Being offered a lump sum payout on my pension. Advice?

Financial planner would be nice, but these aren't big numbers so you need a free one.

Like this guy. This is the right approach:

But, I wonder what discount rate you're using. Also, you mention the taxes, but it's easy to skip over. OP, if you're still making money now, the extra $130/month payment if you took that option would get taxed. The $300 after your retirement would be treated more favorably because your taxable income would probably be lower (unless you have to keep working).

Risks to consider:
* Pension might be underfunded and could go insolvent before you die, screwing you out of your $300/month. In this case, taking your payout in a lump sum is safest.
* You might die young, in which case lump sum is best.
* Or you might live to 100, in which case $300/month forever is best.
* 12% return is not realistic. The 30 year average for the stock market is ~ 8%. They say people close to retirement should invest conservatively. So maybe 5% is a better assumption. And, consider what you will actually do. If you are the kind of person who will just stick it in a savings account, you should probably assume 1% or less. If you pay off debt with it (mortgage or whatever), you can use the interest rate of the offset principal (penny saved is a penny earned).

Given the risks and the math DudeWah did, I tend to agree with the initial advice to take the lump sum rolled into an IRA. It helps avoid taxes and it encourages you to invest the money instead of letting it sit idle or get spent on drugs and hookers. The initial pension arrangement is probably the best deal if everything goes well, but you carry more risk with that option. The lump sum eliminates the risks of pension insolvency, and these days that risk looms large in my mind. (Of course, the government may some day come to the rescue of baby-boomers left in the lurch by insolvent pensions if Democrats are in power. Maybe.)

 

Good link. They also have an article on whether you should take the annuity or the lump sum.

Also, there are web businesses now that will buy your annuity from you. They are probably rife with scammers (so watch out), but it might be interesting to see what your pension would fetch on the open market to compare against the lump sum offer you have.

 

Take it all out, waste it on hooker's and blow, smile at your memories in the State Welfare Home for Âged and Indigent .

 

You know the ha-ha funny thing about these businesses that will buy your annuities is that they plan to sell them to retirees who are looking for an income stream in retirement.

 

Take the lump and invest when there is a downturn..