Pension Lump sum question

Loan interest rate ? I assume it's better than current Bidenomics rates?

Compare your current loan interest rate against a modest return if you invest the lump sum, you could find your answer there.
This assumes you are not financially strapped by continuing to pay the monthly notes.

No way you should do this. Don't know your income on the year, but add 170k to that. Let's assume that pushes you into the 32% marginal tax bracket, your taxes would be $54,000. You shouldn't have penalties being over 59.5. So your net is closer to 115k.

Without figuring your interest payments over the next 17 years, at a modest 6% return, you should have accumulated $470,000 in the IRA you should move your pension to.

So you're spending $170,000 to pay off a $115,000 mortgage and giving up $300,000 in opportunity cost (470-170). Not your best idea, to be sure.

quote:

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Age 60. Plan on retiring at 62-65 (prob 65) Left company and will be starting new position next week. Am considering taking lump sum pension pymt from old company and paying off mortgage.

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Your LS pension payout should be significantly larger at age 65 compared to age 60.

Your payout will be reduced, likely for each month that you take it prior to normal retirement age under the plan (likely age 65).

The present value of your LS pension will also be affected by interest rates. With today's high interest rates, the present value of an amount that would otherwise be paid to you in 5 years will be relatively low compared to recent years when rates were lower. If you wait a few years for rates to (hopefully) come down a few points, the present value will be higher.

Your mortgage lender would love for you to pay off the loan if they're only getting 3.25% interest on your loan. Banks are paying at least 5.5% to borrow money from each other (Fed Funds rate). You're likely going to see your LS pension value increase by more than 3.25% per year for the next few years, so you're coming out ahead leaving the $ in the pension fund.

You are aged 60, which means you can get your IRA's or 401K's without a penalty.

If I were in your shoes, I would roll the pension over to an IRA. Right now you could leave it in a money market fund and get 5% plus. Then, I would look at what my highest marginal tax bracket is and, if it makes sense, take out enough money from the IRA or 401K to make accelerated house payments without getting too much of that money taxed. In other words, if the money is going to be taxed at 32% or higher, I'm not doing it. I would pay the house off slowly and take comfort in the fact that I have enough money to do it if I want to. Since you plan to quit working in a few years, you may be able to have a year with no or very low income in which you can withdraw a lot more money from your IRA/401K to put towards the house.

It's not always about the math though. Sometimes you just want to be free of the debt.

I will be in a similar situation in 2025. I am already retired (more like just quit going to work) but there is a big chunk of retirement funds that I won't get until early 2025, which is also when I turn 59.5. Depending on the situation, I might accelerate payments on the house or I might just keep paying the payments but structure my assets so that I can minimize the taxes. In particular, I might do Roth conversions for a few years to pump up the Roth in order to pay off the house without bumping up into a higher tax bracket in about 2030-32, depending on stock market returns between then and now.

My interest rate is 2.625%, and although it isn't just about the math, I'd rather funnel as much money into an HSA as I can until I reach 65.