Pensions...an old fart question

[AKIron]

Inflation is a big variable. A dollar today is worth more than it will be in 20 years. Based on recent history. But, COLA increases are percentages so greater later. The SSA did the math but impossible to see the future is.

[AKIron]

Work while you can, the night cometh.

[Brooke]

Similar thing:  if I won the lottery, would I take the lump sum up front, or the payments over time?

I would take the lump sum up front.

For two reasons.

1.  I wouldn't trust still getting paid into the future.  Maybe something in the system blows a gasket, and they don't have the money in the future.

2.  Inflation might be huge going forward.  If I take the money up front, I can put it into things that don't get destroyed by large inflation.

Disclaimer:  I am not a financial analyst.  These are my personal opinions, which could be completely wrong.

[Eagler]

My philosophy is, if you like your job stay until they throw you out.  If you hate your job, it is taking years off your life.  Bail as soon as you can safely do so. 

But life is short.  Staying somewhere you hate for a few more dollars is a wasted life, IMHO.

Here we agree CptTrips

It will be 6 years this July on what started as a 6 month contract I took after I would not relocate to Denver after a huge merge in 2017

Fidelity informed me that the lump sum goes down as interest rates rise...which was the opposite I thought would be happening 

I will work until they say to leave..which could be any moment or another 6 years

Just counting my pennies and reviewing options in case it happens sooner than later

Thanks for the info guys!

Eagler

[Brooke]

Fidelity informed me that the lump sum goes down as interest rates rise...which was the opposite I thought would be happening 

They are doing a "present value" calculation, looking at what they think they'll have in the fund at a future date with a given interest rate, and then discounting that value back to present.  As a simplified example, let's say they think they'd pay you $1000 5 years from now, and they think they'll get total interest over those 5 years of 25%.  Then they compute present value as 1000 x (1 - 0.25) = $750 is what your amount is today.  The higher the interest, the lower the present value.

[BaldEagl]

I was a financial advisor for a large (Fortune 500) investment firm for many years.  Private pensions (as opposed to government which are a somewhat different beast) are all based on annuities.  I had a pension in that job and took it as a lump sum.

The downsides of annuities is that once you start getting payments they do not adjust for inflation over time.  You get $X.xx today and still get $X.xx 20 years from now.  The second downside is that annuities are invested conservatively to be sure to be able to meet their guarantee obligations.  Finally, they are targeted to last through a persons lifespan as indicated by federal mortality tables (Around 85 for most American males).  If you die before that you lose some of your (or your companies) contributions and/or earnings, if you die after that you win.

The plus side of an annuity is that the income stream is guaranteed to last your entire life, no matter how long you live with no additional investment required.

If you're conservative by nature, an annuity/pension is a great thing.  If you're aggressive, you might be better off taking out the lump sum and investing more aggressively (that was the choice I made).  You can always get a projection of monthly annuity/pension payments and compare to other investments you might be interested in and see what would work best for you over time.

[guncrasher]

I converted one of my pensions to annuity it was 100 to 120k. don't remember exactly. so far I have received about 40k and my oldest son will get 375 after I die. not a lot of money but I sure will get more than the 120k.

I will retire at 62 as my health will probably be not that good then.

I just smile at people who tell me age 62 is a bad idea. while not for everybody neither is 67.


semp

[RUSH1]

I converted one of my pensions to annuity it was 100 to 120k. don't remember exactly. so far I have received about 40k and my oldest son will get 375 after I die. not a lot of money but I sure will get more than the 120k.

I will retire at 62 as my health will probably be not that good then.

I just smile at people who tell me age 62 is a bad idea. while not for everybody neither is 67.


semp

Pension for what?  You haven't worked since I started playing this game.  375k, not much?  Maybe not in an overtaxed, over-regulated = overpriced state.   

[guncrasher]

Pension for what?  You haven't worked since I started playing this game.  375k, not much?  Maybe not in an overtaxed, over-regulated = overpriced state.

you misunderstood so much.


semp

[guncrasher]

I see now I meant 375 bucks. I can see how you misunderstood.  but I did mention  120k.  I get 526 a month
 would love for my son to get 375k but no way. only 375 perhaps a hamburger after I die



semp

[alskahawk]

 My recommendation is that if your in your 50s. Eliminate debt. Read it again. Make it a priority. Eliminate debt. And then save like crazy. Retirement doesn't creep up on you, you just blink your eyes and it's there. Decide what's important. A new boat, gun, toy isn't more important than saving money. And don't forget about medical insurance. Medical insurance, good medical insurance is a must have.

 Being retired is great if you have money to take care of the basics and then some. Want to put a smile on your wife's face? Take on a trip you always talked about but never had time to do.

I'm fortunate, I'm retired military, I collect SS and I have other income. Deciding to take a trip with your partner to Europe or where ever when you feel like it, is great. I spent a weekend watching my favorite basketball team play in the NCAAs. Every few months we get bored and take another trip. Its so nice to do something knowing you don't have to worry about your job or vacation time.

[save]

In Europe, retiring is different dependent on where you are living (read- pay tax).

In Sweden parts of your salary/earnings go into a retirement fund, that is accumulated and handled by private or government investment funds.
The second retire income will a private pension funded by  your employer (not all do) will put into another fund.
The 3rd income is a private fund you pay with your own already taxed money (used to be exempted from tax, but not any longer).

Healthcare and hospital care are close to free, but dentist cost an arm and leg, 25% VAT does not help at all.

Remember Nordic countries are VERY heavily taxed.

When it's time to retire you can adjust when each and one of the funds will start to give you money from these funds.
ff you take out more than approx $5K before tax per month you pay  50% tax of every single dime you output to pensions on top of that instead of about 30%.

I'm 63 this year and probably wait another year or two until I don't need to see snow anymore.

[RUSH1]

In Europe, retiring is different dependent on where you are living (read- pay tax).

In Sweden parts of your salary/earnings go into a retirement fund, that is accumulated and handled by private or government investment funds.
The second retire income will a private pension funded by  your employer (not all do) will put into another fund.
The 3rd income is a private fund you pay with your own already taxed money (used to be exempted from tax, but not any longer).

Healthcare and hospital care are close to free, but dentist cost an arm and leg, 25% VAT does not help at all.

Remember Nordic countries are VERY heavily taxed.

When it's time to retire you can adjust when each and one of the funds will start to give you money from these funds.
ff you take out more than approx $5K before tax per month you pay  50% tax of every single dime you output to pensions on top of that instead of about 30%.

I'm 63 this year and probably wait another year or two until I don't need to see snow anymore.

I've read that Sweden's corporate tax rate is much lower than individual/personal tax rates, and that Sweden has no minimum wage laws.  This approach is likely what drives it's successful economy.  The same capitalist economy crazy Bernie touted on the campaign trail a while back.     

[save]

Not entirely true, minimum wages are set by sector or industry through collective bargaining, Swedes also get 25 days paid vacation each year.

[RUSH1]

Not entirely true, minimum wages are set by sector or industry through collective bargaining, Swedes also get 25 days paid vacation each year.

Sounds like a union rather than a government conceived, across the board base wage.  Was I correct about tax rates?