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lump sum or pension?

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richisonlymyname
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lump sum or pension?  Reply with quote  

I need some advice, and boy has everyone tried to give me some on this subject.
A quick background. Im 58 and currently employed. I have been notified by my former employer that I can take a lump sum instead of my pension. (this i'm sure is to help them, not me)I am currently eligible to collect the pension (at 55) but I am planning on waiting until I reach 65+. I believe the pension is with a good plan, and that it should be there when I finally want to collect. However, I hear news about pensions being mismanaged and then The Pension Guaratee.... somethings kicks in if they fail. I also read about Congress voting to enable corporations to change pensions because of the risk of them running out of money. If youre still with me , my question is this. Do I take the lump sum and roll it into a 401 account with someone like Vanguard or Fidelity (who has my current 401k with my present employer), or do I let it sit, and hope its there and worth more at 65-66?

Which makes more sense?
Which will be worth more?
I want to do whatever is best for my family

Thanks for any and all help in advance
Post Thu Feb 26, 2015 3:03 am
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christcorp
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Considering that you didn't state HOW MUCH the lump sum is; or HOW MUCH the pension would be if you started collecting it TODAY; or if you wait to collect it until you're 65 like you plan,,,,,,, there's no way to give any advice or opinions.

Then again; I'm of the belief that if you're NOT WORKING past the age of 62, other than the permissible part time work of about $15,000 a year; that I believe you SHOULD start taking social security benefits at age 62. The break even point is far enough down the road that you aren't really losing much. (Unless you use Faux Math and think you'll live to be 100 years old)

But in your case, the answer is: "It DEPENDS". How much is the lump sum? How much would the monthly pension be. Is there a survivor benefit portion/fee in case you die for your spouse? Do you have any other IRA's or retirement accounts? Do you have a decent savings? Is your house paid off and are you debt free? Too many variables to answer. That's why you haven't received any opinions or comments.
Post Sat Apr 11, 2015 10:47 pm
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goldsnhearts
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I agree with christcorp. If you could give us the actual numbers, then we could certainly help you decide if which is far better between a lumpsum and a pension. It also depends on your lifestyle, needs, expenses, and whatnot. Keep in mind that it's far better to take your social security as late as possible too.
Post Tue Jan 19, 2016 10:11 pm
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oldguy
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quote:
Keep in mind that it's far better to take your social security as late as possible too.


It depends on what you do with the SS money. If you take the money at age 62, invest it and double it every 7 years (the historic market average), you may do better by taking it early. The goal isn't to get the most from SS that you can before you die, the goal is to get the most money to YOU before you die.
Post Tue Jan 19, 2016 10:59 pm
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dozulu
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It makes a large difference for your wife, if she survives you, as most wives do, if you can elect the largest widows benefit. My late husband took his federal pension while still working full time at his private sector job. The federal pension was reduced with each increase to the survivor benefits. He elected the largest amount possible for my protection.

But another thing to consider if you are considering that lump sum option. Is the monthly payout option make you part of a health insurance program that you will lose, for yourself and your surviving spouse after you? If you take lump sum option, usually you are opting out of that feature. My late husband used to tell me over and over, "Never, ever change the health insurance on the pension package because it will cover you until you die." So I see that there are other factors beyond the lump sum money, the potential loss of benefits, sometimes also life insurance that comes with it.
Check all this before deciding. My late husbands care at these choices have insured my safety and comfort.

In the previous posts I see that both Christcorps and Oldguy (extemely knowledgeable men) are advising taking SS at 62! In everything I see on this subject, the advice is to wait until you are 70.
It would be helpful if they could explain why their advice runs counter to the common thought on the matter. I am going to be 59 on this Valentines Day, and have myself been trying to sort out when to go take widows benefits from my husbands SS. For me, I am eligible at 62 with a 4% reduction for each year I am under 66. Then, to top off the indecision, someone told me that there are widows that they know who collect a check for the widows benefit, and another on their own earnings? If this is true, that you can collect 2 checks, I am going to go to work until I am 67! I cannot get a straight answer about this, so I thought I would take a day and make a pilgrimage to the nearest SS office and ask them.

But taking SS at 62...everyone says wait as long as possible to file. So this is different advice.
Post Sat Jan 30, 2016 7:23 pm
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christcorp
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You can go to the SS website, put in your SS number and current pay, and it will tell you, pretty accurately, how much you'll receive from Social Security at age 62, 67, and 70.

Most people look at the "CHECK" and say; "I get a bigger check if I wait". What they forget to realize, is if the check is $500 a month more at 67 vs 62, they forget to ADD up the social security payments they received for 60 months prior to age 67.

In my case, if I start collecting Social Security at age 62, the BREAK EVEN POINT, where I'd MAKE MORE if I waited, is around 81 years old. Now, if I can guarantee that I'll live to be 100, then maybe it's better to wait until I'm 67. On the other hand, If I think I'll live to the AVERAGE AGE of 82.5, then it makes sense to have a HIGHER QUALITY of life and enjoy the money while I'm alive, at a younger age, when I can use it. Instead of when I'm too old to enjoy it.

Having said that, it depends also if you WANT to continue working. Currently, until age 67, you are limited to how much money you can earn and still collect social security. Approximately $15,000 per year. If you need or want to continue working full time, past the age of 62, then it makes absolutely no sense to take social security. You'll lose money. You'll make more while working. But if you don't WANT or NEED to work full time; like I don't need to, then I'll take the social security at age 62 and I'll work a part time job making $15,000 to keep busy. It will be a part time job that is fun, and money isn't an issue.

By the way, there is only one reason the government wants you to wait until 67 ir 70 to get social security. It's not because they care about you. They don't. The longer you wait, the longer they can hold onto your money and spend it on other things instead of giving it to you. The Main reason investment advisers recommend you wait until 67 or 70, is because they want you to continue working, and thus CONTRIBUTING IN to retirement and investment plans. They don't make money if you're PULLING MONEY OUT. Only if you're PUTTING MONEY IN.

If I could guarantee I'd be alive at age 100; I'd probably wait until 67. Or, if I NEEDED to work, making a normal paycheck, I'd wait. But if you don't need to wait, take it at age 62. As for Oldguy's option of investing it, that too is an option. But you'd only do that if you definitely didn't need the money at all. Me personally; at age 62, with my pensions, social security, wife's social security, and my investments..... We'll actually make more per year than we make now while working. And that money will last us easily the rest of our lives. Of course, there will be some of the entitlement generation who believe that if a person "Doesn't NEED" social security, they shouldn't get it. Even though they were FORCED TO CONTRIBUTE to it for 50 years.
Post Sat Jan 30, 2016 11:50 pm
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dozulu
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Thank you Christcorps! I appreciate your ideas. I dont need the money to live on, so I will be investing the monthly check because you never know what is coming. I feel pretty stromgly that my husband worked a lifetime to provide me with this and I am going to take it.

You may be right about them discouraging early filing for benefits. And for the exactly the reasons you cite.

Thanks again for the fresh viewpoint.
Post Sun Jan 31, 2016 12:27 am
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Chavak
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quote:
Originally posted by dozulu

I am going to be 59 on this Valentines Day, and have myself been trying to sort out when to go take widows benefits from my husbands SS. For me, I am eligible at 62 with a 4% reduction for each year I am under 66.


Aren't you eligible when you turn 60?

quote:
, someone told me that there are widows that they know who collect a check for the widows benefit, and another on their own earnings? If this is true, that you can collect 2 checks,.


I'd like to know how they pulled that one off! I started taking widow's benefits at age 61 and was advised that I cannot take both my late husbands and my benefit, it's one or the other. So I take his, which combined with other income, is all I need to live on. I will switch to my own when I turn 70.
Post Tue Apr 05, 2016 3:10 pm
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Mintco Financial
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Most people do take the lump sum because they want to disentangle themselves from their employer. The key thing to look at is the health of that pension, and you can do your due diligence on this topic in a couple of different ways. Your employer should be providing you with what’s called a “pension funding notice” that gives you a sense of how fully funded your pension is or is not.

An annuity is a guaranteed payment from the plan for the remainder of your life. All plans also offer a joint and survivor option: that is, the plan will continue to pay at least 50% to your spouse should you predecease him or her. The key advantage of the annuity choice is a guaranteed payment throughout your and your spouse’s lifetimes. Guaranteed payments always make retirement planning easier.

However, a guaranteed payment does not necessarily guarantee sufficient funds to support you through your retirement. Over time the purchasing power of your pension is eroded by inflation. Even if inflation were to remain only 3% per year (its 80-year average), after less than 25 years every dollar paid to you would be worth only 50 cents. And with people living longer, it’s not at all unreasonable to assume a retirement lasting for that many years or more. If you have put together a retirement plan, you should easily be able to tell whether or not the pension income together with all your other expected income will be sufficient.

Guarantees are also only as good as the pension plan itself. If your company were to go bankrupt without sufficient funds in the plan, the plan would be taken over by the Pension Benefit Guarantee Corporation (PBGC), created by the federal government in 1974 to provide for such contingencies. But the PBGC will only cover pensions up to $54K per year, regardless of the pension originally guaranteed by the company. That’s the equivalent of only $27K per year after 25 years if the inflation rate were to remain a constant 3% over that time. And the PBGC itself is not in great shape. It is currently running a deficit of over $33 billion.

Does that mean you should take the payout as a lump-sum instead? On the positive side, the returns investors have gotten from a diversified basket of assets have historically exceeded the returns from a fixed pension by a pretty wide margin. So if you were to take the money as a lump sum and invest it wisely, you should expect to earn more than taking it as a monthly or yearly payment. Of course, you could also take the annuity instead and invest each monthly payout, assuming you didn’t need the money immediately. That might turn out to generate just as much income as the lump-sum investment, although quantifying the difference would be pretty difficult. But the biggest disadvantage of putting the money into an investment portfolio vs. taking it as an annuity is the risk that your investments do not produce the returns you expect.

So what’s the right answer: take your pension as an annuity or as a lump-sum? Well, having some combination of guaranteed income and investment income is generally prudent. But, then again, even if you took your pension as a lump-sum, you could always take some of the proceeds and annuitize them by simply purchasing an annuity from an insurance company, creating a guaranteed stream of payments just like pension income. In the end, the choice will depend on your specific financial situation, and a conversation with your financial planner on this topic would probably turn out to be the best decision you could make.
Post Tue Apr 26, 2016 4:36 pm
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