The lump sum definitely has more flexibility until you turn 73 or 75, then RMDs and the tax on RMDs can change the consideration depending on how large your lump sum is. Perhaps take the pension annuity and invest part in a Roth each year? I agree that not knowing whether you or your spouse will die in 5 years pushes us into lower payouts with spousal benefits. My pension has a number of payout options. One is a "pop up" option such that if your spouse dies first, your payout pops-up to the full single life annuity rate. The differential cost for that option is about $30 a month.
Taxes could kill you in the lump sum payment. You could lose over 30% right off the bat, whereas you could take the monthly and stay in the top of the 12% tax bracket taking mostly your 401k delaying ss. Then rely on ss and pension in your later life years.
I had a similar situation last year. Rates were a bit higher so the monthly was 6.4% instead of 6% in your example. I took the lump sum and created my own annuity. It pays $5k less per year so if I would have taken the annuity and invested the $5k for 30 years at the same rate, I would end up with $257k or $43k less than the principal on my $300k bond when it comes due at age 95. If I die sooner the benefit on the lump sum would be more. Break even is around age 100.
Some pension plans will revert back to the Single Life Annuity option should the spouse of the retiree pass away first and Survivor Annuity option was originally selected.
One option is to take the single life annuity and buy life insurance. If the cost of a 20 year term policy is less than the “haircut” you would take to get a joint survivor option it may be a good option.
If you CAN invest it - and you know yourself, can you invest each month? or do you drink it all by Wednesday and eat PBJ until payday? If you CAN invest it then roll the Lump Sum into an IRA & invest (not save) it ... 40% in the S&P (VOO), 40% in NASDAQ (QQQ), and 10% in TQQQ / Bitcoin Notice that you will not let yourself buy a new truck or pay off your brothers' debts.
The lump sum definitely has more flexibility until you turn 73 or 75, then RMDs and the tax on RMDs can change the consideration depending on how large your lump sum is. Perhaps take the pension annuity and invest part in a Roth each year? I agree that not knowing whether you or your spouse will die in 5 years pushes us into lower payouts with spousal benefits. My pension has a number of payout options. One is a "pop up" option such that if your spouse dies first, your payout pops-up to the full single life annuity rate. The differential cost for that option is about $30 a month.
Taxes could kill you in the lump sum payment. You could lose over 30% right off the bat, whereas you could take the monthly and stay in the top of the 12% tax bracket taking mostly your 401k delaying ss. Then rely on ss and pension in your later life years.
taxes are deferred if you roll it into an IRA
I had a similar situation last year. Rates were a bit higher so the monthly was 6.4% instead of 6% in your example. I took the lump sum and created my own annuity. It pays $5k less per year so if I would have taken the annuity and invested the $5k for 30 years at the same rate, I would end up with $257k or $43k less than the principal on my $300k bond when it comes due at age 95. If I die sooner the benefit on the lump sum would be more. Break even is around age 100.
one other factor is if you havent been an investor thruout your life, taking monthly could be better cuz you might blow it all (my granddad did....)
Some pension plans will revert back to the Single Life Annuity option should the spouse of the retiree pass away first and Survivor Annuity option was originally selected.
Mine has that “pop up” payment
Take the monthly payment
One option is to take the single life annuity and buy life insurance. If the cost of a 20 year term policy is less than the “haircut” you would take to get a joint survivor option it may be a good option.
Take the money and buy land or cash house
No thanks
I’m probably going to take the monthly with 100% survivor benefit and pop up.
If you CAN invest it - and you know yourself, can you invest each month? or do you drink it all by Wednesday and eat PBJ until payday?
If you CAN invest it then roll the Lump Sum into an IRA & invest (not save) it ... 40% in the S&P (VOO), 40% in NASDAQ (QQQ), and 10% in TQQQ / Bitcoin
Notice that you will not let yourself buy a new truck or pay off your brothers' debts.
Most financial guys will say always take the lump sum and let us invest it for you 😂😂
What if my pension is worth $1.5million in a lump sum? At what value is a lump sum a no brainer?
What who gets 5 grand from SS they don’t pay enough.
It’s only Math!!!