Keep pension or move to IRA?
My wife was laid off/retired from a job at a big oil company in the area and is now faced with keeping her sizeable pension or moving to some kind of IRA. What would be your suggestion?
Terry Says
Here’s an easy way to compare. First ask the size of the monthly check she would receive for life. There will be no adjustment for inflation in this pension check. And decide if she wants it to reflect only her life, or cover both of your lives, which would result in a smaller check.
Then go to www.ImmediateAnnuities.com and enter her age, state of residence, the lump sum amount they were going to give her if she turns down a pension, and see what the best insurance companies will give her on a monthly basis for life — same terms as her corporate pension (her life or both).
That’s the first step — to see if they are giving her a “fair” deal — compared to “buying a pension” through an immediate annuity.
The second decision is more difficult. It revolves around whether — since they seem to allow it — she wants to “roll over” this lump sum to an IRA –and be responsible for investing it. That could involve some risk of loss — even if she invests conservatively. You would roll it to Fidelity or Vanguard and use their low-cost mutual funds. Beware of “advisors’ who will come out of the woodwork offering to help you participate in the market upside with no risk of downside (equity-linked annuities). Don’t do that.
But there’s a big risk you might not understand with a pension check. It’s about inflation. That pension check will be fixed. But at only 3% inflation, the spending power of that monthly check will be cut in half in 25 years~!
Consider searching for a fee only financil advisor who is also a Fiduciary — putting your interests first. You can find a link to the Wealthramp service in the top right corner of my website.
