Single Life Annuity: Keep or take Lump Sum Payout ??

[LeoLivingXL]

Hello everyone,

I worked for Time Warner Cable some time ago and I am eligible to collect a single life annuity when I turn 65 @ $420 per month for the rest of my life.

The pension plan was amended to allow terminated employees take their pension benefit as a lump sum payout.

Would it be wise for me to take the Lump Sum of $30,000 minus taxes and invest it elsewhere, like real estate or Roth IRA ? or should i just keep the Single Life annuity that is offered with Fidelity and collect $420 at 65 y.o? I am currently 35 years old, married, no kids, looking to buy my first home.

What would make the most sense ?

Any input would be appreciated.

 

[ALRetiree]

My wife retired early a year ago due to her job being eliminated. They had a pension plan that was discontinued well before she retired so they offered her $100 a month or a $21K payment. We rolled that into her IRA and paid no taxes. If you don’t need the money now you can do a rollover, probably to your tsp and have it grow for the next 20+ years and do better than the pension they offered you.

 

[Bullitt]

What would make the most sense ?

The Roth IRA would take 5 years to fully fund at $6,000 a year unless you do the IRA rollover. Lump sum into a 529 if you have kids could be a good idea as there could be some savings on state tax in the year you make the contribution depending on the state. Taxable account would work, but there is no tax benefit. Either way, there will be a tax hit when you take the lump sum payout and setting aside money to pay for it next year won't be fun.

Moving that money into TSP would be a good option to delay taxes, and at 35 is probably the best option.

Longevity risk is the most underrated risk to your retirement. Any guaranteed for life income streams will be a bonus once you get up there in your mid 80's. Though it's a difficult decision to forego a windfall now, I'd lean towards taking the monthly annuity for life especially if there is some kind of cost of living adjustment. However, being 35, there is still 30 years to go until that pension starts to pay out, and I'm not sure if I would trust a business to keep their promise when the bill comes due.

 

[evilanne]

Leo,

I'm not sure you could do a rollover to TSP in this situation https://www.tsp.gov/account-basics/move-money-into-tsp/ You may want to call TSP.

You should be able to roll it over into an IRA but it is advisable to do a trustee to trustee rollover so no taxes are withheld, you don't want them to send you a check. If they send you a check and you decide to put it in an IRA in the allotted time, you will have to come up with the amount of taxes withheld to avoid a taxable distribution/penalty. If you take the distribution without doing a rollover, you will not only owe taxes on the $30K at your marginal tax rate but there will be a 10% penalty for early distribution. Once you rollover to an IRA you can convert part or all of the funds to a Roth and pay taxes.
See https://pocketsense.com/can-lump-sum-pension-rolled-over-ira-3062.html

I think in the long run, you would be better off doing the rollover. It is hard to know what $420 will be worth in 30 years. I am sure they checked all the life expectancy charts, did all calculations with a modest rate of return to come up with the present value of what they are offering. Under FERS you are eligible for a pension with 5 years employment at age 62, 20 years at 60 etc which should be more than what they are offering. https://www.opm.gov/retirement-services/fers-information/eligibility. With you being here on this site, I believe you can get a better outcome than what they are offering if you invest it wisely. Ultimately the decision is up to you.

Happy Trails

 

[quabit]

Hello everyone,

I worked for Time Warner Cable some time ago and I am eligible to collect a single life annuity when I turn 65 @ $420 per month for the rest of my life.

The pension plan was amended to allow terminated employees take their pension benefit as a lump sum payout.

Would it be wise for me to take the Lump Sum of $30,000 minus taxes and invest it elsewhere, like real estate or Roth IRA ? or should i just keep the Single Life annuity that is offered with Fidelity and collect $420 at 65 y.o? I am currently 35 years old, married, no kids, looking to buy my first home.

What would make the most sense ?

Any input would be appreciated.

I don't know if you follow Dave Ramsey but there was a similar question posed to him. The age is a bit different but this may help. https://www.daveramsey.com/askdave/retirement/taking-your-lumps