to Fire"......the no retirement payout method!

 

Then it's a no-brainer. Take the lump.

Thanks for nothing, Merck.

 

The 6% I mentioned above would be an average over your lifetime. I may have earned 9% last year, but maybe I only earn 4% this year with my blended conservative portfolio. Thats OK as I retain control by taking the lump, have instant survivor benefits at no reduction, and don't need to count on Merck being solvent for 30 years. Merck theoretically invests the lump that you turn down when you take the annuity. You get the interest they earn on your lump money as your annuity payment! Take a look at mutual funds that are heavy in corporate bonds and you'll see single digit dividends...although low. Also, did you know Merck self insures it's annuities? Found that out two years ago when I contacted HR. Not sure if it's still true. Best answer would come from a retiree that is getting the annuity. What does it say on the check...Merck or NY Life, Prudential, etc. So if the company still self insures, and has a major event occur again like Vioxx, would they try and stick it to retirees to help pay for the legal fees by declaring bankruptcy on the pension fund which then god to the federal guarantee program that pays a percentage of it? Just something to consider. It's a huge decision. I have a couple CFP's I work with and they all said...take the lump for control. I hope a current retiree can answer the question of who's name is on the annuity check. Merck if it still self insures, or an insurance company that received your lump and is paying you your monthly annuity to you.

 

Love this discussion as I am going though this decision myself. I am leaning towards the lump sum and have 2 financial planners working up a strategy to invest it, pay me a monthly salary and hopefully make me some money but not getting too risky. I appreciate everyone's feed back here as it is reinforcing my own thoughts.

 

Legacy SP here I was told we cannt get lump sum geez when do they consider me Merck ?
Someone told me not until 2019 I wonder if this is true would like to check out before that.Anyone know more for SP legacy.