Pension choice lump sum vs monthly payment
I am a healthy (no HTN, no CVD, no T2DM) 64, 8month yo female. Northwestern mutual calculator had me living to 100, both parents lived to 90. I am thinking of taking the monthly payment option of $542.58 vs the lump sum of $80, 910.24 . On AdvocateHealth paper work it states: To determine the relative values, the value of each optional form of payment is compared to a common form of payment, the 5yr certain & life annuity. The relative value comparison is based on the following interest & life expectancy assumptions: IR code section 417(e)(3) rates for September of last year with PPA Mortality table. I have over $750,000 cash (high yield MM/CD) and have $769,00 in my current 401K, house is paid for, no outstanding debt will need to purchase a car at retirement since I drive a company vehicle. I also will receive a pension from my current company of $1200 a month. I plan on retiring in about 10 months and plan to take SS @ 70 yrs based on everything you have spoken about. Is the monthly pension option the BEST choice?
Terry Says
Whew, this is complicated. And I think you need a visit with a fee-only FIDUCIARY advisor to go through all the permutations. Clink on this link to find one you can trust.
I would just like to point out one issue that doesn’t seem to come up in your thinking. Both the pension and the annuity are a fixed check for your lifetime. But they will be impacted by inflation. At “only” 3% annual inflation, the buying power of that check will be cut in half in 25 years — your projected lifetime! Of course, your SS check will be inflation-adjusted every year.
One other thing you didn’t mention: Do you have long term care insurance? Nothing can wipe out retirement savings faster than the need for care — not covered by Medicare or supplements. Think Alzheimers, or stroke. That’s something you should discuss with a fee-only fiduciary planner.
Right now it looks like you are all set from the “total assets” point of view. And your 40lk and cash stash do give you flexibility. But do you have a revocable living trust — and have you named someone as your successor trustee if you cannot act?? Again, all part of a financial plan. It’s more than just total assets.
