Annuity or Lump sum payout?
Please advise if any suggestions or lessons learned regarding taking an annuity vs lump sum payout.
I recognize there are many variables associated with the decision and professional advice is prudent. With that said, I have also been impressed with the intellectual and positive well meaning comments of many of the contributors to this site and would appreciate your thoughts. Thank you |
Need to know the dollars of each option. Your investment experience and risk. What ever other assets you have and mix.
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Clark Howard, my favorite cheapskate (clark.com), has answered this question many times. He recommends using the 6 percent rule, explained in this link:
Should you take your pension in a lump sum or monthly payments? - Clark Howard I would suggest you visit his web site for more discussion of this topic. |
I took the lump sum. I did not need the pension income and invested the lump sum which I did not touch for almost 8 years. If you don't need the income, consider taking the lump sum.
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I second Clark Howard. He's been a great consumer advocate for everyone through the years.
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It is placed in an IRA, subject to RMD after age 70-1/2. You can withdraw more when you need it. It becomes a gift to your heirs. |
If you can budget what you withdraw from account, Lump sum is best, then you can invest as you want to, I like mutual funds. If sticking to budget is a problem, an annuity gives you a guaranteed income, but takes a big bite of disbursement with the commission taken by person who sells the annuity.
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First off - consider this.. Is this a pension, or a "structured settlement" ? Let;s assume this is a pension. Combined with social security, this is a guaranteed income flow. So when you do your financial planning, you have two fixed sources of income, and can then allocate your savings mix toward more equities with lesser fear of market moves. There are many websites that can give you an idea of what your lump sum would annuitize to. Again, assuming it is a pension, in most cases your monthly pension payment would far exceed the proceeds of an annuity. Dangers of taking a lump sum ? OF course, your financial acumen, tolerance for risk etc. If this is not a pension, but some type of structured settlement, lottery win etc .. I'd most likely take the lump sum, and NOT buy a true annuity.. I'm in the ken fisher camp of hating true annuities..
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I took the lump sum .... did not need annual income from pension, plus the company where I worked was under severe financial strain the the security of the pension had some questions about it. The biggest decision I faced with the lump sum was how and when to make the investments. Sort of like going to cash with your IRA account and then having to sort through when and how to re-enter the markets at a later date. If you go with the pension, these decisions are made for you.
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Very interesting post. I am dealing with the same issue. I'll post what my finacial advisor recommends when I get it. Of course, some very personal things to take into account, but it's interesting to hear different thoughts.
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How much of my pension is guaranteed by the PBGC?
Typically, payments will be further reduced by no more than 10 percent each month to account for the higher payments already received. PBGC guarantees "basic pension benefits" as provided by your pension plan, subject to legal limits. PBGC Maximum Monthly Guarantees for 2018 Age 2018 Straight-Life Annuity 2018 Joint and 50% Survivor Annuity* 66 $5,962.50 $5,366.25 65 $5,420.45 $4,878.41 64 $5,041.02 $4,536.92 |
1cc is giving the best advise. Clarky is just generalist and % guidelines are not advise. Your age has a significant impact on the decision. ($1mil lump or $5k/mth at age 60vs92 is significantly different) Run from TV Talkers for advice. |
This is a math exercise, which should be done by a professional. Some people want to manage their own investments, so the annuity might not be for them. Others have no interest in managing their finances, so a monthly fixed payment may be better. All things being equal, a professional financial analyst can calculate the net present value of an income stream, and show you how much that income stream is worth in a lump sum.
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