• We’re currently investigating an issue related to the forum theme and styling that is impacting page layout and visual formatting. The problem has been identified, and we are actively working on a resolution. There is no impact to user data or functionality, this is strictly a front-end display issue. We’ll post an update once the fix has been deployed. Thanks for your patience while we get this sorted.

Retirement decision time- HALP!

Hayabusa Rider

Hayabusa Rider

Admin Emeritus & Elite Member
I once worked for a company which had a pension plan and it went under years ago.

There is a "frozen pension" plan which has been in place and now I have to make a decision in the next two weeks.

I have 23K in this account and 10 years before I retire.

My choices are-

Take an annuity
I can take $100 a month for life starting now.
or
Wait until retirement and get 250 per month.

I can take it now as a lump sum.

If I take it as a cash payment it is subject to 20% withholding and will bump me up to the point where AMT will kick in and I will lose pretty much everything in taxes.

I can roll it over into a 401K
I can roll it over into some a traditional IRA or Roth IRA.

If I have one glaring gap of knowledge it's investment options and tax consequences.

That being the case this money is not critical to my retirement, meaning that I am not risk adverse, but neither do I want to squander it by making ill informed decisions which will come back to bite me with tax or other consequences.

My company 401k is through T. Rowe Price and the options are poor at best. Nothing innovative or promising much reward. It's as plain vanilla as they come.

My retirement income will be modest, below my current living standards as circumstances have required diverting retirement resources into paying for the here and now.

What do the financial mavens suggest? Are there investment funds or vehicles which might yield significant results over ten or so years? I know that at one time metals were "the thing" but I don't know about now, and how to move this into them into an IRS acceptable method.
 
quick thoughts:

- If you wait the 10 years and payout is 250, the equivalent annual return is 7.178%.
- If you take lump sum now and want the money for retirement, make sure you roll it over into a qualified plan (such as t-ira or 401k), else, 20% as you mentioned
- if 401K has poor options, many good traditional IRA custodians out there for more options (vanguard, fidelity, schwab, etc)

so really it comes down to do you think you can realize a better annual return than ~7% investing on your own over the next 10 years? Because if you can, you will beat that 250/month amount. You can annuitize the t-ira later if you wanted the guaranteed payments.
 
What are specific T Rowe Price options?

e. g. is T. Rowe Price Capital Appreciation an option?

I would guess you also have an S & P 500 Index option through T. Rowe Price, too (expense ratio a bit high, I think 0.4%, but nothing outrageous).

And do you have traditional 401k and Roth 401k option? Traditional and Roth supposed to produce same returns over extended periods of time, but you can diversify and also let this pool of money compound for many years into retirement as you draw down required mandatory distributions in early retirement years.
 
401k seems like the easiest and best option based on your situation. Your taxes should be lower in your retired years, so keeping it in the 401k seems smart. Based on your statement about your retirement income, I wouldn't be taking that cash now.
 
Nowhere near retirement myself, so I would take the lump sum and put part of it into a tax-sheltered account- I also have a pension plan that I've paid into and have considered leaving my job.

If you choose the annuity, you should to a present value analysis with an assumed interest rate of really low about 20 years in the future. It's a stupidly easy formula made easier by tables if you have them.

Got curious so if you don't factor in any interest (huge error), in 20 years:
- $100/month * 12 months * 20 years = $24,000
- $250/month * 12 months * 10 years = $30,000

For 30 years:
- $100/month * 12 months * 30 years = $36,000
- $250/month * 12 months * 20 years = $60,000

Depending on what your investments are in, that first 10 years might close the gap a bit.
 
Last edited:
I am assuming the pension is for life? Does it continue under survivor benefits? (IIRC you are married. Does your wife still get it if you kick the bucket?). I am assuming no Cost of Living Increase? Do you want this to last the rest of your life or are you ok if it runs out early?

My thought process if you want it to last your entire life:
With the Pension you get $250 a month which is $3,000 a year until you (or maybe your spouse dies)

$23,000 invested now and assuming a 7% return results in $45,000 in 10 years. To view that as a lifetime benefit apply a 4% Safe Withdrawal Rate. This means there is something like a 95% chance your principle will still be there after 30 years (IE you don't run out). This gives you $1800 a year

My further thought is this - I am always skeptical on pension buyout plans. Since the company is almost always doing this to reduce costs and liabilities those costs and liability savings have to come from somewhere. That somewhere is you
 
Last edited:
I like the rollover IRA at vanguard.com. Roth would be better than Trad if tax-free, not if it means getting taxed and risking AMT. I'd put it into a Target 2030 fund if you want to keep it simple.

The annuity is a decent choice too if it's with a company you're sure will be around to pay it, but if you get hit by a bus then does your estate gets nothing?

Stay away from the 401K (bad fund choices) and cashing out.
 
The survivor benefits seem to be 75% or 50% for the annuity. This is a huge friggin packet so I don't know yet why there are two options.

I'll investigate your suggestions. The days of outstanding opportunity have passed I'm afraid.

Thanks!
 
there's really no "thing" that will get you better investment results. looking back, there always is but you dont get to invest backwards. from a pure return point of view sticking with the annuity is going to get you the most money. 250/month is 3k a year. using 4% swr, that's equivalent to 75k. to reach that value in 10 years from 23k, you need some 12.5% yearly to get there on your own. not impossible but that's a pretty big number to achieve year after year.

i wouldnt take the 100 bucks a month now either. 10 years of 100/month is 12k. with a 150/month difference, the breakeven is 6.67 years with the 250/month. you stand a pretty good chance of living 6.67 years past retirement.

if you havent the money to put away for retirement now, i wouldnt cash this out and take the 20% hit. this is money already socked away for retirement, keep it as such.
if you want to roll it over, i'd go the way of a traditional ira. if you'll hit amt now, income must not be that low, and expect to have less money and less taxes in retirement than now, rolling over to roth will cost you money instead of benefit.

with your annuity value, you may be covered by hte pension benefit guaranty corp. http://www.pbgc.gov
 
250/month is 3k a year. using 4% swr, that's equivalent to 75k. to reach that value in 10 years from 23k, you need some 12.5% yearly to get there on your own. not impossible but that's a pretty big number to achieve year after year.
Click to expand...
Elbryn, he could annuitize a t-ira after 10 years. And ~46K would be 250/month at that point. To me, the apples to apples comparison is ~7% for a decade to be in the same place for taking the rollover to a t-ira vs going with the 250/month option now. This is a simplified scenario.. there are other considerations, like as you pointed out, can keep the cash in a t-ira without annuitizing, and total ROR over the withdrawal timeframe.
 
linuxboy said:
- If you wait the 10 years and payout is 250, the equivalent annual return is 7.178%.

so really it comes down to do you think you can realize a better annual return than ~7% investing on your own over the next 10 years? Because if you can, you will beat that 250/month amount. You can annuitize the t-ira later if you wanted the guaranteed payments.
Click to expand...

IMHO, not a chance. But I'm pretty bearish about the global economy for the next decade at least.

Guaranteed 7% returns for life? Sign me up!
 
not for life, this is just the return over the next 10 years to be at parity with the 250/month option. it would be like having 46-50K in a t-ira in 10 years.
 
dud said:
I can't believe this hasn't been asked before:

OP, how old are you?
Click to expand...

You might have missed this in the OP:

> I have 23K in this account and 10 years before I retire.

I suggested Target 2030 instead of 2025 just because I'll want less bonds, more stocks.
 
As a retired person who has faced this kind of decision, I would leave it with them and take the $250 per month when you retire. I have had funds invested for the past 13 years and it is very hard to get a 7% return year after year in the investment market. Some years it is a negative return.
 
Hayabusa Rider said:
I once worked for a company which had a pension plan and it went under years ago.

There is a "frozen pension" plan which has been in place and now I have to make a decision in the next two weeks.

I have 23K in this account and 10 years before I retire.

My choices are-

Take an annuity
I can take $100 a month for life starting now.
or
Wait until retirement and get 250 per month.

I can take it now as a lump sum.

If I take it as a cash payment it is subject to 20% withholding and will bump me up to the point where AMT will kick in and I will lose pretty much everything in taxes.

I can roll it over into a 401K
I can roll it over into some a traditional IRA or Roth IRA.

If I have one glaring gap of knowledge it's investment options and tax consequences.

That being the case this money is not critical to my retirement, meaning that I am not risk adverse, but neither do I want to squander it by making ill informed decisions which will come back to bite me with tax or other consequences.

My company 401k is through T. Rowe Price and the options are poor at best. Nothing innovative or promising much reward. It's as plain vanilla as they come.

My retirement income will be modest, below my current living standards as circumstances have required diverting retirement resources into paying for the here and now.

What do the financial mavens suggest? Are there investment funds or vehicles which might yield significant results over ten or so years? I know that at one time metals were "the thing" but I don't know about now, and how to move this into them into an IRS acceptable method.
Click to expand...

use the $ and Short APPLE! it's now below $599/share!

Here's the thread where i started saying short Apple when it was $700/share.
http://forums.anandtech.com/showthread.php?t=2270704&highlight=apple
 
DaveSimmons said:
You might have missed this in the OP:

> I have 23K in this account and 10 years before I retire.

I suggested Target 2030 instead of 2025 just because I'll want less bonds, more stocks.
Click to expand...


No, I noticed that but (as you may/may not have noticed) that failed to answer the question. Where (in your quote) does it mention the OP's age?
 
The $250 annuity is betting on your health and longevity.
Max retirement benefits are 68 or 70 so are you 55 or 60 and counting?

Anyone know if anuities can be rippped off for health coverage?
This is your best bet.
You have not spent previous time and effort on this.
Unfortunately inflation will eat away at it.

Invest.
 
How good of an investor are you? This is going to be involving lots of time in retirement, where usually you aren't getting returns as high as you did while young. Usually people invest more conservatively at that age, so 4% to 6% returns are closer to reality.

I made a quick graph. I assumed you invested everything the moment you got it. The $23k lump sum was immediately put into an IRA (of whatever type is appropriate). The $100/month was immediately put into that IRA. The $250/month was similarly invested (although in retirement, you might use a different investment vehicle).

If you invest very well (and don't blow the money on useless crap), then take the lump sum, hands down. Leave the thread now.

Ah, you are still reading. Thus you are not a steller investor or might blow it. In that case the $250/month is the route that I'd take. Sure the $100/month can win if you die early. But in that case, the difference is small and you probably didn't need the money since you are still working or just retired. The case when you really need the money is if you live long and in that case the $250/month is the best option.

Note: I didn't include the effect of taxes.
Note2: I put your age at 55, adjust accordingly if I'm wrong. The graph shape is basically the same, minor tax consequences of various ages ignored.

http://pics.bbzzdd.com/users/dullard/RetirmentHayabusa.jpg
 
Last edited:
Oh, and stay away from metals. Sure, they were a great investment--in the year 2005 when they started skyrocketting.

Metals go on a ~30 year cycle. Meaning if you have metals and the price declines, then historically you'd have to wait 30 years to get your money back. At your age, that isn't a bet that you are highly likely to win.

Metals don't have business earnings, don't pay dividends, and are already quite pricey. You missed the boat. Your only way of making money on them now is to find a bigger sucker than you. You can do well in it, but it isn't a buy and hold option for retirement in my opinion.

Yes, you can get metals in an IRA. Almost any investment firm has a mutual fund or exchange traded fund that will work. Or, some firms let you buy individual shares in an IRA and you can buy metal tracking shares or shares in metal-related industries.

Full disclosure: I trade silver for profit as a hobby. Not large sums of money, but I do have a personal interest in metals.
 
Last edited:
You must log in or register to reply here.

TRENDING THREADS

Back
Top