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Started By
Message
Helping my dad decide between lump sum or annuity
Posted on 4/5/17 at 11:49 am
Posted on 4/5/17 at 11:49 am
My dad has a pension from an old employer and he is asking my opinion on what to do with it. I have an idea what I would do but I would like to hear different opinions. I have 20+ years before I retire so I haven't given this topic much thought.
Current age 59. $545/month annuity
60. $587/month or $105,000 lump sum
65. $839/month or $119,000 lump sum
He will still be working for several more years and is in good health. Only other assets are emergency fund and about $60k equity in his home.
Current age 59. $545/month annuity
60. $587/month or $105,000 lump sum
65. $839/month or $119,000 lump sum
He will still be working for several more years and is in good health. Only other assets are emergency fund and about $60k equity in his home.
This post was edited on 4/5/17 at 7:24 pm
16
Posted on 4/5/17 at 12:00 pm to TigerMan79
According to SS actuarial life tables, he is expected to live another 22.25 years at 59, 21.48 years at 60, and 17.75 years if he makes it to 65.
$545(12)(22.25) = $145,515
$587(12)(21.48) = $151,305
$839(12)(17.75) = $178,707
This obviously doesn't take into consideration tax implications or anything like that. It also doesn't take into consideration value gained by investing said lump sum.
Just figured I'd give you some numbers to play with.
$545(12)(22.25) = $145,515
$587(12)(21.48) = $151,305
$839(12)(17.75) = $178,707
This obviously doesn't take into consideration tax implications or anything like that. It also doesn't take into consideration value gained by investing said lump sum.
Just figured I'd give you some numbers to play with.
Posted on 4/5/17 at 12:03 pm to TigerMan79
Anytime I can say:
A bird in the hand is worth two in the bush
Is a win!
A bird in the hand is worth two in the bush
Is a win!
Posted on 4/5/17 at 12:47 pm to TigerMan79
Do those annuity numbers represent anything being left over for a widow?
Posted on 4/5/17 at 12:51 pm to TigerMan79
quote:
Helping my dad decide between lump sum or annuity
its pretty obvious that he isn't much of a saver, would he blow through this money? Or save it?
If he is going to blow through it, then take the annuity.
Posted on 4/5/17 at 12:53 pm to TigerMan79
Lump sum would recreate the age 65 income (assuming he could wait that long to draw) plus provide beneficiaries the unused balance should he die prematurely.
Pension annuity remainder will likely be absorbed by the company at your dad's death.
Pension annuity remainder will likely be absorbed by the company at your dad's death.
Posted on 4/5/17 at 1:03 pm to TigerMan79
Does he have a 401k with current employer? If so what's the value? Roth?
Posted on 4/5/17 at 1:13 pm to TigerMan79
What about his debts and spending habits?
Posted on 4/5/17 at 1:48 pm to TigerMan79
It looks like they are calculating about a 6.5% return for the monthly payments.
If you take the lump sum of 105k and invest it all, earning 6.5% or more then you will have a monthly income equal to or greater than the $587/month payment for the rest of his life. And at the end of his life you (heirs) will still have the $105K principle. If you keep the annuity, once he dies, the money is gone.
If you take the lump sum of 105k and invest it all, earning 6.5% or more then you will have a monthly income equal to or greater than the $587/month payment for the rest of his life. And at the end of his life you (heirs) will still have the $105K principle. If you keep the annuity, once he dies, the money is gone.
This post was edited on 4/5/17 at 1:49 pm
Posted on 4/5/17 at 2:24 pm to Chris4x4gill2
If the company keeps the annuity at the time of death, no doubt in doing the lump sum. Personally I'd do the lump some anyway so it's in my control.
If your dad is bad with money and you are worried he'd spend it AND he keeps the lump some after he takes the annuity then I'd definitely recommend the annuity.
$105,000/ $600 (1 month) = 14.5 years. So even if your dad doesn't invest the money that $105,000 will last almost 15 years just withdrawing a small amount every month.
If your dad is bad with money and you are worried he'd spend it AND he keeps the lump some after he takes the annuity then I'd definitely recommend the annuity.
$105,000/ $600 (1 month) = 14.5 years. So even if your dad doesn't invest the money that $105,000 will last almost 15 years just withdrawing a small amount every month.
Posted on 4/5/17 at 2:48 pm to Chris4x4gill2
He isn't married so I think the annuity would stop if he were to pass away. Even if it's only a few years into it. He is checking on this.
I would personally invest 100% of the lump sum at 60 and draw off of it. Im on the same page as most of you. But he mentioned wanting it accessible incase he needed to get his hands on it. Which is a red flag for me.
I would personally invest 100% of the lump sum at 60 and draw off of it. Im on the same page as most of you. But he mentioned wanting it accessible incase he needed to get his hands on it. Which is a red flag for me.
Posted on 4/5/17 at 2:54 pm to TigerMan79
Many of you have brought up excellent points about spending habits. I'm leaning towards recommending he take the annuity even though I feel it isn't the best choice financially.
This post was edited on 4/5/17 at 7:30 pm
Posted on 4/5/17 at 2:54 pm to TigerMan79
quote:
Only other assets are emergency fund and about $40k equity in his home.
I'd take the lump sum. With him being so bad at finances, it may be worth it for him to pay off his house note so he will have some security in retirement.
This post was edited on 4/5/17 at 2:55 pm
Posted on 4/5/17 at 3:06 pm to barry
quote:
I'd take the lump sum. With him being so bad at finances, it may be worth it for him to pay off his house note so he will have some security in retirement.
That's the best route. Permanently eliminate a major bill and guarantee a place to live. Especially since he still has an income.
He can collect Social Security in a few years for cash flow.
Posted on 4/5/17 at 3:10 pm to TigerMan79
can the annuity disappear early if the pension system goes bankrupt?
I'd go lump sum and give it to a pro if it were me.
I'd go lump sum and give it to a pro if it were me.
Posted on 4/5/17 at 3:24 pm to notsince98
I wouldn't pay off the house. I'd have him go to some financial adviser and see if they can set him up with an annuity that way. Maybe even somehow lock it in for 10 years, I don't have a clue how it works.
We are all just assuming he isn't great with finances given what you've told us. But the fact is that even if he pays off his house, he can still go get a HELOC or something. I'd convince him to pull it out and then put it somewhere else out of his hands to invest. Even if he'll only get say $400/ month.
We are all just assuming he isn't great with finances given what you've told us. But the fact is that even if he pays off his house, he can still go get a HELOC or something. I'd convince him to pull it out and then put it somewhere else out of his hands to invest. Even if he'll only get say $400/ month.
Posted on 4/5/17 at 6:50 pm to baldona
I just took a pension buyout on Jan. 1. I'd rather have the money in my estate just in case something happens to me. I rolled mine into an IRA pre tax. Have a financial institution manage it for me. Too many possibilities of something bad happening for me to have considered the annuity. Glad I did. I'm 56 and plan on retiring in 3 years.
Posted on 4/5/17 at 7:14 pm to Popths
Pension system is safe. P66 isn't going anywhere. I'm digging deeper into how exactly he plans on living once he retires.
This post was edited on 4/5/17 at 7:28 pm
Posted on 4/5/17 at 7:47 pm to TigerMan79
At this point, I would go lump sum at 59 or 60 - I'm betting he can make more money off that before he actually retires.
The decision point for me is at the 65 level - if that's when he makes the election, that $839 looks to be a big step up from $119k - not so much at 60 - you figure you can take about $375 to $400 a month on your own and never touch the principal at that point.
The decision point for me is at the 65 level - if that's when he makes the election, that $839 looks to be a big step up from $119k - not so much at 60 - you figure you can take about $375 to $400 a month on your own and never touch the principal at that point.
Posted on 4/5/17 at 8:39 pm to Chris4x4gill2
We need more info-
Does he still have a mortgage?
Does he have equity in his home? How much?
Other retirement assets?
Monthly expenses?
How much income does he need?
What assets for retirement are tax free?
Does he like real estate?
Either way, it's not a ton of money , but those questions answered can give you the best method to optimize the money...
Does he still have a mortgage?
Does he have equity in his home? How much?
Other retirement assets?
Monthly expenses?
How much income does he need?
What assets for retirement are tax free?
Does he like real estate?
Either way, it's not a ton of money , but those questions answered can give you the best method to optimize the money...
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