Not asking for financial advice…however i am torn on what the best method would be for a 61 year old man with no heirs would be…ERP has been offered with a pension increase…lump sum is $412k or $2653.66 per month single life annuity until death…my gut keeps telling to take the annuity as it will have no fees, no surrender charges or anything like that
TIA
It really depends on what you do with the lump sum. Or, does your monthly payout increase if you wait? Is there a jump percent monthly pay that happens at 65 or 70 years old?
Your monthly payout of $2,653.66 equals $412K in about 13 years. That would make you 74 years old.
Whats your personality like? Do you have any traits that might influence your decision? For example, are you a savy investor or a degenerate gambler or anything like that?
I strongly lean to security. All my investments are low risk. I never gamble against the odds.
I am more of a laid back kinda fella, not a big spender, don’t care about toys and stuff like that…prefer security over risks…i have a nice 401k for the risk side of things…also plan ss next year…so i will have two guranteed income floors
I would have to buy another annuity with the lump sum therefore pay fees or rider percentages
breakeven would be i think 13.5 years
Yeah thats me too…i dont like the risky gambling
I came to just shy of 13 years. That said, do you have other retirement accounts/plans/SS? Do you own your own home? I’d opt for annuity as life expectancy is greater than 13 years.. unless you can pay off house.
The rest of your retirement accounts is helpful, but given info, that’s what I’d do.
Edit: started this response before I saw you said above. Didn’t change answer tho.
I have cash to pay off mortgage…no issue there
my buddy suggested Allianz Index Advantage NF Annuity Illustration
that just sounds too good to be true…he indicated no rider fees or management fees, guaranteed income, zero risk…i got to be missing something
Get a full once over check up. If its hunky dory then play the long game.
If they find like brain & pancreatic cancer the cash out and go for broke.
I am healthy…no issues there, expected life span is 80 to 85
and if i die before then…thats ok too, lol
Do you have other income streams?
Yes…hefty 401k, ss next year, nice cash savings
Great question. I’m pondering similar things with a similar profile, though I’d have to take money out of savings for it. Total mindfuck, as I love me some security, but of course mo’ money = mo’ security, and that more likely comes from investment.
So following along with great interest!
The rule of 72 would predict that lump sum can double twice during your breakeven period, likely allowing you to live on returns that would outpace the annuity.
I also recognize that completely ignores taxes and risk. Market exposure is just an easy default bias for me.
I don’t know anything about some of these managed annuity platforms, so I’m definitely not seeing a full picture.
I would definitely take the lump sum and with all that cash on hand, pay off the house (if not done), pay off credit cards and any other debt, then INVEST most of the rest. Be a great time to (if you haven’t already, but you SHOULD have) also fund a decently sized emergency fund too.
I have the same thing, I have a 401k but my company also, thank god, provides a pension benefit with either the annuity or the lump sum. I’ve already played around with their calculator to see what actual lump sum amount I’ll receive vs the value of my monthly annuity…I’m going to do what I advise you to do. I max out my 401k every year, have a good company match. So I figure the pension lump sum is my best option because even without it, my 401k should be funded well enough to allow me pretty decent monthly withdrawals.
But since you have a 401k already, dump most of that lump sum money into it and watch your money grow even faster. Be sure that your investment choices in your 401k are mostly geared to low risk.
Something to consider, with taking the annuity you are assuming you won’t drop dead of a heart attack at 67, or something like that (god forbid). Then you won’t get the actual value of your pension. Although some do allow a spouse to keep getting paid, but often its at a much lesser monthly amount. I had an old coworker who did just that, took the annuity, then like 2 or 3 years into his retirement he got pancreatic cancer and a few months later he was gone! So, he had worked so long, saved up a really sizable retirement, but didn’t get to enjoy any of it.
As others have all advised, you have options, which is great, but you have to do what is best for you. Taking into account your health, your financial needs, your risk tolerance, and what sort of retirement lifestyle you wish to have. Good luck.
If it were me, I would determine liquidity need as a complete picture, calculating for assumed inflation over time as most programs lock a fixed rate distribution without modification for value depreciation. If you can lock in what you need (and plus some, if possible) you just need to make a personal decision with the specific asset you’re discussing.
If you need the distribution for quality of life over time in the mix, do that.
If you can get the quality of life you want out of your other assets over time, will you be happier with an extra $2.5k in your monthly income stream or would a cabin by a lake with a boat make you happier? Only you can know.
Or do a mixed strategy. Take the lump sum for a down payment on your cabin or whatever it may be for you and reinvest the rest in an income generating asset to pay the mortgage. This way the bulk is still relatively liquid if you change your mind and sell the cabin, plus whatever equity you pull out of that.
Given all that. I’d take cash out then and invest myself.
I was under assumption you’d have fixed income, with little to no savings. At which point, paying off expenses and consistent income with minimal risk is important. Since you are financially stable, I’d put that money to work.
ORrrrrrrrrrrrr you could take the lump sum, go to Vegas and put it all on black (or red, your choice)! Sorry, I just had that crazy idea pop into my head and I was thinking “what if he actually did that, and then he won?” Be pretty epic. Or, it’d be really soul crushing and devastating. haha. Sorry for my odd thought.
I don’t get the paying off the house - but I don’t get a lot of things. I could pay off my house but it has a 3% interest rate - I do much better than that on my portfolio.
Am I missing something?