Pension Plan, take a lump sum or not?

[NHMike]

One of the companies I used to work for offered me a lump sum payment for a pension about ten years ago. I turned it down thinking that a pension is a very valuable thing these days, and, of course, I expected to live to 110. Then I got cancer and sometime while in treatment, I thought back and said that I should have taken the lump sum as a pension is only useful while you're alive past the date when payments start.

Well, they offered me a deal and the original deadline was today but they extended it a week. The options are X into another retirement account, 80% of X in a cash payment, subject to taxes of course, about 0.5% in monthly payments starting now, or 0.65% in monthly payments at 65. I asked one friend, also a cancer survivor, and he took the lump sum and invested it and did very well. I asked another retired guy that is healthy and he took the payment starting at retirement.

I've asked some others but the answer, I think, is different if you have cancer. You want to protect your heirs and a pension doesn't do that (I have to look at survivors rights but I didn't see that option).

Has anyone else had to make this decision and what did you decide and what were your pros and cons to do what you did?

[beach sunrise]

I don't have an answer for you but can tell you about my uncle. He retired from GM, receives pension payments. He had double lung transplant 3 years ago. He was facing his own mortality and found his kids would benefit in no way in regards to his pension. On the other hand, the woman he lives with is not his wife but she is his care taker thru everything. My mom and all his other brothers and sisters still encourage him to marry her so she can keep receiving the pension payments.

[ginabeewell]

I would take the lump sum if I could not bestow it to my kids. And even then I think I would more likely take it.

My husband had a pension-like situation and he took the monthly payout, because it will eventually go to his kids. In his case it’s such a small monthly amount it won’t really help them in any substantial way. He’s wishing he had taken the lump sum.

[stu]

My dad took his but got hammered with tax . Someone later suggested that he should have asked for it to be settled over two financial years . I have no idea what difference that would have made and we are in the UK ! But might be worthwhile looking into how and when they release it to you . She worked in that field !
He got taxed to bits but that’s life and he would do it again . It was not sufficient enough to make much of a difference long term to my mum but they have their own home and she could easily downsize if required .
My mum worked in a bank that offered share options which she invested in instead of her pension pot . Disappeared in the last banking crisis !

Had my dad’s been more he would have invested in property and taken an income from it. It’s not so he is investing in life and a very happy man .
Hope you reach a decision your comfortable with .
Stu

[NHMike]

My dad took his but got hammered with tax . Someone later suggested that he should have asked for it to be settled over two financial years . I have no idea what difference that would have made and we are in the UK ! But might be worthwhile looking into how and when they release it to you . She worked in that field !
He got taxed to bits but that’s life and he would do it again . It was not sufficient enough to make much of a difference long term to my mum but they have their own home and she could easily downsize if required .
My mum worked in a bank that offered share options which she invested in instead of her pension pot . Disappeared in the last banking crisis !

Had my dad’s been more he would have invested in property and taken an income from it. It’s not so he is investing in life and a very happy man .
Hope you reach a decision your comfortable with .
Stu

They are giving me the option to roll it into an existing or new retirement account so there wouldn't be any tax due until I started to withdraw funds. Thanks for your responses. I am strongly leaning towards taking the lump sum transfer into an existing retirement plan. Taking cash immediately means a 20% haircut along with federal tax liabilities.

[Siti]

Just to clarify, the difference is 0.15% monthly? If you take the lump sum now, you’re still entitled to 0.5% instead of 0.65%? If that’s the case then a lump sum could be interesting.

If your intention is to plan for your heirs, don’t forget to look into taxes and plan ahead because inheritance tax is quite hefty in Europe (I’m not sure what it’s like on your end).

Whichever you decide, it’s great that you’ve options and shouldn’t regret any of it because just do what you’re happy and most comfortable with.

[NHMike]

Just to clarify, the difference is 0.15% monthly? If you take the lump sum now, you’re still entitled to 0.5% instead of 0.65%? If that’s the case then a lump sum could be interesting.

If your intention is to plan for your heirs, don’t forget to look into taxes and plan ahead because inheritance tax is quite hefty in Europe (I’m not sure what it’s like on your end).

Whichever you decide, it’s great that you’ve options and shouldn’t regret any of it because just do what you’re happy and most comfortable with.

No, the options are all mutually exclusive. Monthly payments would make me more but it's more about taking care of family should I die in the next couple of years. Cancer makes it real. So does COVID. 96% of the people that have died of COVID in my state are over 60.

[bitchslapped]

Been so long since I've posted, had to really think on how to log in & password.
You don't want to leave your money @ a company where you no longer work if they offer a rollover. You don't have a pulse for what's going on w/the business or the 'climate' there. Rolling over to IRA is the way to go. It's painful to pay the tax later when you're drawing on it too.

I'm not a cancer patient & have made this decision three times. Every time I've taken the lump sum, even if I take a hit up front. You can really get into analysis paralysis w/this stuff & hard to nail down "what if" scenarios. And nobody can really advise the best situation for you. Believe I did read somewhere that taking the lump sum best, but that just factored in as part of my decision. Age, average longevity male vs female, health & dependents.
All scenarios such as small monthly pensions a nuisance, larger lump sums cut in half if taken early, heir issues. Decided it was not my job to provide for my adult children. Took the lump sum, invested where I can control it to some degree, hopefully grow it...& the kids can have the rest when I'm done w/it. If you have a spouse to consider, maybe a different consideration.
I did my own math, read online advisors, consulted w/stockbroker (they ALWAYS recommend investing), & CPA. Boils down to what YOU want to do; nobody can really tell you. Can drive a person crazy.
I believe part of what comes into play for individuals are whether or not one is a risk taker to some degree. I am. Plus I guess I don't feel the need to have my money doled out to me.

Best wishes coming to a determination that makes the most sense for you.

BS

[Paradise2020]

We have no children to consider. When I retired and took my pension I took the option where if I passed before hubby, he would still get 100 percent of my pension for the rest of his life. I took a bit of a monthly hit, but felt it was worth it. Also with this option, if my hubby passes before me my pension "pops up" to the amount I would have gotten if I didn't cover him.

Hubby took the same option on his pensions. I am the beneficiary of all his "401K" accounts .

Not sure if any of these options are available to you.