Need advice on pension benefit | TigerDroppings.com

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lsu1987
LSU Fan
Baton Rouge
Member since Dec 2005
117 posts

Need advice on pension benefit



My previous company sent me a letter offering me the opportunity to receive my pension benefit now, approx $72K, as a lump sum single payment or an annuity at age 65. I can have all or a portion of the lump sum payment transferred to an IRA, Roth IRA, or other qualified tax plan. I am 47 now and leaning towards a self directed IRA.

Any suggestions on which company to choose?

Thanks in advance!







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Crbello4Hiceman
LSU Fan
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Member since May 2011
442 posts

re: Need advice on pension benefit


Why would you not want the annuity?





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TheHiddenFlask
Clemson Fan
The Welsh red light district
Member since Jul 2008
16991 posts

re: Need advice on pension benefit


So you worked for Pepsi?





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Broke
LSU Fan
AKA Buttercup
Member since Sep 2006
56889 posts

re: Need advice on pension benefit


You need to see what the monthly benefit will be. Then divide $72,000 by that number and see how many months you get. You may end up better taking the annuity.





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Layabout
UNO Fan
Baton Rouge
Member since Jul 2011
7015 posts

re: Need advice on pension benefit


Annuities are generally not a very good deal. You've got 18 more years to build up your retirement fund. Roll it over into a qualified plan and then continue to make contributions.





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Broke
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AKA Buttercup
Member since Sep 2006
56889 posts

re: Need advice on pension benefit


quote:

Annuities are generally not a very good deal. You've got 18 more years to build up your retirement fund. Roll it over into a qualified plan and then continue to make contributions.


I can't agree with this. What if his payout is going to be $2000 per month? We just don't have enough info.






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Crbello4Hiceman
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Member since May 2011
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re: Need advice on pension benefit


Could be a good way to diversify depending on the specs of the annuity. He could contribute to an IRA going forward and keep the annuity if it has good terms.





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lsu1987
LSU Fan
Baton Rouge
Member since Dec 2005
117 posts

re: Need advice on pension benefit


Annuity paid at age 65 will be $1531 per month

Like I said in OP, I am leaning towards a self directed IRA. I already have two rollover IRAs now with ING and Morgan Keegan, primarily in mutual funds. I want to manage this money myself. Is Vangard a good company for self directed IRA's?



This post was edited on 10/24 at 4:35 pm


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fishfighter
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Baton Rouge
Member since Apr 2008
19427 posts

re: Need advice on pension benefit


quote:

Annuity paid at age 65 will be $1531 per month


Are you married? Will the annuity still pay the $1531 if you or your wife passes? How long is the payout period? Life for both?

If yes to all the above, I would leave that moneys there. That $1500 along with SS at 65 should put you fairly good to start with.






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BestBanker
LSU Fan
stuck in a moment
Member since Nov 2011
3422 posts

re: Need advice on pension benefit


Similar thread asking about IRA to Roth, with same answer: more information is needed to offer you a proper solution.

And to the "gentleperson" who offered their 2 cents worth on how annuities are not good: Annuities are how pensions are typically structured and guarantee the income for one's lifetime. Blanket statements of assumption are why most people make ineffecient and erroneous financial decisions.






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Larry Hollins
LSU Fan
Member since Jul 2009
1545 posts

re: Need advice on pension benefit


you could also look at it from an estate planning angle. what happens to annuity if you and wife pass before you reach 65 and thus before you start receiving annuity. does it disappear or does your estate get some benefits. self directed ira would go 100% to state. also, it is unusual for the spouse to get the same max benefit as employee. spouse would normally get less than EE amount unless EE elected a lower original payout that resulted in a constant income stream until both are deceased. remaining amounts in a self directed ira would survive both marriage partners.





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Broke
LSU Fan
AKA Buttercup
Member since Sep 2006
56889 posts

re: Need advice on pension benefit


quote:

Annuity paid at age 65 will be $1531 per month


I would keep that annuity. If it doesn't grow any (I know it will), that's 47 months. I'm taking the annuity and focusing my efforts on stockpiling elsewhere. Multiple income streams.






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TheHiddenFlask
Clemson Fan
The Welsh red light district
Member since Jul 2008
16991 posts

re: Need advice on pension benefit


Here's a question: What kind of effects does the interest rate (prime/LIBOR/etc) have on annuities?

I would think it would be a terrible time to load up on fixed income right now.

ETA: I would also think it would be much more advantageous to take the tax hit this year, given the current and projected tax environments. Thoughts?



This post was edited on 10/25 at 1:01 pm


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Broke
LSU Fan
AKA Buttercup
Member since Sep 2006
56889 posts

re: Need advice on pension benefit


quote:

Here's a question: What kind of effects does the interest rate (prime/LIBOR/etc) have on annuities?


Well typically as the rate goes down, the value of the "lump sum" goes up. So he's gonna be at his high water mark right now for distribution.

It has no impact on the monthly amount that will be his payment.

quote:

ETA: I would also think it would be much more advantageous to take the tax hit this year, given the current and projected tax environments. Thoughts?


The only problem with that is that you have to calculate some future ROR on the money that was pulled out and invested into something else. But overall I agree that it will be much more advantageous from a tax standpoint to distribute those funds today than at some point in the future.

It's really up to him. Does he want a guaranteed payout (which is not a bad amount of monthly payment) or does he want control and risk transferred to him?

ETA: But I see no reason to distribute. He can just do a rollover. But he's 47 years old. If he retires at 60 he only has 13 years of growth left. If I'm in his same exact position, I'm taking the annuity.



This post was edited on 10/25 at 2:41 pm


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