10 thoughts on “Forbes post, “What You Need To Know About Pension Lump Sums”

  1. As teacher salaries are raised why are we even discussing DB plans? Would anyone argue that teachers are the smartest people in the world? Why can’t or why shouldn’t they manage their own investments? Why are teachers held to the whims of politicians? If they like politicians holding their purse strings then don’t complain when you don’t like the results. I think teachers should be paid more. But manage your own retirement program.

  2. Excellent article. I’m an actuary too. I chose monthly pension payout when most of my colleagues took lump sums thinking they were brilliant investors. I saved a bit so had some other investments I could dabble with, but there’s a stable monthly income.

  3. My father wishes he had the lump-sum option 25 years ago. He worked for a large pharmaceutical firm which for some reason allowed one of the 2 merged entities to lump-sum but not the other. This was decades before lump-sums became an issue for some plans; even today, the plan is 75% funded and the company’s backstop remains very strong.

    Despite taking a single-life annuity option (the highest), he has received the same monthly amount since 1994. Not a $1 increase. Had he been able to lump-sum, his investment advisor (me !) would have been able to invest the money and probably double or tripled the initial amount.

    Does anybody know what the lump-sum value of a $1,600/month single-life monthly annuity is for a 59-year old man (probably OK to use today’s mortality and interest rate assumptions but if you can use the mortality/rates of 1994 probably more accurate) ?

    Hopefully Dad continues to get his money’s worth from the SLA and collects for another 10 years or so.

  4. I don’t understand how anyone can reasonably compare a non-cola’d pension as annuity to a lump sum.

    Two of the larger risks in my mind:

    1) One high inflationary cycle can seriously reduce purchasing power: A healthy retiree today may expect to live 20+ years. That is a long exposure to high inflationary periods and consequent purchasing erosion. Remember the late 70’s.

    2)The promise of the pension forever is illusory – it is simply a promise: Case’s in point, TWA, General Electric, etc. Too, the Federal Gov’t has recently demonstrated that what is law today can/will be altered with the stroke of a pen when desired(eg the new tax law that unraveled years of planning in states that lost state income tax deductions, caps on deductions, etc). I fully expect default on pension guarantees and convenient editing of laws and regulations if/when the pension collection bubble comes due. They will have no other option. Remember “austerity measures” in Europe recently. The U.S, is not immune.

    I’ll take the lump sum, thank you.

    What am I missing here. The actuary says take the pension as annuity and every risk management fiber in my body says to take the lump sum and just live within/below my means.

  5. I have an airline pension that gives me a great monthly annuity however the airlines may go into bankruptcy then the pension goes to the PBGC. If I take the lump sum because I am over 70 and a half I cannot roll it over to and IRA and will be penalized 20%. Is the airline pension safe?

  6. Thanks for the article, I have a question relate to lump sum payout.
    I retired 3 years ago take 1/2 annuity, the other half I plan to take lump sum roll over to IRA.
    Because interest rate is lower during that time, so I decide leave my 1/2 lump sum in company to gain 4% interest rate.3 years later I plan to withdraw and rollo ver , they told me 3years ago the lump sum worth 184000, now lump sum value is 179000. Due to segment rate change.

    It is a shock for me.what is segment rate? who decide the rate and what it based on?
    Does lumpsum amount locked when I retired? why it is still floating change.

    Please advice.


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