patrick.net

How much money are we talking about here (either lump sum and monthly)?

Reason why I am asking is supposedly these lump sum type of things (I have 2 of them, the value of them is small, 17K and 38K) you might be able to roll into a 401K or maybe it's just a proposed new law, or something like that. If that is the case, I'd rather just roll it into my 401K.

Forget about "passing on" stuff. Corpses don't appreciate bestowed gratitude, and heirs often squander and fight over the money, anyway, without gratitude. If it happens, it happens, but you can always start giving shit away later.

Take a lump sum and roll it over into an IRA or 401K of some kind. However, make sure there is no gross 'penalty' for doing this. This gives you more control over the money rather than a pension, which forces you to rely on the solvency of a fund or the gracious generosity of an employer if it stays in business. Of course an insurance agent wants to sell you annuities (huge commission, less for you) and somebody wants to manage your money (commissions, fees etc. their brains, your money). Planning annuities into your retirement requires a lot of care and research so that you aren't being fleeced. An annuity is just a pension purchased from an insurance company that is gambling that you will croak and not collect in the long run. In an IRA you can keep the money earning tax free to 70.5 of age, when there are minimum required distributions.

Put the money into low load/ low management fee index funds with about a 50/50 stock bond mix and relax. Plan withdrawals as needed with a tax strategy, because withdrawals are taxable.

zzyzzx says

How much money are we talking about here (either lump sum and monthly)?

'

That's the first question to answer.

rocketjoe79 says

I can take a lump sump or get paid monthly until I die, then my wife gets paid until she passes. I

You have to run the numbers based on life expectancy for both of you. What will that monthly amount add up to when the last of you two die versus if you invest it, what's the future value. Also, it also depends if you're the type that likes a monthly check, just like S.S., and doesn't want to deal with, manage or worry about investments.

Ceffer says

Take a lump sum and roll it over into an IRA or 401K of some kind. However, make sure there is no gross 'penalty' for doing this. This gives you more control over the money rather than a pension, which forces you to rely on the solvency of a fund or the gracious generosity of an employer if it stays in business. Of course an insurance agent wants to sell you annuities (huge commission, less for you) and somebody wants to manage your money (commissions, fees etc. their brains, your money). Planning annuities into your retirement requires a lot of care and research so that you aren't being fleeced. An annuity is just a pension purchased from an insurance company that is gambling that you will croak and not collect in the long run. In an IRA you can keep the money earning tax free to 70.5 of age, when there are minimum required distributions.

Very good... I'm impressed.

Another choice, depending on your age and life expectancy, is to first roll the lump sum into a IRA, then depending on your tax situation, do partial Roth backdoor rollovers of certain amounts. This way, you'll pay any tax the year you roll it into the Roth, but then it grows tax free, and you don't get stuck with the RMDs at 70-1/2.

It all depends on the amount you're talking about with the lump sum.

The amount will be about $630k.

If you do cash out, will you be able to shelter that huge lump sum from the various income taxes? Between the federal government and state governments, you might be losing 45% right off the bat. That's a pretty big ouch.

If you really are getting a full cash out equal to the net present value of the pension payments and you can roll it into an IRA or other retirement plan and not get hit with income taxes right off the bat, then the IRA looks like the safest bet. You're getting all the value and you're protected from the potential future whims or fortunes of the pension.

SunnyvaleCA says

If you do cash out, will you be able to shelter that huge lump sum from the various income taxes? Between the federal government and state governments, you might be losing 45% right off the bat. That's a pretty big ouch.

If you really are getting a full cash out equal to the net present value of the pension payments and you can roll it into an IRA or other retirement plan and not get hit with income taxes right off the bat, then the IRA looks like the safest bet. You're getting all the value and you're protected from the potential future whims or fortunes of the pension.

And I think Trump is working on that rollover into an IRA as a not taxable event. Otherwise your options are lump sum or monthly payment taxable. No way would I take the lump sum for that amount if it were taxable.

According to this website:
https://www.goodfinancialcents.com/roll-over-pension-lump-sum-distribution-into-ira/
You can roll it into an IRA, and do some other interesting things after 59.

What would be the monthly payout,band is this pension safe?

This article:
https://www.fool.com/knowledge-center/pension-rollover-rules.aspx
Make reference to IRS publication 575 about this.

Booger says

And I think Trump is working on that rollover into an IRA as a not taxable event.

Most pension rollovers to a IRA is a non-taxable event now, until you actually take a distribution. If you roll it to a Roth IRA, then it becomes taxable at that time.


Booger says

What would be the monthly payout,

I'm wondering that too. Would it be beneficial to take it monthly?

Also, the OP hasn't stated if this was his only source of retirement funds. Is he a government worker? Or, will he also be getting S.S. and does he have any other retirement funds to tap into. He needs to look at the complete pool of money to determine what his tax liability might be.

I know something about this subject.

Firstly, if you take possession of this money, use low cost places like Vanguard. Vanguard can provide low cost mutual funds, financial planning, variable annuities, and even get a quote for an immediate fixed annuity. T. Rowe Price and Fidelity are also good resources.

The rate of spending that mutual fund companies consider safe varies, 4%-5% is typical.
So, if you had a lump sum and invested it in mutual funds, you could expect to spend it at about this rate and not run out of money.
The possible advantage of investing yourself is you may get some good returns and grow your capital over time to compensate for inflation.

Depending on your age, annuity pay out rates are a bit higher than the 4% rate. At 64 single male you'd get 6.5% payout. You are married so will have a "second to die" annuity, so the payout would be a little less but better than the suggested spending rate of a mutual fund.

To try and compare the offer, multiply the lump sum by 0.04, then divide this by 12 to get the monthly expected spending rate of a mutual fund. Try it with 0.05 if you are more of an optimist.

I think Vanguard is an excellent resource and it's worth calling them up. You could also seek out a "fee-only financial planner" who will charge by the hour.

The guaranteed income of an annuity may make it attractive, while the flexibility of owning mutual funds may be more interesting.
If you took a lump sum, you could use some of it to buy an immediate fixed annuity, while investing the remaining portion of it in Vanguard mutual funds.

I know a few people whose annuities went broke. Also read about this happening to some folks who had those from Lehman Brothers, though I didn't know any personally. You might want to form an opinion about the robustness of the annuity.

If you go the self-directed IRA route, for the cash portion Vanguard and Fidelity will broker FDIC insured bank CDs on your behalf.

I do have other income sources, but the thing I'm most concerned about is the pension being whittled down over time by inflation. If we have a bout of 6% inflation for, say, ten years, I'm screwed. This happened between 1972 and 1983 (yes, I'm cherry picking a very bad stretch of inflation). I'd like to be more inflation proof - and the fixed pension provides no recourse. Even if i put this into a 401K money market, I could make 2% and not lose money so fast.

So I'm leaning toward lump sum rollover. And let my son (the finance wiz) take over.

Thanks to all for your input, it's been very valuable. I'm calling Vanguard tomorrow :)

When you have the time, read some of the guides posted online at Vanguard.com, T. Rowe Price.com etc.

There are numerous choices for funds to have 1. income 2. some capital appreciation (to offset inflation) or stock dividend income component.

The common choice is called a "balanced fund"=contains bonds and stocks. This is a fund you could buy and really forget. Vanguard Wellington is one such fund.

The fund that is balanced but has a higher bond (income) component is Vanguard Wellsley Income Fund. It's going to provide a little more income than Wellington.

If I found a suitcase of a million dollars at my age (near retirement age), I would likely put most of it into Vanguard Wellington Fund and forget it.

How to spend a mutual fund: This is seldom mentioned.

You have several ways to spend your mutual fund as the balance grows and you want to spend some of it. You can start and stop it any time.

1. systematic withdrawal by percentage: you can tell the mutual fund company to sell some shares equal to a % per year divided by 12 (monthly) or 4 (quarterly). You may like to use 4% per year for safety, or another percentage.

2. systematic withdrawal by dollar: you can tell the mutual fund company to sell shares to send you $500 per month, or whatever dollar amount seems reasonable

3. spend dividends and interest reinvest capital gains: you tell the mutual fund to send you just the dividends and interest produced by the mutual fund and to reinvest the capital gains.

4. spend dividends and interest and spend capital gains: you can tell the mutual funds to send you all of the dividends, interest and capital gains produced by your mutual fund.

I don't have a crystal ball, but I don't fear high inflation in the near future.

If the lump sum is in a qualified plan (like an IRA) then you have even more flexibility to make changes to your portfolio; buying and selling within retirement accounts has no tax consequence.