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If you're one of the lucky 30 million American workers still covered by a traditional defined-benefit pension plan, you'll likely be faced with a crucial and irrevocable decision when you retire: should you take your pension in the form of a guaranteed monthly check for life or should you grab all of your pension money up front and manage the funds yourself?

I myself opted to receive a monthly check with a spousal survivorship benefit.


http://money.cnn.com/2008/06/30/pf/retirement/best_pension.m...
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I myself opted to receive a monthly check with a spousal survivorship benefit.

Me too. It's always the best choice in my opinion. Besides, most people have IRA's if they want to invest.
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or should you grab all of your pension money up front and manage the funds yourself?

This option shouldn't even be offered! How many fools would take the money and run and maybe 2 years down the road have nothing??

DW works in HR. She has dealt with people who are given a "bonus" to retire. They want to know if they can get the full amount and deal with the taxes later. She tells them Uncle Sam gets his fair share first. That's just one example.

Can you imagine if somebody was given several hundred thousand dollars to invest on their own?? That would be like winning the lottery! "I see a trip to Hawaii, a cruise and a new house in my future. I worked hard for this!" And don't forget about the relatives showing up with their hands out.

Crocket
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Depends on the company - I retired from company that faces liabilities and PC pressures so I took the lump sum - invested with a mgr. and am totally happy with what I did.

There are questions that litigation and government would have destroyed my pension

YMMV
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Depends on the company - MFDnNC

My thoughts exactly. One should consider the financial stability of the company, its track record in funding its pension liabilities and its prospects for continued funding of those liabilities. Pension "guarantees" are anything but guaranteed.
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Depends on the company - MFDnNC

My thoughts exactly. One should consider the financial stability of the company, its track record in funding its pension liabilities and its prospects for continued funding of those liabilities. Pension "guarantees" are anything but guaranteed.



seems Obvious ..don't it?

maybe also the amounts and the way the company funds pension.



=b
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Pension "guarantees" are anything but guaranteed.

The Pension Benefit Guaranty Corporation (PBGC), a federal government agency, guarantees defined pension plans.

http://www.pbgc.gov/workers-retirees/benefits-information/co...
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It's been a while since I checked into the topic, but I do know that the PBGC is also underfunded, and may not be financially capable of quaranteeing full pension benefits. The PBGC provides "Maximum Pension Guarantee" tables. The Agency is not obligated to pay even the maximum.
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I am a surviving spouse. I had Ernst and Whinny (at the time) run the numbers for me which way would be best financially. Supposing that I would live to a nice old age, taking monthly payments was advised as the better way to go.

The pension comes from a very large cap company not likely to go under anytime in my lifetime.

I agree, if your company has problems, take the money and run.

My daughter works for a company that is "employee owned" (ESOP) and that is what she gets in her 401K. Just company stock. I keep telling her take it all out year end. I know she doesn't. There is no pension in her future.

Those of us who have pensions are lucky.

~Birgit
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<If you're one of the lucky 30 million American workers still covered by a traditional defined-benefit pension plan, you'll likely be faced with a crucial and irrevocable decision when you retire: should you take your pension in the form of a guaranteed monthly check for life or should you grab all of your pension money up front and manage the funds yourself?>

Unless your profession was managing money I would not recommend anyone managing their own funds. Before retiring get involved with a financial planner. Interview several and find one you are comfortable with. You can invest funds with this person and see what happens. I did this and when retirement rolled around I took the lump sum. My financial guy has navigated me thru the bumpy times of 9/11 and all of the ups and downs since then. I am really happen with him and have no plans of changing financial planner.

Just my own experience....
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Those of us who have pensions are lucky.

Agreed. Companies should get more incentives to offer them.
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"Companies should get more incentives to offer them."

Sadly we are in an age of disincentives. Once they were inexpensive benefits, but regulatory efforts to make them a solid asset (and guarantee them) make them more costly to companies. Fluctuations in market values make them under funded liabilities at times and sources of surplus cash at other times.

Shareholders reward management that provides smoothe even, predictable earnings growth. The surprises from pension make them unattractive.

So defined contribution plans are in style. Their costs are predictable long in advance and easily adjusted in hard times.
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<<"Companies should get more incentives to offer them."

Sadly we are in an age of disincentives. Once they were inexpensive benefits, but regulatory efforts to make them a solid asset (and guarantee them) make them more costly to companies. Fluctuations in market values make them under funded liabilities at times and sources of surplus cash at other times.
>>


That's right. When the Congress was busily imposing a lot more burdensome regulation, companies warned that the result would be fewer such pension plans. That's exactly what happened.



Seattle Pioneer
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I always thought if your were offered a choice... a lump sum would be better because you got all the money up front. In the event you pass away the next day your spouse or kids would get the remaining balance.
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It's been a while since I checked into the topic, but I do know that the PBGC is also underfunded, and may not be financially capable of quaranteeing full pension benefits. The PBGC provides "Maximum Pension Guarantee" tables.

Thw PBGC guarantees "basic benefits" earned before your plan’s termination date (or the date your employer’s bankruptcy proceeding began. There are multiple factors to consider, such as your age at the time of the termination, your pension amount, etc. It is all explained on there website:

http://www.pbgc.gov/workers-retirees/benefits-information/co...
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<<I always thought if your were offered a choice... a lump sum would be better because you got all the money up front. In the event you pass away the next day your spouse or kids would get the remaining balance.
>>


I seem to recall that pension plans are constrained to offer equal pension payouts regardless of sex. That discriminates against men who live significantly fewer years statistically, and gives unearned benefits to women.

If a pension plan has equal payouts, that suggests that you should take the annuity of you are female and the lump sum if a male.



Seattle Pioneer
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I took the lump-sum but had the proceeds sent directly to Fidelity to establish a rollover IRA. I now draw 72(t) or Substantially Equal Periodic Payments from that IRA. The payments are roughly equivalent to what I would have received as a pension.

I have to manage the investments myself. About 70% is in corporate bonds and other income-producing assets. It's a lot of work. My plan is to grow the balance of the IRA by ~2%/year above the rate at which I'm withdrawing funds.

In about 10 years, I'll be 59 1/2. At that time, I will no longer be constrained by the SEPP rules and I can change the payment amount coming from the IRA. If my investment plan has been successful at growing the balance of the IRA, I will be able to give myself a cost of living raise. Every five years thereafter, I should be able to increase the payment. It may not keep pace with inflation, but it will help.

I have taken on some risk with this strategy. However, the worst case scenario is that I have to slightly decrease the payment to myself at age 59 1/2 to make up for market losses. The upside potential, and probability, is much larger.
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I'm also planning on taking the monthly check, simply because the pension is tied to health benefits. That can potentially be a bigger benefit than the monthly check.

Calvin
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My plan is to grow the balance of the IRA by ~2%/year above the rate at which I'm withdrawing funds.

Does part of your plan involve doing something about inflation? If you succeed in growing the balance by a net 2% per year, you may end up with less spending power when you reach 59½. That's why stocks are an important component of a portfolio that needs to last for a while. The safe withdrawl rate is much lower for a no-stock portfolio.

If you have stocks in another account, then never mind.

--fleg
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Does part of your plan involve doing something about inflation? If you succeed in growing the balance by a net 2% per year, you may end up with less spending power when you reach 59½. That's why stocks are an important component of a portfolio that needs to last for a while. The safe withdrawl rate is much lower for a no-stock portfolio.

If you have stocks in another account, then never mind.


Inflation is my biggest worry and is the main reason that I didn't take the company pension. Fixed income for life sounds pretty good until you really think about it.

With the rollover, I invested 35% of the lump-sum in equities and have the potential of at least partially keeping up with inflation. That's what the 2% growth is about. Yes, 2% won't match inflation but it's better than zero.

I do have some stock in other accounts and we also have increasing income from rental properties to help deal with inflation. Also, in 13 years, I'll be 62 and get Social Security and that will help a lot.

Thanks for asking.

CG
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Inflation is my biggest worry and is the main reason that I didn't take the company pension. Fixed income for life sounds pretty good until you really think about it.

I think it was a story recently in either "Money" or "Business Week" how even though we see an increase in inflation, large numbers of people will instead shift down a notch on the products they buy. Walmart mac n cheese instead of Kraft, drop a tier on cable service, clothes from Kohl's instead of Penneys, etc. And those actions in turn mitigate the impact inflation has upon them.

And if you happen to read how they actually go thru the computations to determine the inflation rate, it's a wonder the number is believable at all.

Ed
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I think it was a story recently in either "Money" or "Business Week" how even though we see an increase in inflation, large numbers of people will instead shift down a notch on the products they buy. Walmart mac n cheese instead of Kraft, drop a tier on cable service, clothes from Kohl's instead of Penneys, etc. And those actions in turn mitigate the impact inflation has upon them.

No joking! I just got back from the store. The price of refried beans went up so much, that I decided to buy the store brand instead my usual brand. Refried beans of all things! What's next?

I also switched away from Campbell's Cream of Mushroom to the store brand recently for recipe's and to the bulk-bin onion soup mix. I've always been frugal and shopped the sales but with prices going up so fast, I find myself thinking twice about buying the name brand.

CG
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