Very small pension, how to handle

[Anonymous]

I’m retiring soon and most of our savings are I 401k, brokerage account, Roth, etc.

I do have a very small pension from one of my first jobs. Trying to decide between taking lump sum (<100,000 k) vs small monthly payments annuitized for life. If I live to 100 (who knows?!) and take the monthly payments, I calculated that over my lifetime the amount will be ~3 x the current value.

I’m considering rolling it into my Roth IRA and taking the tax hit just so I can invest it independently.

Any thoughts about best thing to do?

[Anonymous]

Anonymous wrote:I’m retiring soon and most of our savings are I 401k, brokerage account, Roth, etc.

I do have a very small pension from one of my first jobs. Trying to decide between taking lump sum (<100,000 k) vs small monthly payments annuitized for life. If I live to 100 (who knows?!) and take the monthly payments, I calculated that over my lifetime the amount will be ~3 x the current value.

I’m considering rolling it into my Roth IRA and taking the tax hit just so I can invest it independently.

Any thoughts about best thing to do?

Well these questions are hard and these amounts should be technically "actuarially equivalent" but "actuarial equivalence" considers a large group of people to calculate present value factors, so what is best for you....noone really knows. One rule that I know of is called the 6% rule. Take the value of your lump sum and divide it by the annualized monthly payment. If the percentage is greater than 6%, the guaranteed monthly payment is considered to be better. If not, the lump sum is considered to be better. But everyone is different. Many people like the idea of taking the LS and investing it themselves whether in a Roth or Traditional IRA. Good luck.

[Anonymous]

Anonymous wrote:

Anonymous wrote:I’m retiring soon and most of our savings are I 401k, brokerage account, Roth, etc.

I do have a very small pension from one of my first jobs. Trying to decide between taking lump sum (<100,000 k) vs small monthly payments annuitized for life. If I live to 100 (who knows?!) and take the monthly payments, I calculated that over my lifetime the amount will be ~3 x the current value.

I’m considering rolling it into my Roth IRA and taking the tax hit just so I can invest it independently.

Any thoughts about best thing to do?

Well these questions are hard and these amounts should be technically "actuarially equivalent" but "actuarial equivalence" considers a large group of people to calculate present value factors, so what is best for you....noone really knows. One rule that I know of is called the 6% rule. Take the value of your lump sum and divide it by the annualized monthly payment. If the percentage is greater than 6%, the guaranteed monthly payment is considered to be better. If not, the lump sum is considered to be better. But everyone is different. Many people like the idea of taking the LS and investing it themselves whether in a Roth or Traditional IRA. Good luck.

Thanks for your comment. It’s interesting to learn about the 6% rule— my number is 8% showing pension is “better deal”
Longevity runs in my family lol.

This is tough because I’m anxious to consolidate all my accounts and just get on with it. It’s hard to imagine being in my 90’s and that this small check would make much difference. There’s no COL adjustment so inflation I’m sure would eat it up.

Appreciate you giving me something else to think about. Schwab also has a tool I used but of course there are no certain answers.

[Anonymous]

I'm not sure if I read that title as intended, or not.

[Anonymous]

How much is the pension and do you get COLA? How old will you be and do you have longevity gene in your family?

[Anonymous]

Does it have a survivor benefit? And does that matter?

[Anonymous]

Anonymous wrote:How much is the pension and do you get COLA? How old will you be and do you have longevity gene in your family?

Not OP, but no COLA and yes longevity gene.

[Anonymous]

Anonymous wrote:Does it have a survivor benefit? And does that matter?

That’s one of the options, but my spouse would likely not need it (older than me)
I would take the single life annuity option with no beneficiary

[Anonymous]

Anonymous wrote:I'm not sure if I read that title as intended, or not.

[Anonymous]

If it were me, and I had a lot of other investments, I’d keep the small pension. I would then invest the monthly payments in a regular brokerage account. That way, I’d get the benefits of dollar cost averaging & I wouldn’t take a tax hit of a one time withdraw. During my retirement when the market is down, I’d use that small pension for living expenses. That way, it would give me a little time to let my investments recover.

But that’s just me. I like having investments but I also like having a little of bit of insurance for worst case scenarios.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Does it have a survivor benefit? And does that matter?

That’s one of the options, but my spouse would likely not need it (older than me)
I would take the single life annuity option with no beneficiary

Not sure if that's a good idea OP. I assume you are aware your spouse has to consent to that and even if they do, life is unpredictable.

[Anonymous]

Anonymous wrote:If it were me, and I had a lot of other investments, I’d keep the small pension. I would then invest the monthly payments in a regular brokerage account. That way, I’d get the benefits of dollar cost averaging & I wouldn’t take a tax hit of a one time withdraw. During my retirement when the market is down, I’d use that small pension for living expenses. That way, it would give me a little time to let my investments recover.

But that’s just me. I like having investments but I also like having a little of bit of insurance for worst case scenarios.

I kind of like this idea!

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Does it have a survivor benefit? And does that matter?

That’s one of the options, but my spouse would likely not need it (older than me)
I would take the single life annuity option with no beneficiary

Not sure if that's a good idea OP. I assume you are aware your spouse has to consent to that and even if they do, life is unpredictable.

Thanks, that’s a good point. DH keeps saying he wouldn’t need anything additional but you’re right about the unpredictable nature of life.

That’s my other concern actually. The pension is from a small hospital system (way way back when they had great benefits) and though they do have a good bond rating I wonder about the security of the $$ down the road.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Does it have a survivor benefit? And does that matter?

That’s one of the options, but my spouse would likely not need it (older than me)
I would take the single life annuity option with no beneficiary

Not sure if that's a good idea OP. I assume you are aware your spouse has to consent to that and even if they do, life is unpredictable.

Indeed. My mother is four years older than my mother who has, at this point, lived eight years and counting longer than he did. Getting a benefit for the spouse is a good insurance plan.

[Anonymous]

without a COL increase I would take the lump sum. With it, I would keep the pension. inflation will eat away at it. Reminds me of my grandmother's life insurnce policy for my mom, which paid out monthly rather than a lump sum. My mom was getting 26$ a month, and while I can't remember what the lump sum was anymore, when we did the calculations we realized it was so much b etter to have taken the lump sum and invested it.