I will be retiring soon from big pharma and I'm weighting options for my pension. What are the differences to consider if I select the lump sum one time check or the lifetime annuity? The lump sum is approximately 1.1 million vs a month check for 6K. I calculated the monthly payoff is about 6.5% of the lump sum on an annual basis. If I take that lump sum it would be difficult to make 6.5% on the lump sum. Therefore which would you select and why? Thanks!
New Jersey The lump sum would be paid in the form of a roll over IRA and taxes would be paid as I made withdrawals. I could vary the payout from year to year versus having 72K as an automatic income annually.
A few years ago I had that same choice. In my case it was 600K lump sum vs 3K per month annuity. I chose the lump sum option and due to the growth in the market over the last few years I am sure glad I did. I would make the decision based on two things. First, your timeline. If you need to start taking an income immediately an annuity may be better. If you can leave the money in the market for a few years, consider a lump sum. Second, if you can stomach a 10% to 20% market correction in the next couple of years, a lump sum may work for you. If your going to jump out of a window when that correction come along, go for the annuity. But remember the lump some becomes part of your estate. The Annuity is gone when your gone or when you and your spouse are both gone. Good luck.
I am leaning towards the lump sum. I don't need the money now and I don't know what the future holds for my former employer. An analysis of a 20 year payout vs a lump sum payment in my plan prefers the lump sum by 33% advantage over the annuity. This is based on a 3% return over a 10 year period of time. Plus I will still have the principal versus being dependent on the company to pay me monthly. I don't want to be dependent of the company and its prospects since I already have a bird in the hand sort of speaking. At this point since I am not 62 I can still hold off pulling the trigger on this decision. And if interest rates keep falling the LP payout will increase. The payouts are calculated quarterly. The next calculation is due mid December.
OP here. I decided to take the lump sum. Due to the lowering rates in the last year the lump sum increased to 1.2 million. I eliminated the company holding the payout over many years and the risk of pension reduction as well as potential future corporate mergers that may endanger the pension. I spoke to financial experts and one thing that helped me lean towards the lump sum was the growing pressure on pension payouts. As the older workers begin to increase their drawing down on pensions these stresses could lower pension fund balances reducing payouts for later retirees. I appreciated everyones comments!
I did a lump sum too but even though researching picked a guy who I was NOT happy with and bailed a year ago with a new advisor. The 1st guy put me in (what is traditionally advised) 60% bonds, 35% equities ans 5% cash. I lost 10% equity value in oil and now I find another 10% of my bond value has dropped to the recent decrease to junk status. Be VERY careful of bonds. I would really watch Cramer and consider managing my own money if I were doing it again.
