retirement pension question

[Slothead56]

Like the star crossed lovers in the Steve Miller song, take the money and run.

I’d much rather be in control of my own finances than rely on my Company to manage it for me. What if you have an unexpected expense one month and you’re locked into the annuity?

[catdaddy]

My pension was never going to be the biggest part of my retirement income, just a supplement. When I was offered a lump sum versus monthly income I compared how much annuity that lump sum could buy for monthly income versus what the pension offered monthly. What I found was that the offered monthly pension income was significantly better than any annuity the lump sum could purchase at that time.

Perhaps if I'd taken the lump sum and invested it wisely over several decades it would have generated more money in the long run, but I'm not one who enjoys the vicissitudes or the time required to manage investments and I've already enjoyed the advantages of my pension's monthly income for 8 years.

[Lkristians]

Originally Posted by Teleplucker

My initial feeling is to take the money and do a rollover into some type of product that can generate a monthly income that can also pass to my heirs if there is anything left when we exit the planet.

This would be the direction I would take.

[Silly Moustache]

Originally Posted by Teleplucker

Retirement is about a year away for me. I'm interested in seeing if any of you have been through this decision. Now relax, I am working with a CFP and a tax person and they will guide my decision more than a discussion on a guitar forum . Here's the scenario

My company converted our pension plan to a cash balance plan many years ago. When we retire we are given several options:

1.Lump sum that can be rolled over
2. Monthly payments to me
3. Monthly payments to me and to my beneficiary
4. Several combinations of partial lump sums and monthly payments.

The rules say you can only choose once. The seemingly logical choice would be a monthly payment for me and then for my beneficiary. The thing that I don't like is I am unable to pass the benefit to our heirs. If my wife and I meet an untimely demise then the money is gone.

My initial feeling is to take the money and do a rollover into some type of product that can generate a monthly income that can also pass to my heirs if there is anything left when we exit the planet.

Knowing how long we will live is the unknowable variable. At 62 I will have outlived my parents and one sibling, my wife is adopted so we dont know much about her medical history. We are both currently in reasonable health.

We have both saved as much as possible ( except for buying guitars and harps) we have very little debt. This pension is one component of our retirement plan. I welcome your thoughts.

I "was" retired in2007.

I was 59 and so too young to get my state pension (at 65).

1.Lump sum that can be rolled over
2. Monthly payments to me
3. Monthly payments to me and to my beneficiary
4. Several combinations of partial lump sums and monthly payments.

Option 1, sounds like a draw down pension - keep invested as a pension and draw down your chosen income monthly or whatever. Current (British rules allow remainder to go direct to spouse as a pension.

Option 2 is as above keeping maximum invested.

Option 3 - In the UK you can't transfer pension income to another person, unless you die! and anyway it would probably put it into a higher tax bracket.

My wifes pension pot was adjudged to be too small to be taken as a drawdown so she took an annuity.

Annuity percentages are very limiting and very low presently.

An invested draw down is still the best option assuming that your pot is big enough to justify the transfer.

Things to consider.

a) pay off ALL debt.
b) Anticipate any large spends in next ten years - vacations, house maintenance/purchase, cars, guitars, etc.
Ensure access to cash for the above.
c) Create excel spreadsheet of all normal income and outgoings, so nothing comes as a surprise.
d) build in 5-10% inflation annually (if it doesn't happen you are OK, if it does you are ready for it)
e) agree with your financial advisor cautious investments, and draw down arrangements (I do monthly as if it is a salary), and agree regular re-assessments at least annually, I do quarterly.

Things to remember :
As you age and relax, you tend to spend less - it costs a lot to go to work - its true!
Don't disinvest more into cash than you need as cash is earning nothing presently.

Have a long and happy retirement and don't do anything that doesn't feel right or that limits your access to your hard earned funds!

[Teleplucker]

In response to an earlier question, these are the basic choices we are offered. I would bet this is pretty standard stuff, electric utility companies are not know for groundbreaking financial moves.

The more ways you try to divide the pie the smaller the slices are. The pie doesn't get any bigger. I realize it's a tradeoff, the monthly income is attractive. I just don't like the idea that my wife and I could have an untimely demise and then it's all gone. Trying to preserve some of that money for our heirs would be the primary reason for taking the lump sum option.

1. Lump Sum
2. Single life annuity
3. 50% Contingent Survivor gets 50% of benefit after my DOD
4. 100% Contingent Survivor gets 100% of benefit after my DOD
5. Single life annuity with 25% lump payment
6. Single life with 50% lump payment
7. Single life with 75% lump
8. 50% with contingent and 25 % lump
9. 50% with contingent and 50% lump
10. 50% with Contingent and 75% lump
11. 15 year certain, if I live longer than 15 years survivor gets no benefit
12. Single life with 3.5% COLA
13. 50% Contingent with 3.5% COLA
14. 100 Joint with 3.5% COLA

[rokdog49]

Ok here we go...
Do you want or need any guaranteed monthly income? That’s the only important question here and obviously that’s the toughie.
That’s the only advantage an annuity brings to the table. I own a market-based annuity that guarantees me and my spouse $$/month until we both die.
Whatever the market-based cash value, if any, would be passed on to our heirs if we both were to die.
I wanted to supplement our social security income with a cushion. We also have other investments and are debt free.
Those kinds of annuities may or may not exist and you really need to make sure what the details of any given product are.

If you do not want or need the guaranteed monthly income, roll it over and invest it as you choose. That way, whatever the value of your investment is at the time you both pass will be fully available for your heirs as secondary beneficiaries that you have named.

BTW, nothing prohibits you from taking money out of an IRA if you needed it. You’re gonna’ have to take your RMD’s at 72 anyway.
Uncle Sam says so.

[buddyhu]

Originally Posted by Teleplucker

In response to an earlier question, these are the basic choices we are offered. I would bet this is pretty standard stuff, electric utility companies are not know for groundbreaking financial moves.

The more ways you try to divide the pie the smaller the slices are. The pie doesn't get any bigger. I realize it's a tradeoff, the monthly income is attractive. I just don't like the idea that my wife and I could have an untimely demise and then it's all gone. Trying to preserve some of that money for our heirs would be the primary reason for taking the lump sum option.

1. Lump Sum
2. Single life annuity
3. 50% Contingent Survivor gets 50% of benefit after my DOD
4. 100% Contingent Survivor gets 100% of benefit after my DOD
5. Single life annuity with 25% lump payment
6. Single life with 50% lump payment
7. Single life with 75% lump
8. 50% with contingent and 25 % lump
9. 50% with contingent and 50% lump
10. 50% with Contingent and 75% lump
11. 15 year certain, if I live longer than 15 years survivor gets no benefit
12. Single life with 3.5% COLA
13. 50% Contingent with 3.5% COLA
14. 100 Joint with 3.5% COLA

Those options look similar to mine. Of course, the devil is in the details: how do the different options change the benefits, and given the changes, which option best matches your income needs, and any preferences you have about guarantees vs. uncertainty. Your interest and willingness to research (and possibly manage) other investments is also a factor.

Following up on rokdog’s post: if you don’t need income once you retire, a rollover makes more sense, especially in view of your wish to leave a larger inheritance. If you need income and will be drawing money out of the rollover account, the picture is less clear.

[Earl49]

Direct Transfer Rollover, then invest in something that you can control. Most pensions are based on 6% ROI by law, and many pensions do not have survivor benefits, or if they do it is at 50% of your payout. And not all pensions are manged well. We have a mix of 401k, Roth, IRA, SEP IRA and very small pensions from former employers. I plan to take Social Security later this year at the first month of eligibility. The math works out to be a wash until you live well past 78 - and I won't. If you wait longer, you get more per month, assuming you make it that far and that SS is still paying out then.

One of the biggest things to consider is health care coverage until you get to the mandatory Medicare enrollment at age 65. We are currently working half time mostly to maintain that coverage. Fiscally we could retire tomorrow, but insurance through the private market is WAY more expensive and covers far less than her employer's plan. Besides, we cannot travel or do much else these days, so we may as well feather the nest a bit more.

Check out Chris Hogan (from the Dave Ramsey Show) and his "Retirement IQ" information. https://www.chrishogan360.com/?_ga=2...626.1614273130

[kkrell]

Lump sum and/or rollover into a personally directed plan. Build up or pull the income off of that. Establish your spouse or heirs with your new broker as the beneficiaries upon your death to make probate/estate easier. Add your assets to any trust or will.

[The Watchman]

What is the lump sum amount and compare it to see how many the total months of monthly payment that equals.

Is the lump sum from your and your companies contribution, like a 401K? If so what is it invested in, and what's the rate of return?

Is there any tax consequence to taking the lump sum?

I think your option 3 is you getting a (smaller) monthly payment, with your beneficiary getting payments after you die. Is that right?

A good Certified Financial Planner should be able to project things out, but it starts with how much money you need in retirement to live like you want to live. And of course, how long you're going to live. They can do this for a straight fee, without a commitment to invest through them.

Consider long-term care insurance, at least for your spouse.

[FLRon]

I faced this same scenario four years ago. After much discussion with my planner, it made more sense for me to take the lump sum and invest it myself. I like being in control of the money I worked so long and hard for, and after leaving the company I felt that not being privy to information I was once immersed in would leave me feeling uneasy.

I’m very happy with my decision as it has panned out well so far. It does require that I pay attention to the market, but I was doing that prior to retirement so there is no change there. My money continues to make more money at a rate I am happy with, which is about all one could ask.

[leew3]

I'm with the lump sum crowd and would only add, buy the J45.

[rokdog49]

Originally Posted by leew3

I'm with the lump sum crowd and would only add, buy the J45.

.........

[TBman]

I would do a roll over to an IRA. You won't have to take anything out until you are 72, then you'll have to do minimum required distributions.

[rokdog49]

Originally Posted by TBman

I would do a roll over to an IRA. You won't have to take anything out until you are 72, then you'll have to do minimum required distributions.

Yes, but the OP is waffling on whether he wants/needs additional monthly guaranteed income right now vs. having a bigger pie for his heirs.
It’s not “having to take it out”. He already knows he doesn’t have to.