Retirment Investment Question

  1. This is the correct response. You can’t answer OP’s question without knowing the answers to these questions first.

  2. This is the correct answer. As well, does the pension transfer to your wife and/or kids if you pass away. These are important things to keep in mind.

  3. Apologies for the sensitive topic, but a consideration in your decision might be how you think your expected longevity compares to the average in their actuarial tables. Factors might include family history, past/current lifestyle, current health condition / known risk factors.

  4. I would take the lump, especially if you have any heirs, given your advanced age. You can generate around $64k somewhat safely per year. Roll it into your 401k (that’s usually an option) and leave the mortgage as-is. Mortgage rates are generally lower than growth rates. This also gives you some flexibility in the future. Definitely talk to a CPA because you’ll want to move as much tax free as you can out of your IRA/401 into a brokerage account. If you were to pass away, your heirs would have 10 years to liquidate the account, this would throw them into a seriously high tax bracket if they had other sources of income.

  5. Take the lump sum. 1.6M lump sum at a conservative 5% return is netting you 80k in interest vs the 132k per year + gives you massive flexibility and safety net. Money is worth more now than it will be worth in the future in terms of purchasing power. Math says take the lump sum.

  6. A friend of mine’s mom was a teacher for 40 years and was offered $500k or her monthly salary back around 2010 plus inflation for pension for life. Thank god she was convinced to take the monthly pension for life cause she can’t manage money for anything. How are you with managing money? Do you want to live peacefully forever with 11k coming in monthly? It’s one thing to be promised 11k (plus inflation?) per month for life. It’s another to worry every day about the market, make impulse decisions, have your account hacked and lose money…. I hope this helps. (Also are there taxes on the 1.6MM or 11k?)

  7. That’s a valid point. At OP’s age I’m guessing he either really loved his job or wasn’t great with money, or both.

  8. Wow - great pension. $11,000 a month is equivalent to a withdraw rate of over 8% per year. If this pension is REALLY secure, that sounds like a lot more than you could safely pay yourself out of the 1.6 mil lump sum. Take payments if it is for sure secure. If you took a lump sum, that would all be pre-tax so you must to roll that directly into an IRA. If you took direct payment, you'd owe ordinary income taxes on the whole pile - the government would take an outrageous amount in taxes. The same problem happens if you withdraw $300,000 to pay off the house - you would then have to pay ordinary income taxes on that $300,000 immediately. If the pension payments of $11000 per month is not secure, you might take the lump sum (rolled directly into an IRA) although you would need a good plan for investing this money safely. Finding a good and honest financial adviser can be a mine-field, make sure they are 'fee only' and are a Fiduciary, legally bound to put YOUR interests first. A good financial adviser could help you time extra withdraws, for example, to pay the house off early without triggering excessive extra income taxes. They could also help invest the money rationally and according to your personal risk tolerance - as opposed to many retail brokers who have more of an interest in moving your money around in a way to generate commissions and fees. Do NOT listen to 'financial advisers' that are pushing Annuities or Life Insurance as retirement solutions. Those are the highest commission products they can sell and are great for the advisor, not for you. Don't walk, RUN! There are some other great questions posted by people here that you should take into consideration, too.

  9. You’re describing my grandfather perfectly. He took the lump sump and immediately invested the entire thing. I don’t know specific allocations but in 2005 he’s been dead for a few years and my grandma was getting ~$50k/year on just dividends (Along with owning their condo outright, etc so low living costs)

  10. I would take the lump sum and I would not pay off the mortgage. You may ultimately decide to move. Utility company can go bankrupt. Invest the money in 75% stock / 25% bonds. Take your 4 to 5% of your total holdings per year to live off. That’s it

  11. Wrong - utility holding company can go bankrupt but the way utilities are structured it’s usually a parent holding company which is separated from the operating companies holding the operating assets. Since utilities are regulated those assets are generally structured in a conservative manner and provide a public good or service meaning it’s operations do not just cease to exist. I point to Pacific Gas and Electric as a recent example of a company that was restructured but is still operating. Second, vested employee benefits can not be seized in a bankruptcy, the OPs pension benefits are vested and earned. However, if the pension is underfunded that is a valid concern on whether the company has ability to make those monthly payments. Generally speaking the way utilities are set-up and run, many of those pensions are well funded to meet their required obligations including the pensions.

  12. The two pensions I have don’t allow that. It’s a one time decision to take the monthly or lump and once it’s made it can’t be unmade. My vote would be to take the lump and roll it into an IRA or 401k. However at OP’s age of 71, he will be looking at RMDs.

  13. the only way you can pay off that $300K mortgage is to realize in one tax year at least $430,000 of that lump sum outside of a rollover IRA.. that just involves paying way more taxes than you have to with this money.

  14. You take the $11k a month, you will be 83 years old before you start making money on that choice vs lump sum (no interest).

  15. Talk to a financial advisor this is not financial advice, none of what I have to say is just opinion. This is a rare example of when to talk to a professional. If it was me I would take the pension if the company was stable. If it was not I would take the lump sum. Without knowing much about the situation I personally would just take the pension. 1.6 million will not last long especially if you pull out more than 3 percent a year. most people die in their mid 70s because they run out of money. Then again you could die in a year or two. It is more of a problem of inheritance. With 1.6 million you likely will not leave much for your grand kids or family. It is your retirement you earned it not your kids. Will you give a damn if you only got to live until 76 or 92 when your dead. You will have to live frugally if you take the 1.6 million that is 48k vs 138k a year until you die. Without knowing you I would take the pension, it is guaranteed money. But most pensions are not well funded so I would have a backup plan. Just opinion congrats and best of luck, again I am not a financial advisor nor is this advice it is opinion. Talking to a financial advisor would be wise. Whatever you chose do not look back and move forward and enjoy your retirement.

  16. If you move the lump sum to an IRA that would be fine, don’t take the lump sum as cash, it will be taxed as 1.6 mill of income in one year. What is the life expectancy of your family?

  17. Seriously? Do you have a family? Anyone you care about? You are 71 years old. At today’s interest rates….take the money and leave a legacy for your loved ones and enjoy your last few decades. Why take the risk of dying within the next 10 years. Unfortunately it is more likely than you are considering.

  18. That would be the most logical play, as long as he wants to pass something down to his heirs. The only way it doesn’t make sense is if his life expectancy is still 20+ years and the pension payments are inflation adjusted.

  19. Take the lump sum and invest. I don’t trust a single modern company to pay their pension obligations long term

  20. I go with the $11k/mo pension. $1.6M lump sump is not enough to generate income of $132k a year (8.25% yield). I have a large investment in stock and I want to get yearly income from my money, not subjected to vagaries of stock market. I am 65 now but when I checked annuity at 60 and 64, assuming that I live to the average 79 for a man, annuity gives you 5% a year which is the same as I withdraw 5% a year. With annuity the best you can do is to provide for a spouse in case you die before the spouse. Children/heirs are out of luck in case of annuity if you die early. My solution at the time was to buy dividend stock during market plunged in March 20. At the time you could buy WMB paying 1.6 at 8 (20%) or ENB 2.6 at 24 (10.8%) Now WMB is 34 and ENB is 44 so it does not apply anymore.

  21. Are you and your wife in good health? If yes stay with pension. You can burn 1.6 million in 15 years if you live to 90+ pension is better also don’t pay off mortgage given current inflation , also keep in mind it’s hard to manage money if you are not financially responsible

  22. Here’s the math: 11,000 per month in perpetuity is 132,000 per year (pensions normally have inflation adjustments but I’m going to keep this number to keep it straightforward) To get to 1.6M will take a little over 12 years and bring you to 83 years of age. Taking the 11,000 per month will basically guarantee you a comfortable life for the rest of your days within reason. Even if you plan to live past 83 the monthly payment isn’t a bad option.

  23. Yes lump sum and pay mortgage, I want to do that same thing but I am only 40, so I am struggling until I can retire early at 50, and I only have about 25% of what you got but my house is already paid for.

  24. Also depends how far into your mortgage you are. Five years? There’s still a lot of interest in your future so pay that mfr off. 25 years? Not nearly as much interest and maybe worth the liquidity month to month to keep paying it off

  25. Pay off the mortgage if it helps you sleep at night otherwise invest. Can always pay off x% of the mortgage and invest rest

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