Should I Take a Lump Sum or Monthly Pension Payments? | How to Decide
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- Опубликовано: 10 авг 2024
- Imagine this: you’re plugging away at work at the job you’ve held for years, and all of a sudden someone from the company approaches you with an offer. What’s on the table? Your retirement. The offer? A one-time payout of money or an ongoing monthly stream of income.
Increasingly, companies are offering this type of buyout as a way to reduce their future pension obligations. For employers, the long view is that the impact of pension plans on the company’s financials will be reduced. For employees, this business strategy translates into a trade-off: lots of money today or a more modest amount over time.
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Amazing video, A friend of mine referred me to a financial adviser sometime ago and we got to talking about investment and money. I started investing with $150k and in the first 2 months, my portfolio was reading $274,800. Crazy right!, I decided to reinvest my profit and get more interesting. For over a year we have been working together making consistent profit just bought my second home 2 weeks ago and care for my family.
Hi. I’ve been forced to find additional sources of income as I got retrenched. I barely have time to continue trading and watch my investments since I had my second child. Do you think I should take a break for a while from the market and focus on other things or return whenever I have free time or is it a continuous process? Thanks
@@PilouBen However, if you do not have access to a professional like JUDITH ANN PEACE, quitting your job to focus on trading may not be the best approach. It is important to consider all options and seek guidance from reliable sources before making any major decisions. Consulting with an AI or using automated trading systems can also be helpful in managing investments while balancing other commitments
@@Lourd-Bab Oh please I’d love that. Thanks!
@@PilouBen Judith Ann peace is her name
Lookup with her name on the webpage.
I just discovered you and love how helpful your information is. Thank you.
I'm so glad you're enjoying my channel! I hope you've subscribed. Feel free to reach out to me and my team if you have any questions or topics you'd like us to cover. www.wesmoss.com/contact/
Good video, A factor not considered is if you take a lump sum you always have that money under your control. If in 10 years you want to spend that money anyway you want you can, but if you take the pension you cannot. Also, remember that if you take a pension, over time that money will go down from an inflationary perspective. $1000 today may look good but in 30 years from now it may only look like 250 or $300. Something also to consider.
My pension has COLA. It is calculated each time the cost of living goes above 2%. I have been receiving it for 15 years. 296 thousand dollars more than the offer of a cash out. Plus I'm still young and have my 401K which I will never use. It's for my grandson.
There are plans that allow you to take a set range of the lump sum amount ($10-$50k), and the individual will still receive a monthly 75% joint annuity payment for the primary’s and spouse’s life. This will allow them to play both sides of the fence by having that lump sum directly rolled over to a traditional ira; while receiving a slightly reduced monthly annuity for the rest of their lives.
Took the monthly,glad I did.
Thank you, Wes Moss, I'm currently working on this decision & your podcast simplifies the process. In today's financial markets with inflation, debt market & stock market volatility this information is very helpful.
Most are going to be around 6% so it really comes down to if your focus is on wealth or cash flow.
If your focus is wealth, you will generally be better taking the lump sum and investing it. Even if the pension beats your investment returns, it will still take a long time to make up for the fact that they have taken the entire principle.
If your focus is certainty of cash flow, the payment becomes more sensible. You are effectively exchanging money for comfort. That's OK, as long as you understand that this is what you've done.
And yes, it depends on the situation, other resources, other forms of income, and a ton of other stuff!
I think you can have both wealth and cash flow if that money is invested with guaranteed income for life. Check with your trusted financial advisor that specializes in retirement.
Check your health! I’m healthy. I’m taking the guarantee (pension) and riding the market with 401K and index funds. We should be fine. If your health is not great, take the lump sum.
Great video
Thank you!
great info. easy subbed. i have one question... im seeing a lot of videos about the market crashing and money being worthless ...so what is yur advice if the market crashes.. could the pension be taken away??
All good info. Strange that when i use my companies pension calculator the lump sum and monthly payment always comes out to be exactly 6%, however once you reach 30 years of employment the percentage immediately shifts to monthly payments to 10%.
This is to anyone heading to the comments too, when I have the chance at my lump sum I'm taking it! Here's my reason why. If I die before I retire my wife either get half or full monthly benefits at would have been my retirement age depending how I set it up. If we both die before that time, guess where the money I earned goes? It goes bye bye! My kids get zero! First chance I get I'm taking my lump sum and investing it with a big smile knowing that after that point if I die, my kids will at least get something! If you have a pension and kids....look into this and consider it.
Clouded judgement on early retirement monthly payments or lump sum. I’m confused on the taxes.
My calc for joint and 100% survivor came out to 6.1% return. With the rates that ATT uses and locks in every November and now with inflation will have an impact of 10% reduction i cash balance for every 1% lift in inflation. This is major hit on lump sums in 2022 and going into 2023.
Great video. I’m at .085 when I leave early at 55. I’ll take the pension. One of the best companies on the planet and I have passive income on top of it.
Glad to hear you're working for a wonderful company, and your decision to take the pension is so easy! I hope you have a very happy retirement!
Your video is great but the taxes I’ll have to pay is confusing to me. I need more insight please
Love that 6% rule. Makes the decision much easier. Mine ended up around 5.4%. I was leaning lump sum anyway so I had something to will to the kiddies God willing.
Great video. If you take the lump sum and invest the money making 5 percent, at the end, the original invested amount is still there. With an annuity, you are getting the 5 percent as promised but they are taking (maybe feels like stealing) the original invested amount. Am I way off track?
But what about health benefits?
I know former coworkers who have taken the lump sum ,and burned through it in a few short years..
We had already decided to take the monthly payments over the lump sum even before watching your video. Why? Simple math. We have longevity on both sides of our families. I calculated the lump sum was equivalent to 14 years of payments. Took the chance that we would live way beyond 14 years. The other minor reason is to obtain regular steady monthly income to pay off bills. A lump sum would just go into my investment accounts and not be seen in a while. We haven't started a withdrawal strategy from our lifetime of savings and investments.
Also if you are 50 something making this decision and married and healthy considering the single annuity and buying term life. You could buy 20 or 25 yrs fixed term policy for a million dollars for probably a lot less per month than the difference in monthly payments
Tax on lump sum may be other factor that might help choose monthly payments ?
I will be 55 this year and have old company pension policies back in England
Thank you, our pension is way under funded right now:-(. Lump sum it is.
Hi, my company offers Medical attached to the monthly that they pay a certain percentage based off of years of service so mine would be 70% medical coverage. Should this sway my decision to take monthly vs Lump Sum? Thanks!
Or does the job handle the taxes if I take lump sum
My company was only offering 5 figure buyout numbers, only one person took it.
I'm in UK. What do u do . I'm 65 next month
My pension is calculated right at 6% 😂. But I rather get a lump sum since I'll have my 401k and roth ira coming in. So I won't need the lump sum right away and instead use that to purchase a duplex nearby and rent it to match my original monthly pension payment. That way the small inheritance doesn't die with me or my spouse and go to my son and his family. Still a while for all that to happen, only 33.
Hi Wes, what about a partial lump sum? I'm an educator. We have the option to take a partial and our monthly is reduced so much per 1k. In my case it would be $6.65/1k. So if i were to take a $50k partial it would reduce my monthly amount by $332.50. Is the 6% rule math the same?
Hey Bob, generally I'd say that the math is the same, however questions like this can be tricky. It'd probably be best to have a meeting with a member of my team to walk through the overall numbers. If you'd like to set up a time, you can just submit an appointment request on my website - www.wesmoss.com/contact/.
How would the calculations change if your company offers a partial lump sum in exchange for a lower monthly payment?
Great question. You would simply subtract the partial lump sum amount from the original lump sum amount and then again use the 6% rule calculation utilizing the lower monthly payment. Hopefully this helps!
You can only take 25% of the lump sum and spouse will get 2/3 of if he survives me. The lump sum is tax free. My head spins. I think the 6% is 18% . Ie. Pension full - not the reduced /divided by lump sum multiply by 100% . Is that right?
I have a question I’ll be 41 when I retire and get $120k/year pension without taking lump sum or should I take lump sum of $420,000 and recieve a reduced $75k/ year pension?
I did your test, and I came out with 9% for a married pensioner. If I live 10.6 years more (76 years of age) after starting the pension, I would have collected the same amount as the lump sum. The average life expectancy of a male is 78. Another thing to consider, is how big of a tax hit one would get on a lump sum. Just because you see a lump sum of let's say 500k it doesn't mean that is the amount that you will be working with to invest. I think the second test is, if you need the money? then take the pension. If not, then take the lump sum.
What do you mean taxes? You’d roll it over into an IRA (in the US) or a RRSP (in Canada) then there is no tax implications that way. And for just general taking income out of the lump sum or getting paid from a pension are both taxable income and are subject to normal income taxes. Please consult an accountant or a certified financial planner. This is basic stuff you need to know before you comment about something or worse make a a terrible financial decision in your own life.
Just got a letter in mail today. I'm 29yrs old. I want to take the lump sum. Can I take the lump sum now or have to wait untill age 55?
I worked for 13 years from 1990 to 2003 , me and my employer were paying into pension,I stopped working at 2003 at age 45 and resided overseas, now I am 62 .. am I entitled to any pension,and if so, what are my options? .. Thank you
Can i take my pension out if im 30?
My pension plan is on the borderline with the 6% rule. One quick question though. Are there any tax implications with taking the lump sum?
There are no tax implications if you rollover the proceeds to an IRA. If you completely distribute the funds, then all proceeds will be fully taxable. Feel free to reach out to me and my team if you have more questions about this - www.wesmoss.com/contact/
if your retirement is the only income you have left, what do you do if it is less than 100,000.00
?
Hello Wes i have just got my lump sum offer which is only $21K. I only worked for 11 years for this company but i feel like this amount is too low that they have discounted this extremely should i challenge the offer or accept it as is?
What is the monthly amount.
@@KS-cl8br i calculated it to be $158/month for my lifetime
@@learningcoach1 I am not an investment professional but here are some things to think about
$158*12= $1896
which is 9% of $21k
Most people go by a 4% withdrawal rate which on $21k would be $840 a year or $70 a month. This is likely too high. The trinity study was based at a time when life expectancy was lower.
At a safer withdrawal rate of 3.2% is $672 or $56 a month. But this is much less.
You can run an analysis online called a Monte Carlo analysis.
Consider how much time until retirement. Say if you are over 12 years away you may want to take a lump sum and put it in a VTI fund which is total stock market. If a 6% return rule of 72 says your money would double in 72/6 = 12 years. If you are less than 12 years away you may want to take it. But run the numbers.
Your current age and the age at retirement and whether cost of living or inflation protection is part of your benefit is s factor.
Ensure that the $158 is in current dollars and will be inflation protected because if 3% inflation money will be halved in 24 years.
If you are Muslim then each year you must give 2.5% of your wealth to charity which would be $525 or $43.75 a month baseed on 21k. In this case if you kept to a 3.2% total withdrawal rate that is $672 and subtract that from the $525 charity means only $147 left for you so most likely in this case taking the monthly payout would be better since you wouldn't have to pay the 2.5% charity dues since you wouldn't have the 21k at your disposal. You would only pay 2.5% of what remainded of the monthly payout for a whole year.
Do lump sum amounts GO DOWN over time? For ex: in 2010, the lump sum is $10k higher than in 2021.
No its the other way around. If you have the opportunity to take a lump sum in the future it will be higher.
So if you feel that you can invest it better consider taking the lump some.
@@nemoretime7466 - then I have to call the plan. Because my statements years ago had a higher lump sum (same monthly annuity though).
@@P_Belle I had the opportunity to take a lump sum. I believe they said what the value would be in the future. Lets say its 60000. If i take a lump sum now the lump sum would be 63% of $60000 ($37800).
If i feel that i can invest the $37800 and make more than $60000 then i should take the lump sum.
Yes speak to the group running the plan and ask if a lump sum can be taken in the future and what it will be. Since they have your money and not you your lump sum should be higher over time.
I'm in good health. I'll take the payments (with a negotiated rate of inflation of 3%) for me and my spouse if I go. Plus I will get separate long term disability ins. At 6 % plus my social security I will live on about 80% of my pre - retirement income. The remainder of my savings will be in protected investments. How sweet is that?
That's fantastic! Congratulations on a great retirement income plan, Linda!
Not all pensions are the same, very important to point out. My pension is far better than the lump sum. I'm not sure if they even offer a lump sum anyway. I have a public pension that I contribute 11% a week to. I can retire at any age after 20 years of service, but if I wait until age 55 I will get 2.5 times my years, ex: I will have 32 years so 32 x 2.5 is 80% of my salary for life. I have an option for my wife to get a portion if I die before her so I will get 73%. I estimate I will receive around $7000 a month, around 84K a year. I get statements throughout the year and the cash value is around 150k. A good pension is awesome.
You're right, not all pensions are the same. It's important for everyone to evaluate the specifics of their own plans and offers. Your pension sounds great!
I'm glad you're setting yourself up for a happy retirement. Thanks for watching my video!
Good video. And just to add one positive note, public pension plans usually have an annual COLA benefit unlike private sector companies that have pension plan. All told, you got a great pension plan and congratulations. About 30 years ago, there were a lot of people who looked down on government jobs as mindless low paying jobs with no future. But now, many people are wishing they had gotten a government job because of the pensions and medical coverage as well as job stability. Final note, if you work for a private company and opt to take a lump sum, you better have the discipline to manage the money and not squander it away.
Inquirer 101 .. you are right, I have so many friends that never would consider a public sector job after college. These same people can’t believe I’ll be retired making excellent money when they still have another 10 years of work and they rely on the stock market completely. My starting salary was 38k, I’m up around 95k now with great benefits. Yes most of them make a bit more a year, but I wouldn’t change a thing.
One other factor to consider is the human nature to outspend. Seven out of ten lottery winners spend all their winnings within seven years. Why would people who take a lump sum payment instead of a monthly pension be any different?
I know, I know. EVERYONE says they won't spend it all in a few years until they do.
Think about that question. If it was in your best interest they wouldn't offer it. The average person who received a lump sum pension payment at my Company was completely broke after one month. Many didn't realize that they owned taxes on that money. And didn't pay it. Thus loosing everything they had purchased with the money in a tax lawsuit with the IRS. 40 year's of work gone and nothing to show for it. Many, had to go back to work at 62 years of age, just to pay for monthly living expenses. No future. If this sounds like a good deal, then go for it.
I hate to hear this. I believe the real problem these people faced was that they did not have a financial advisor or at least someone financially savvy in their corner to help them out when making these big life decisions. The issues with taxes (though not necessarily the taxes themselves) could have been avoided with proper planning.
@@WesMossMoneyMatters In the case I talked about. Money managers, adviser's were made available to the folks, but only a few showed up at the meetings. Less than 1%. During my fourty plus years working with people I learned a few things about human nature. And the working class people. The most money any of them ever held in their hands was a weekly check of 5 or 6 hundred dollars. The reality of having on average of 150 to 200 thousand dollars at their disposal was a dream come true and a feeling that it would last a lifetime. They didn't care about the future. The people who cared about the future didn't take the buyout, they kept their pension. These people sold their pension for pennies on the dollar, literally. You think you know someone, a smart savvy person, until a large sum of money comes into the picture and you suddenly realize that you don't know them as all. These people went out and brought new cars, boats hunting gear (I'm about south central Alabama. here) the hunting capital of the country. Thangs they couldn't afford before. I know these things to be true because I worked as a manager in the plant with them for many years. Don't underestimate people to do the dumbest things. I cared about some of them and tried to tell them not to do it, but all saw was dollar signs.
@christopher hennessey I did the same thing in 2004. You took the smart options. I also have COLA.
I am able to save over a thousand dollars every month.
Mine is around 9.5% and advisors still say Take Lump sum? NO! I want the Lump Sum. I am Single so no Legacy concerns
I'm single, no heirs. I can get $1840 or Lump sum of $236K = 9.6% but it is not adjusted for inflation? When I die, I'm dead?
Why would I let the company keep my money the kids should get it. they would have to give me 10% to make me take it.
Take the lump sum and put it in the S&P 500. There. Done.
Take the lot because when it’s time to retire you will be to I’ll to enjoy or dead
Wes - you do not address the fact that upon you and your spouses death, the income stream stops. I will take the lump sum, roll it into an IRA, invest it and at least have the option to leave to any heirs. I prefer control of the money. There will always be people who spend it unwisely - you just can't protect some people from themselves.
I'm glad to hear you have a plan for what to do with your retirement money, and that you're setting yourself up for a happy retirement!
Take the money and run.
Take the lump sum ... tomorrow may never come. Nuff said.
What if you are single?
Could you please help figure mine? 50 years old. Option is $200,00 Lump or $42,000 month state pension for life. Wife gets 60% for life if I die. State will give back what is not used up to 200K.
sorry - $200,000 lump sum option
or $42,000 per year
If you are financially literate. Lump sum.
If you are not financially literate. Monthly payment
PBGC has been insolvent for years.
I actually wrote about the history of the American pension and the PBGC here - www.wesmoss.com/news/the-rise-and-fall-of-the-american-pension/. You might enjoy this article.
Good video but please learn to spell...1:13...
RICH DAD
WHO STOLE MY PENSION