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Specifics needed - but here’s what my plan is when I retire - TODAY IS MY LAST DAY !!
my plan in retirement is to have as many unrelated income streams as possible to cushion any challenges to any one single stream
I have a 401/IRA, Roth, brokerage account, CDs, HYSA, social security (plan to take at 62) and my B4 pension
The thought here is that while a lump sum allows me the flexibility to invest, I am already covered with IRA/taxable brokerage accounts for that.
I am planning to use to pension as a guaranteed income stream - while leaving the equivalent funds in my stock market account for me to manage - hopefully at a higher yield than the pension provides
Grace - kinda both really
If the stock market is down - which it will be eventually - the annuity income prevents me having to sell stocks or bonds to that same value and thus avoiding SOR issues
The annuity increase by 3 or 4 % each year - the equivalent invested in an S&P index fund historically averages 10%
Subject Expert
You should compare the pension payout rate vs a comparable fixed annuity.
If the pension rate is comparable or worse than an annuity then probably go for the lump sum.
If the pension rate is better than any annuity you could buy then you should consider it
This is a very practical criterion. Besides comparing annuity payment rates, how much weight do you think inflation should carry in pension versus lump sum payment decisions?
Coach
I am in a similar boat, except that we have 2 different pensions that allow for a lump sum or a payout over years, with the same kind of 100, 75, 50% survivor benefit. I'm working with an advisor and we jointly determined that the one with the low fixed rate will be taken as a lump sum, while the higher rate one that has a better long-term rate will be kept as an annuity. The rationale for us was simple - my spouse, who is younger and does not have the accounting/business background, wants the guaranteed check for the rest of her life. We will have more money than we realistically need, so the kids will eventually end up with a lot of it. If it makes her more comfortable, I'm fine with keeping a piece of it as an annuity.
The reason I bring this up is that maximizing assets is not always the best answer. If having the guaranteed check is going to make her comfortable, then it is worth doing. It also allows me to be a little more aggressive with my investments, since I have a fixed annuity that covers our family's medical, utilities, and basic expenses. Good luck!
Financial advisors almost always advises retirees and employees to take the lump-sum pension payout over guaranteed monthly lifetime payments. A lump sum gives you 100% control of the money, allows you to build lasting wealth, and leaves an asset that can be passed on to your heirs, whereas a traditional pension stops paying when you die.
You should also consider whether you have other savings or investments outside of this pension and your expected retirement age when weighing this decision.
It depends on the health of the beneficiary and the health of the annuitant… women almost always outlive their male spouses… pensions can allow for a delay of social security… if you have other retirement assets, taking the pension can be a part of a broader income planning strategy…
IRA’s when passed down to next of kin (non-spouses) can have huge tax implications… there are other options available for pension (annuity) payments, like joint + period certain… at times even with a spouse inheriting an IRA, there are non favorable tax implications, depending on the spouses age…
There are a lot of considerations… I’d recommend OP speak with a planner to discuss the ins and outs of everything…
On paper the lump sums usually looks best, but from my experience retirees don’t invest like that in reality. A portion of your assets as a monthly income reduces stress. Employee pensions are usually are superior to retail products as they are free of fees. Balance is key.
You should also confirm whether the program is actually a pension, which is protected by the US government via the Pension Benefit Guaranty Corporation, or if it is just a retirement plan that is self-funded by the firm. Each comes with different levels of risk.
I have this. It’s a lump sum or the firm will put you in an annuity, (your various options look similar too). I went with the lump sum,put it in a rollover IRA and have it invested conservatively so that it yields a little more than it was growing while in the pension. I’ll start pulling out RMDs when required. Until then, I’ll fill in my tax brackets with Roth conversions annually using pieces of my IRA.
It’s hard to truly weigh your options with specifics.
*without
Subject Expert
Begin by doing some financial planning and figuring out whether you want annuities to begin with based on your situation. If not, you may have answered the question in advance.
If you do want annuities, get the lump sum and annuity values and compare them to market annuities (SPIAs and DIAs) to see if the annuity offered by the pension is better.
If you want annuities and this is better than market...then maybe do it. If not...presumably not.
Deloitte has pension plan?
KPMG no longer has pension plan. They stopped it a few years ago and moved to an annual contribution to a 401k.
OP - take a look at my reply to Strategy&, and please let me know if you have any questions or wish to talk offline
Thanks SVP. I am processing all the comments here. Very helpful.
If you don't want to entrust your funds to others, then you should manage your assets in a reasonable and diversified manner
I would always rather be in control of my assets then let a company have control. you can guarantee your own income if you want with different investement types and its probably more income then they will guarantee even with the lump some penalty. just don't do something that has a lot of fees like an annuity, covered call etfs or bond ladders are good or high dividend paying stocks and etfs on their own.
Lump sum because you can invest it on your terms. They will usually assure a much lower 4% .. but assured. And god forbid you pass away before you and collect the monthlies in retirement .. it’s money your descendants and dependents never see. I recently made the decision to put into an Ira when I left for the above reasons.