Spreadsheets to evaluate a lump sum vs annuity pension

One question we frequently receive is, "Should I take the lump sum or the pension?" In today's video, I will discuss several factors to consider when making this important decision.
Here are some key points to take into account:
1.) Evaluate the present and future value of the pension.
2.) Assess the financial strength of your employer.
3.) Consider your life expectancy and health conditions.
4.) Decide if you will elect a survivor benefit.
5.) Choose between a life annuity, a life and period certain annuity, or only a period certain annuity.
6.) Determine if your pension provides a cost-of-living benefit rider.
7.) Understand if there are any other benefits, such as healthcare coverage, that are lost without a survivor benefit.
8.) Consider the payout rate of the annuity.
9.) Understand that higher interest rate environments result in lower lump sums, and lower interest rate environments result in higher lump sums.
10.) Assess the need for life insurance to support your surviving spouse if you choose the lump sum option. Also, consider if you qualify for life insurance.
11.) Evaluate your comfort level with managing investments if you opt for the lump sum.
12.) Determine if your pension is covered by the Pension Benefit Guaranty Corporation (PBGC).
By considering these factors, you can make a more informed decision about whether to choose the lump sum or the pension.
Below are additional articles, links and resources you may find helpful.
www.retirementbudgetcalculato...
www.irs.gov/retirement-plans/...
www.cnbc.com/quotes/US10Y
www.pbgc.gov/wr/find-an-insur...
www.pbgc.gov/wr/benefits/guar...
www.barrons.com/articles/reti...
afc.soa.org/#calculator
www.metlife.com/about-us/news...

[@danasimmons2513]

A CFP advised me to take the lump sum, but sure I agree. I did the math, 305K divided by the annual payout 100% survivor option of 23,412, I came up with 7.67%

[@RescueDiver805]

Some companies are selling their pension obligations to 3rd party insurance companies for people who have already retired. And are no longer covered under the pension guarantee by the government. ATT is one.

[@mitchbandalan9450]

Does your spreadsheet work on someone who is still working and plan to retire in 10 years?

[@RetirementBudgetCalculator]

Yes

[@rcooper4164]

Very informative, Jason 👍
Can I download the spreadsheet you used for this comparison?
Thanks so much!
I just bought your book from Amazon, started listening to your podcast and watching your TH-cam videos. And I will definitely try out your RBC soon.

[@wiks101]

you cant take the lump sum payout and then buy an annuity without paying taxes and that would be a huge hit so that 672000 would be knocked down by at least 20%

[@RetirementBudgetCalculator]

You may be able to defer tax on all or part of a lump-sum distribution by requesting the payer to directly roll over the taxable portion into an individual retirement arrangement (IRA) or to an eligible retirement plan.

[@wiks101]

@@RetirementBudgetCalculator thats correct but saying to then take that and buy an annunity would make that money taxable

[@RetirementBudgetCalculator]

@@wiks101 The annuity would be in an IRA and would be taxed as it is paid out.

[@wiks101]

@@RetirementBudgetCalculator agreed but you cant buy an annunity on installment payments you would have to purchase the whole thing and would pay taxes on the whole disbursement

[@RetirementBudgetCalculator]

@@wiks101If you roll over your pension into an IRA, you can choose to use part of the IRA to purchase a qualified annuity. The funds stay within the IRA, and payments come directly from the IRA. You will pay income taxes each year based on the annuity income received that year.