[Rainger99]

Article on lump sum versus monthly payments.

Lump-Sum vs Monthly Pension Payments: Which Is Better?

[retiredguy123]

Originally Posted by Caymus

At least in my case the pension(annunity) offered was much better than what I could find on the open market. Maybe they had some sort of volume cost advantage.

The employer isn't really doing that much additional work in offering options. A third party is handling most of the "paperwork".

My guess is that, instead of getting a volume cost advantage, they shortchanged the employees on the lump sum payout they offered.

[Rainger99]

The US retirement system gets a C+ in global study coming in 29th out of 48 countries!
We are behind Saudi Arabia but ahead of Poland!

The US retirement system gets a C+ in global study

[Joe C.]

Take your information to a FIDUCIARY ...... not a financial advisor. There's a BIG difference between the two. You will have better results with a fiduciary.

[ton80]

Originally Posted by Rainger99

This is interesting. I called my employer today and they told me that all of my options will go DOWN if I don’t take it by December 1. I assumed that the lump sum and all of the other options were invested and paying some interest on a daily or monthly basis.

So I get more money if I cash out now rather than waiting until end of year!

The woman in HR couldn’t explain why it would go down but said it would go down!

Lump Sum Changes With PBGC Defined Rate for a defined time period usually 3 months

When I retired in 2002, my employer published what the PBGC rate will be for the next 3 month period. With some digging we verified that the HR provided Lump Sum Amount was really a Net Present Value of the retirement payments up to the actuarial expected life expectancy . This was about 83 years and 6 months in 2002. Net Present Value is a standard Application/formula in Excel and other spreadsheets.

I devised a spreadsheet which had input of my birth date, start of employment date, retirement date, PBGC rate and had the spreadsheet estimate the lump sum for retirement. The spreadsheet proved very accurate especially doing estimates of the cases where only difference were the retirement at the current interest rate and retiring a month later with the new PBGC rate. If the rate went up the lump sum went down and you actually lost money by working the extra month even after taking credit for the one month extra salary. If the rate went down your lump sum went up.

The spreadsheet was specific to me, but I devised a generic spreadsheet with a given final salary of 100,000$ so that others could input their specific data and get a result for their situation.

This does not influence your options in the original note but it helps with the decision when to retire in the short term.

[Caymus]

Originally Posted by Joe C.

Take your information to a FIDUCIARY ...... not a financial advisor. There's a BIG difference between the two. You will have better results with a fiduciary.

Being a fiduciary doesn't guarantee competence or honesty. Bernie Madoff was a fiduciary.

[Rainger99]

Originally Posted by ton80

Lump Sum Changes With PBGC Defined Rate for a defined time period usually 3 months

When I retired in 2002, my employer published what the PBGC rate will be for the next 3 month period. With some digging we verified that the HR provided Lump Sum Amount was really a Net Present Value of the retirement payments up to the actuarial expected life expectancy . This was about 83 years and 6 months in 2002. Net Present Value is a standard Application/formula in Excel and other spreadsheets.

If the rate went up the lump sum went down and you actually lost money by working the extra month even after taking credit for the one month extra salary. If the rate went down your lump sum went up.

Thanks! I should have paid more attention during math classes!

[Battlebasset]

Can't advise you, but I will tell you what I did:

At age 58, I took the monthly option, with 100% for my wife if I go first. But I took a smaller monthly amount in exchange for a lump sum that I rolled into an IRA, invested in stocks. I figured that was my "inflation hedge" as my monthly pension amount will be the same today as it will be in 30 years. That lump sum has grown 33% over the two years it has been invested. And should we both die in a car crash, that lump sum amount can be willed to my kids, church, etc. Not so with the monthly pension alone.

So a compromise that has to this point, been a good decision. And if I die earlier, what will I care? I'll be dead.

[SusanStCatherine]

IMHO each person is different in many factors needing to be considered. If you have children and want to leave them an inheritance, then the lump sum for sure and you have total control over it. If you take the lump sum then you are responsible for handling it, but you have freedom to do so and make changes yourself later on. If you have plenty of money and children, make sure half the money is titled to both you and your wife split 50-50 and transfered upon death to your children. Annuities, pensions, and social security end at death - lump sums do not. Consider your personal life expectancy based on genetics and current health. Don't forget to consider tax implications. You can get advice free or pay for it but you still need to make your own decision. I've been ill advised by lawyers and tax specialists so that can happen and can also happen with financial advisors as well. Good luck!

[Altavia]

Originally Posted by ton80

Lump Sum Changes With PBGC Defined Rate for a defined time period usually 3 months

When I retired in 2002, my employer published what the PBGC rate will be for the next 3 month period. With some digging we verified that the HR provided Lump Sum Amount was really a Net Present Value of the retirement payments up to the actuarial expected life expectancy . This was about 83 years and 6 months in 2002. Net Present Value is a standard Application/formula in Excel and other spreadsheets.

I devised a spreadsheet which had input of my birth date, start of employment date, retirement date, PBGC rate and had the spreadsheet estimate the lump sum for retirement. The spreadsheet proved very accurate especially doing estimates of the cases where only difference were the retirement at the current interest rate and retiring a month later with the new PBGC rate. If the rate went up the lump sum went down and you actually lost money by working the extra month even after taking credit for the one month extra salary. If the rate went down your lump sum went up.

The spreadsheet was specific to me, but I devised a generic spreadsheet with a given final salary of 100,000$ so that others could input their specific data and get a result for their situation.

This does not influence your options in the original note but it helps with the decision when to retire in the short term.

Adding, some companies set the PBGC rate once per year. For my employer, it was Jan 1.

Interest Rates | Pension Benefit Guaranty Corporation

[ton80]

I suggest that Rainger99 should ask Company HR what the PBGC Rate is and what it will be and when does it change. From her answer that the lump sum will go down in January, it seems that the PBGC rate used will go up Jan 1, 2025 as per Altavia's example.
If the rate goes up the Lump Sum will go down. If the rate goes down the Lump Sum will go up .

[Rainger99]

Originally Posted by ton80

I suggest that Rainger99 should ask Company HR what the PBGC Rate is and what it will be and when does it change. From her answer that the lump sum will go down in January, it seems that the PBGC rate used will go up Jan 1, 2025 as per Altavia's example.
If the rate goes up the Lump Sum will go down. If the rate goes down the Lump Sum will go up .

They told me that if I wait until next year to start taking my pension that all of the options will go down. The monthly payments and the lump sum!

[Altavia]

Originally Posted by Rainger99

They told me that if I wait until next year to start taking my pension that all of the options will go down. The monthly payments and the lump sum!

If I understand correctly, the annuity is essentially based on the value of a lump sum at time of retirement.

[ton80]

In my case 22 years ago, the Defined Pension Benefit was a retirement pay equal to 1.6% times the years of accredited service times your best 3 years of your last 5 years salary as long as you reached retirement age of 55 yrs old at retirement. Earlier retirement had some severe penalties. There was no lump sum annuity set up for all retirees. The Company paid retirement from current income and profits. They also used these sources to fund most projects. Things have changed

They also offered similar options as in the original post. If the wife were not a beneficiary SHE must sign a document stating that she agreed with that.

[retiredguy123]

Originally Posted by ton80

In my case 22 years ago, the Defined Pension Benefit was a retirement pay equal to 1.6% times the years of accredited service times your best 3 years of your last 5 years salary as long as you reached retirement age of 55 yrs old at retirement. Earlier retirement had some severe penalties. There was no lump sum annuity set up for all retirees. The Company paid retirement from current income and profits. They also used these sources to fund most projects. Things have changed

They also offered similar options as in the original post. If the wife were not a beneficiary SHE must sign a document stating that she agreed with that.

LOL. That is great if the wife knows what she is signing. My cousin was a military wife who signed the document, but didn't know that she wasn't a beneficiary until after her husband died.