[CoachKandSportsguy]

Modeling actual retirement choices: actual example from finance challenge friend:
(my actual model is much more detailed than presented for them)

Which would you choose?

Choice 1:
Lump sum transfer to IRA $200,000
Doesn't occur if working spouse dies while employed

Choice 2:
Working spouse takes pension early, $2,200 per month, stops upon death of spouse
Doesn't get paid out if spouse dies while employed

Choice 3:
Working spouse takes pension early, $1,100 per month, continues to non working spouse until death. Doesn't get paid out if spouse dies while employed

General assumptions:
Married, Current tax bracket rate 22%
Investment return 10% estimated going forward (mine for simple assumption)
Health of family is normal / average. . .
Hint:
Model shows that both living AT 80 years old, with 4% investment return all accounts, before inflation:
Choice #1 on IRA with RMDs and RMDs reinvested, the ending asset total
equals
Choice #2 ending asset total, with the same assumptions, just all in taxable amounts versus split IRA/Taxable.

What would you choose?

comment: that doesn't get paid out if spouse dies while employed is one of those getting kicked in the balls. . . . makes one think about retiring when the time comes and not working because you are afraid there isn't anything else. .

former finance guy
who can't let go of helping out friends with financial dilemmas. . .

[Plinker]

Originally Posted by CoachKandSportsguy

Modeling actual retirement choices: actual example from finance challenge friend:
(my actual model is much more detailed than presented for them)

Which would you choose?

Choice 1:
Lump sum transfer to IRA $200,000
Doesn't occur if working spouse dies while employed

Choice 2:
Working spouse takes pension early, $2,200 per month, stops upon death of spouse
Doesn't get paid out if spouse dies while employed

Choice 3:
Working spouse takes pension early, $1,100 per month, continues to non working spouse until death. Doesn't get paid out if spouse dies while employed

General assumptions:
Married, Current tax bracket rate 22%
Investment return 10% estimated going forward (mine for simple assumption)
Health of family is normal / average. . .
Hint:
Model shows that both living AT 80 years old, with 4% investment return all accounts, before inflation:
Choice #1 on IRA with RMDs and RMDs reinvested, the ending asset total
equals
Choice #2 ending asset total, with the same assumptions, just all in taxable amounts versus split IRA/Taxable.

What would you choose?

comment: that doesn't get paid out if spouse dies while employed is one of those getting kicked in the balls. . . . makes one think about retiring when the time comes and not working because you are afraid there isn't anything else. .

former finance guy
who can't let go of helping out friends with financial dilemmas. . .

Ok, I’ll bite.
I would, hands down, go with option #1 for the following reasons:
1. Lump sum to IRA will open up far more investment options than are likely available at current company.
2. Would allow IRA conversions to ROTH IRA’s and lower RMD’s.
3. Company could go bankrupt.
4. If legacy is important, the pension dies when the annuitant dies. Heirs get bupkis. May or may not be an issue.
5. Can take a distribution to cover a larger than expected emergency.

Also, need more information as to current age and other retirement assets this couple has in order to answer accurately.
Generally speaking, usually better to take the lump sum.

Here is the real conundrum in answering the question. You don’t know when you or your spouse will die. If you live to the ripe old age of Moses (120) then I would alter my advice.

[CoachKandSportsguy]

Originally Posted by Plinker

Ok, I’ll bite.
I would, hands down, go with option #1 for the following reasons:
1. Lump sum to IRA will open up far more investment options than are likely available at current company.
2. Would allow IRA conversions to ROTH IRA’s and lower RMD’s.
3. Company could go bankrupt.
4. If legacy is important, the pension dies when the annuitant dies. Heirs get bupkis. May or may not be an issue.
5. Can take a distribution to cover a larger than expected emergency.

Also, need more information as to current age and other retirement assets this couple has in order to answer accurately.
Generally speaking, usually better to take the lump sum.

Here is the real conundrum in answering the question. You don’t know when you or your spouse will die. If you live to the ripe old age of Moses (120) then I would alter my advice.

I agree, the plot twist is that the annuity can be taken while working, it will be adjusted upwards to final amount once the working spouse actually leaves the organization. With the sole income earner retirement several years away,

The choice taken -> Choice # 2

Reason: it provided an income stream in lieu of the other spouse working,
and provided added income while the current spouse worked and both spouses haven't/didn't take social security to increase the social security payout.

These options make retirement planning and retirement choices between immediate income and more flexible future income. .

And yes i left it out as it would increase the complexity of the question . . .

[spd2918]

Nobody can really answer these questions without being in that person's shoes.

That being said, I took an early retirement (52) for my mental health and i dont regret it. Had i stayed 2 more years id have made another $750 to $850 a month, but at what cost to my health?

[OrangeBlossomBaby]

I'd take a cash payout, which would mean losing 50% in taxes/penalties/general reduction of value. So $100,000.

If I was still working I'd still be up north. So I'd sell my house, use the proceeds to buy another house in a less expensive area, use that $100,000 to make any necessary improvements, maybe buy a new(er) car, and live on my social security checks. The fact that I have a working spouse (in your example) means we'd be living on much more than just my social security checks, so that's perfect. If he dies, I still have my own SS checks, if I die, well - he's still working and THEN will have his own pension and SS and the house and my new(ish) car. So he'd come out way ahead of the deal.

[Shipping up to Boston]

For those that planned accordingly, there is also life insurance payouts in the event of a spouse passing.