Ask Terry Questions Lump Sum Buyouts.

Lump Sum Buyouts.

By Terry Savage on September 03, 2015 | Financial Planning / Retirement

Several months ago Alcatel-Lucent introduced the Alcatel-Lucent Retiree Lump Sum Window Program to all retired Lucent Technologies employees. They have been very helpful and somewhat thorough in all of the correspondences, hot line assistance and educational opportunities (Tax implications, pros and cons of lump sum versus current personal annuity). My wife and I are both former employees and are both eligible for the lump sum, which we would roll over to our current IRAs. It’s been the cause of endless conversations and a number of near sleepless nights. We have been going back and forth about which way to go and would appreciate any advice that may be in your archives. Thank you and thanks for your radio advice. I have no doubt that you have help and/or brought peace to thousands of people. Have a great day!

Terry Says:  Well, thanks for the compliments.  There are two ways to think about an offer like this.

First question is:  Is it enough?  Are they giving me “enough” money for me to even think about giving up a lifetime income.  To get the dollars and cents on this, go to  Insert the amount of the lump sum you’re being offered, your age (or if your spouse is also given a survivor benefit under your current plan, then insert both ages) and your state, and then click to see what monthly sum several major insurance companies would offer for this lump sum.  That way you can compare.  Perhaps you are receiving $2,000 per month over your lifetime(s).  If this lump sum would buy only $1500/month from major insurers, then you know the lump sum offer is not “enough” from a financial sense.

The second issue pertains to your entire financial picture. How much other pre-tax money do you have that you will be forced to distribute from your IRA over the coming years of your life expectancy?  And are you confident in your ability to invest to generate as much income as you are currently promised from the annuity.  You might want to contact Fidelity, Vanguard or T.Rowe Price to do a “monte carlo” modeling scenario of  how you would invest and how much you would withdraw each year to maintain your lifestyle.

The basic point is that it’s nice to have a lump sum coming in every month — as well as Social Security — to fund your lifestyle.  Of course, if we have another round of serious inflation, that monthly check would eventually not cover your lifestyle.

And finally — how long do you think you will both live??  (Go to to take the test!  If you thought you (or you and your wife) will  have a short life expectancy, or currently have serious illnesses, then it might be nice to have the cash lump sum to leave to your beneficiaries.  Or to spend on care.

It’s a lot to debate, but if you follow these steps you will probably arrive at your own good answer!



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