- Apr 5, 2002
- 24,326
- 68
- 91
57yo, wants to retire in 3 years
Yearly Income: $32,000
Retirement savings: $0 (will eventually get Social Security)
Pension Option 1: $870/mo (fixed for life)
Pension Option 2: $169,000 Lump Sum (rollover into IRA)
Simple payback: $169k/$870 = 16.2 years (doesn't account for growth or inflation)
My family member asked me for advice so I am asking you.
What are your thoughts on Monthly Benefit vs Lump Sum?
Option 1 - Monthly Payment
Benefits
- Access to money now
- No need to worry about investments
- Less work, guaranteed
Drawbacks
- Still no retirement savings
- No growth of retirement account
- fixed dollar amount erodes due to inflation
Option 2 - Lump Sum
Benefits
- Growth of retirement account
- Taxes are lower in retirement (for them)
Drawbacks
- No access to money now (without penalty)
- More risk due to investments
I believe both options (monthly pension, or IRA withdrawals) are taxed equally, depending on your tax rate at the year of use. (local, state and Federal)
Thoughts?
Thank you for any advice!
Yearly Income: $32,000
Retirement savings: $0 (will eventually get Social Security)
Pension Option 1: $870/mo (fixed for life)
Pension Option 2: $169,000 Lump Sum (rollover into IRA)
Simple payback: $169k/$870 = 16.2 years (doesn't account for growth or inflation)
My family member asked me for advice so I am asking you.
What are your thoughts on Monthly Benefit vs Lump Sum?
Option 1 - Monthly Payment
Benefits
- Access to money now
- No need to worry about investments
- Less work, guaranteed
Drawbacks
- Still no retirement savings
- No growth of retirement account
- fixed dollar amount erodes due to inflation
Option 2 - Lump Sum
Benefits
- Growth of retirement account
- Taxes are lower in retirement (for them)
Drawbacks
- No access to money now (without penalty)
- More risk due to investments
I believe both options (monthly pension, or IRA withdrawals) are taxed equally, depending on your tax rate at the year of use. (local, state and Federal)
Thoughts?
Thank you for any advice!
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