Video from Facebook live stream from the Facebook group, “Taxes in Retirement,” from April 7, 2021. Discussion of the pros and cons of taking a lump sum in lieu of a traditional pension.
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DISCLAIMER: This video is only helpful hints and education. It is not specific tax, legal or investment advice. Before considering acting on anything you see in this video, first consult with your tax, legal or investment advisor. While the information expressed in this video is believed to be accurate, neither Andy Panko, CFP®, RICP®, EA nor Tenon Financial LLC make any guarantees to its accuracy….(read more)
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On April 7th, 2021, a Facebook Live event was hosted to discuss the important decision of choosing between a pension or lump sum when planning for retirement. This decision can have a significant impact on one’s financial future, so it’s important to carefully weigh the options and consider one’s personal financial goals.
A pension is a retirement benefit offered by many employers that pays a regular income to retirees for the rest of their lives. The amount of the pension is typically based on a formula that takes into account the employee’s years of service and average salary. This means that the longer an employee works for the company and the higher their salary, the larger their pension will be.
On the other hand, a lump sum is a one-time payment that can be taken in lieu of a pension. This lump sum can be invested and potentially grow, providing more flexibility and control over the funds. However, it also comes with the responsibility of managing the funds and ensuring they last throughout retirement.
During the Facebook Live event, financial experts discussed various factors to consider when choosing between a pension or lump sum. One important factor is the level of risk tolerance. Those who prefer more stability and guaranteed income may opt for a pension, while those who are comfortable with more risk and want more control over their funds may prefer a lump sum.
Another factor to consider is longevity. If someone has a family history of longevity and expects to live a long life, a pension may be the more secure option. However, if they have health issues or other factors that may impact their life expectancy, a lump sum may provide more flexibility and control over the funds.
Overall, the decision between a pension or lump sum is a personal one that should be carefully considered in light of one’s individual financial goals and circumstances. Seeking the guidance of a financial advisor may also be helpful to make an informed decision. By making the right choice for their individual circumstances, retirees can ensure a secure financial future and enjoy their retirement to the fullest.
I am 60, single so only 1 Soc Sec payment of around $2000 at 67 so pension of $1840 wud be similar to 2nd Sec ot married couple? I like the stable monthly income of pension w Soc Sec is $46K. I wish it had COLA but it was frozen about 10 years ago?
Everyone circumstances are different: I took a lump-sum of $800,000 instead of $5400 monthly pension with 2% Cola. I rolled the lump-sum into my wife’s Sole 401k and purchased two duplexes for $900,000 generating $7400 per month rent, less $2000 per month Taxes and insurance. So I’m netting the same $5400 per month. But pay no income tax unless I take the money out for personal use. The properties have increased in value since July 2020 when I purchased them, say 1.3 million and rents are increasing, so I’m not likely to run out of money, and a legacy remains when I pass. I can sell one or both if I need cash. RMD I can transfer portion of the interest from the 401k trust to myself and pay the taxes, without selling the real estate. With inflation today, it was the best decision back then. I contracted to buy both duplexes in December 2019, before Covid, initiated my retired in February 2020 again before Covid, closed on the properties in July, when the pension money was released. There were many anxious moments with Covid shut-down etc and rent moratoriums. Again in my circumstances, I’ve been investing in real estate since 1984, so the purchase of the duplexes triggered my retirement, I was just turning 66 so it was perfect, and my son who was still 16 could get half my social security until he graduated high school, he just did 2022. The only issue, was the State of Florida used 7.4% to discount my pension to the present value from my understanding, I’m sure they are not generating that high of a return, because the pension is still only 82% funded going back to 2011, when we had to start contributing 3% of our salary to sure-up the fund. With this downturn in the stock market this week, among other issues, undermining the pension, high inflation, I’m glad I took my money out.
This is really great information! Thank you
Me and my husband both work for the state and no SS contributions (no SS incomes either). We both on alternative plans (like 401k, not pensions). We will retire in 9 yrs. Now I have ONE chance to convert my current alternative plan to a pension prior to my retirement (the plan will pay me about $2000-2200/month). My pension has COLA . Do you think it is a good idea having one pension as a stable income in retirement?
There were a few measures regarding the automakers and their revenues/expenses. There was the cost per car that went to the pensioners. There was the employee workhours that went toward supporting the pension and health care obligations.
Add-on point – the pensioners cost to the automakers also included health care promises. There was a huge deal when the UAW took over health care coverage for (some) retirees precisely because everyone knew that without that change, the automakers would collapse.