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Subject:  Re: Pension - lump sum or annuity? Date:  4/24/2014  3:04 PM
Author:  KingOfTown Number:  74844 of 100480

I agree with Hawkwin that the first thing to do is the math.

A simple NPV of the income stream at various rates and periods should give insight into what the lump sum represents.
i.e. 20 years at 8%, 25 years at 9% etc.

That would tell you what sort of results you have to achieve in your investments to accomplish the same goal.

If this is a defined-benefit pension that the company is attempting to buy out, I'm pretty sure that there were some pretty bold assumptions about returns when it originated - nothing like current interest rates. It seems unlikely that they will be offering a lump sum equivalent to 20 years at 1%...

Would this pension (if taken as monthly payments) be protected by the PBGC in the event that the company pension fails?

I imagine the pension itself offers different payments depending on the same choices as the annuities (i.e. spousal coverage, period certain etc.) and those are ones that everyone has to make for themselves. They are pretty much shaped by health and life expectancy of the individuals. And your personal preferences regarding future risks of accidents.

Also, don't let the tax situation influence anything but short-term (year to year) decisions. This year vs. next year is a valid tax consideration. This year vs. 5 - 10 years from now - tax environment will be much different. And you will pay taxes eventually.

Personally, I intend to take the payments when I become eligible next year.

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