People tend to opt for the lump sums, earlier payouts, and “period certain” annuities, so companies take that into account. As long as they spell it out, I guess it’s fair enough.
A lot of discussion in the last few days. Assuming inflation is 3% is conservative, as the numbers I have seen it averaging around 2.3, 2.4%.
‘Stock market 15 year average at 5%’; it depends how you invest. I look at the 1 mo, 1 yr, 3 yr, 5 yr and 10 year returns on various money market accounts in our company choices with Prudential (large cap value, large cap growth, mid cap value, small cap growth) that H and I are invested in with his company 401k plan, and the 10 year snapshot I did on Feb 18 has the 10 year increases in this order on these accts: 7.95%, 11.1%, 9.72%, and 11.72%. The fixed income intermediate bond (PDBZX) had a 10 year rate of 6.35%. This last year that bond fund did 8.3%.
I did shift more money into the bond fund, because our FA did say that would help stabilize our account with the ‘nervous markets’.
I think it is clear foreign investment choices are going to continue to suffer, as they have with negative returns on our two foreign money market account choices.
And @momsquad if I had the choice I would opt out of the guaranteed monthly income and invest the cashed out amount. Say someone dies before 13 years, the cashed out amount is definitely the better choice. And survivor 25% of total, when opted out you have the total cash amount not drawn down. One just has to have the confidence and the plan to have their own investments be successful. The actuarial folks figure the longevity of the people drawing the pensions, the returns on the pension values along with company contributions as to keeping it all solvent. MIL’s teacher pensions (two states, one primary, and one goes straight into savings) had a really bad cash out amount, and she is going to way outlive the actuarial table average as long as her continued health holds up.
My H doesn’t think he will have any retirement ‘adjustment’ (he would be happy to retire tomorrow), but I found a book that has been out a while and gives a lot of food for thought “How to Retire Happy, Wild and Free” by Ernie J Zelinski (2007). He also has an earlier book. In the opening subtitle “Retirement Wisdom That You Won’t Get from Your Financial Advisor”. It sort of reminds me a bit of Dilbert, and Ernie has an engineering degree and a MBA. Also info on www.thejoyofnotworking.com which is the title of his earlier book. A quote out of the book by an unknown wise person “The key to a happy retirement is to have enough money to live on, but not enough to worry about.” and “The best time to start thinking about your retirement is before your boss does.” 9 Chapters and little sprinkles of these kind of thoughts throughout the book.
Certainly after having resolved learning and knowing and planning on the financial side, spending the time and energy into the planning and thinking and learning on how to best live out life with various paradigm shifts along the way.
Happy thoughts on feeling secure enough on all retirement fronts.
Yes, the companies certainly aren’t trying to make it a good, fair, or equal deal for the employees. They are trying to make it more profitable for the company.
Notrichenough, I think what you wrote in post #5078 makes sense.
I’ve been working full time since 1983 and I’ve never worked for a company with a pension. I didn’t have the opportunity to get a 401K until 1996. When I think of the pension I could have coming to me … ugh. And I’ve always worked at good, professional jobs in larger companies.
We will probably have a bit over a million dollars by @ 66 - which of course, sounds like a lot, but isn’t that much if you want to live on it for twenty years. (Plus Social Security, hopefully.) We will probably have to work part-time for a while, which I hope makes up the difference. One thing we are thinking of doing is the seasonal jobs at national parks - maybe work one summer at one park, another summer at another one? It’s a possibility. When we were at Yellowstone we saw a lot of people working at the giftshop, etc., who looked to be older seasonal workers.
For the annuity calculator, I used no survivor benefits and 0% annual increase, buying now, starting at 65 - basically the cheapest possible thing to do.
The pension would start at age 65, and the amount is fixed. I don’t believe there is an annual increase, not sure what the survivor benefit would be if any.
Using a NPV calculator tells me the rate difference is about 3.5%.
DW wants to cash it out, though, so that’s probably what we’ll do.
We have retired friends (husband and wife) who do seasonal work for Princess Cruise in Alaska. Off season, they get to cruise for a very small nominal fee.
I’d wait until you absolutely HAVE to make a decision before opting for the lumb sum over the mini-pension. It might be handy having that small stream of income for a dedicated use–like your Medicare B premiums or similiar. It really sounds like from an economic standpoint, its morere valuable to get the stream of income over the lump sum.
We have several legs to our retirement “stool.” We get a nice pension from the 45 years of H’s work with a single employer. We also get a small stream from rentals. We have RMDs from tIRAs and also get significant 5 figure dividends every year. We will also be getting SS for me in another 13 years. We also have savings, investments and Roth IRAs. We count our blessings and will do our best to be sure that our kids will be OK. If we can, we’d like to help fund education for any future grandkids and/or help our kids have a place to live, so they can live in HI (or wherever they ultimately decide they want to live).
The company has extended this offer of a buyout to only certain people ( those with a cash-out value of less then $50K) and it is only open until mid-March. They’ve never done this before in the 20+ years since DW left the company, and there is no reason to assume they will ever offer the choice again.
So we pretty much have to make a decision now.
I guess one other factor would be whether the company will continue to be around to make the payments over time and what plans you have for the lump sum. Can it be rolled over into an IRA account of some sort or a 401K you currently have? That would help make this a tax-free event. If it can’t be put into such an account, you have to reduce the lump sum by the taxes you will have to pay for getting the lump sum. I’d lean toward keeping the stream of income.
Notrichenough, say she took the lump sum now (I’m assuming with no tax consequences, otherwise probably not worth it) and invested it at a rate of 3 or 4%, something reasonable. What would the amount be when she turns 65?
It would roll into into a tIRA.
11 years at 3% or 4% gives $37K or $41.5K.
If only we knew when we were going to die, these would be easy decisions. Tough call. As even the strongest company can eventually declare bankruptcy. I don’t know how you decide this one.
I guess you can go with your gut, since it is a close call. At least it’s nice to have the option and a nice lump sum if you decide you want to take that.
I haven’t followed the discussion for @notrichenough 's question. But it strikes me that a modest monthly sum expected 11 years from now yields enough uncertainty by itself. Company bankruptcy being one of them, though the PBGC would step in if it’s a pension. Is it inflation adjusted? Are there survivor features?
This is without looking at the discount rate for PV.
I don’t think the $304/month includes a survivor benefit, although I imagine the option would be there for a reduced benefit amount. DW will more than likely outlive me, anyway. Not inflation-adjusted, AFAIK. I don’t think many private pensions include COLAs, that seems to be largely a feature of gov’t pensions.
I’m not very worried about bankruptcy, although it is always possible, I suppose. It is such a small amount it should be fully covered by the PBGC if necessary.
I’ll have to see if I can dig out how they computed the lump sum amount.
I agree with taking the lump sum and rolling it into a IRA, and then you can covert it to a Roth IRA. You will pay a tax hit, but you are years away so the growth of the money will also be tax free down the road.
We had no choice and have a $100/month annuity payment (when company sold an new company did not have a company provided retirement plan, so we got this annuity) - since it is a well known insurance company, it will go on until death (it has changed names of which major insurance company is holding the annuity contract). Not sure if there is a survivor provision. H’s first job was with Texas Instruments, and he was partially vested (when vesting was 10 years; it did drop to 7 years after he left and doubt they ‘grandfathered him in’ with 7.5 years of service). I imagine I will check when he approaches 60 to see when it will ‘kick in’. Also assume a small amount, but hey, money is money.
Tom1944, I looked at the summary of the pension report you linked to. I love it when these experts say their goal is to make government benefits closer to the benefits of private companies. The assumption is always that government workers have rich benefit plans. And they might have an edge over private employers. But benefits shouldn’t be seen in isolation. I just looked it up: the governor of New Jersey’s salary is $175,000. All the Cabinet secretaries obviously make less. What is the private sector’s salary equivalent, I wonder.
@notrichenough
For me, the time horizon would be a risk factor, especially if it’s distant and there are no survivor benefits. If the monthly benefit is fixed at $304/month in 2015 dollars, I’d factor in inflation (at the very least) to see what it’d be worth when paid.
Personally, I’m inclined to be “bird-in-the-hand” and focus on managing on the lump sum well.
Just a reminder about life expectancies…
My H just texted me. He dropped by his business office and saw that one of the office assistants did not look good. We’ve known her for 20+ years. She is very fit, exercises like a fiend and looks 10-15 years younger than her age. She said her reflux has been bothering her. He insisted on driving this assistant back to the hospital to be checked out at the E/R. She was admitted and is having emergent 4-vessel bypass surgery. She came to work today like any day and her life has changed before 4:00 p.m.