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Darman
Follower ○○

I need some advice on taking a pension buyout. 

My current age: 59 1/2

Amount of pension buyout: $67,000

Amount of pension if I wait until I'm 65 and take a straight life annuity with no survivor benefits: $532 a month.

Amount of pension if I wait until I'm 65 an take a survivorship annuity: $457 a month 

The pension won't increase in value if I wait to take it until I'm 66 or older.

Is the lump sum better than waiting to take the pension when I'm 65? 

Thank you.

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1 Accepted Solution or Best Answer

Accepted Solutions
DEM
Explorer ○○

Several important points that do not seem to have been mentioned

1. Assuming you take a lump sum you want to do it as a trustee to trustee rollover to a tax deferred account, e.g. an IRA. Otherwise you will have a huge tax bill

2. If you are still making a comparison you need to take into account how long you might live and receive the pension, i.e. how is your health and also the health of your spouse.

One potential big advantage of the pension is that you can't outlive it nor could your spouse. But if you go with putting it into an IRA and just take the RMDs your can't outlive it either, nor your spouse

View solution in original post

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yogibearbull
Valued Contributor

Is monthly pension payout available right away? How much? Lump-sum now is distorted by payout far in future.

What is survivor option? 100% or 75% or 50%?

Is this a company or public institution? If a company, it it covered by PBGC?

YBB
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Darman
Follower ○○

Thanks for asking for more info, YBB

The monthly pension amount is available now as a single life annuity at $365 a month. For a 75% survivor annuity, the amount right now would be $316 a month.

The survivor option originally listed is 75%.

This is from a private company.

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yogibearbull
Valued Contributor

OK, on current payout basis, it is 6.64% payout for single-life, 5.66% payout for survivor annuity at 75%.

Not bad, but not great either.

Figures at 65 are distorted by the interest rate assumed and later age.

If PBGC coverage, the amount may be guaranteed at 100%.

Can you do better with lump-sum now? May be.

How does this figure into your overall portfolio?

YBB
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Darman
Follower ○○

I'll have a separate (public) pension at age 65 that will bring in about $30,000 a year.

I currently have about $220,000 saved in retirement funds.

Only debt is $36,000 due on house.

 

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yogibearbull
Valued Contributor

@Darman wrote:

I'll have a separate (public) pension at age 65 that will bring in about $30,000 a year.

I currently have about $220,000 saved in retirement funds.

Only debt is $36,000 due on house.


IMO, each lump-sum vs pension decision has to be analysed individually. FYI, I don't believe in taking lump-sum always or taking pension always.

But looking at your situation, with so-so current payout offered, you may want to take the lump-sum now.

YBB
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Darman
Follower ○○

Thanks for the advice, YBB.

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Intruder
Participant ○○○

@Darman wrote:

I need some advice on taking a pension buyout. 

My current age: 59 1/2

Amount of pension buyout: $67,000

Amount of pension if I wait until I'm 65 and take a straight life annuity with no survivor benefits: $532 a month.

Amount of pension if I wait until I'm 65 an take a survivorship annuity: $457 a month 

The pension won't increase in value if I wait to take it until I'm 66 or older.

Is the lump sum better than waiting to take the pension when I'm 65? 

Thank you.


Who told you monthly  pension will not increase if you delay commencement of benefits to 66 or later? 
My understanding is that plans subject to ERISA, the federal pension law, must actuarially increase the benefit amount if commencement is delayed beyond 65, I.e, increase the monthly benefit amount. ERISA does not cover public pension plans.

every pension plan is required to provide a summary plan description which provides an explanation of plan provisions which should be available online. Look for explanation of deferred retirement benefits.

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Darman
Follower ○○

The information I received stated: "Your benefit will be payable to you as a monthly benefit when you are retirement eligible (but no late than age 65).

I've looked through the summary plan description and didn't find this addressed.

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Intruder
Participant ○○○

 


@Darman wrote:

The information I received stated: "Your benefit will be payable to you as a monthly benefit when you are retirement eligible (but no late than age 65).

I've looked through the summary plan description and didn't find this addressed.


The quoted statement makes no sense. Under ERISA the plan can not delay commencement of a pension beyond 65.  However employees can delay commencement of pension benefits until 70. I never heard of a pension plan that did not allow employees to commence benefits between 65-70.

Question: If you continued to work for the employer after 65 would you also be required to receive your pension?

.

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Darman
Follower ○○

Thanks for the response. This is something I'll need to look into further.

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Bazinga
Participant ○

My guess is they are telling you that your pension stops "growing" after 65 ..... whether you retire and take it then or not. That is exactly what mine did.

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Darman
Follower ○○

Thanks, Bazinga. 

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hboker
Follower ○○

Darman, have you used the https://www.portfoliovisualizer.com/backtest-portfolio ? If you are thinking of taking the lump sum, you should know what investments it would go into. It will grow 5 years to compare with the pension before you would take it so add the cagr for 5 years to the $67k, then take that balance and with your stocks, etf, or funds see how that balance holds up over time, withdrawing the $532 a month. Past performance is not a reflection of future, but it would give you something to compare with. Let us know what you did when you decide, thanks

 

HB

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Darman
Follower ○○

Thanks for the help, everyone. I'm going to go with the buyout and invest it wisely.

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DEM
Explorer ○○

Several important points that do not seem to have been mentioned

1. Assuming you take a lump sum you want to do it as a trustee to trustee rollover to a tax deferred account, e.g. an IRA. Otherwise you will have a huge tax bill

2. If you are still making a comparison you need to take into account how long you might live and receive the pension, i.e. how is your health and also the health of your spouse.

One potential big advantage of the pension is that you can't outlive it nor could your spouse. But if you go with putting it into an IRA and just take the RMDs your can't outlive it either, nor your spouse

View solution in original post

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Darman
Follower ○○

Thanks for the reminders.

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