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Why not just say ... the annuity ... has a negative rate of return? Hate to be the one to tell you, but the annuity does have a negative rate of return if you die before you receive your principle back (which takes about 17 years).
Why do these questions always turn into the lump sum vs annuity argument and does anyone take these discussions ad nauseam laced with hyperbole seriously? Does anyone actually believe anything on this site and even reflect for a moment on it as being anything other than borderline ridiculous rants from people in fear of layoffs? I sure don't and wouldn't. Definitely not from the types that would be worried about being cut. Isn't this a layoff's forum? Don't answer that. It's rhetorical.
Gotta love the forever evolving fictitious numbers that the troll annuity hate guy is coming up with. Why not just say that you have to pay THEM the annuity payment or that it has a negative rate of return? that would be just as believable. To the mor0n below posting fictitiously low annuity rates, all sorts of different S&P 500 returns not including inflation and definitions of IRR, effective rates of returns, etc, that everyone here more financial adept than you doesn't need to read (that's everyone here, lol), you should study up on that, most of us don't need to. You can't compare cash like vehicles to the market. Keep studying, popcorn, or whatever you call yourself and others. Google is your friend. Maybe one day you'll have an awakening.
@3rrk, you fail to comprehend that most people at the retirement point in their lives who are avid investors have 3 to 4 times the lump sum already hustling and bustling in various different investments and the guaranteed annuity is nothing but a bonus on top of that which keeps coming in, in times like these, reliably and can be continuously reinvested as the market dips, if they like. These people most likely have decades more investment experience than you. And no, you cannot achieve the same rate or return with treasuries, or any other similar conservative investment. For the "CASH" or guaranteed part of your portfolio, it dwarfs any returns that you can achieve and it is a better substitute for that portion. In case you wondering, I am not near retirement but will likely take the lump sum for inheritance purposes, which is one of the few reasons it can be a better option for some people, as well as if it is a small amount, you're young and just wish to consolidate assets.
3hca: To each their own. That you are happy with your choice of an annuity is great. Most people in your situation with do better financially by investing the lump, because even if they put those moneys in treasuries making less than 2% for safety, during a downturn like this they could use some of that money to rebalance with their other holding. Most CFP will advise against an annuity, not because they are being dishonest, but rather because this type of insurance costs a lot and provides no backstop from inflation. Again, however, all investments are personal choices and it sounds like you have done well in saving for retirement...so congrats!
Do any of you guys have a CFA that you can trust, or are you all not really long term employees/retirees of CVX? I’m beginning to wonder if the “never annuity” crowd is one or two trolls who have zero financial intelligence, or are millennials that have no intelligence - financial or otherwise. It’s actually very simple - if you are an average retiree at CVX with 30 years+ experience, therefore grandfathered into the pre-2008 pension and have saved a reasonable percent of your salary and bonus into your 401k (even better if you’ve risen above psg23 or done an expat assignment) - you would be foolish to take the lump sum and put it into equity.
At this point in your life, you’re probably 65-70 years old, have children and grandchildren that you may be supporting but will want to leave them something as well when you’re gone, a paid off house, emergency cash ($5k usd is enough) in the house for emergencies, paid off cars and no debt, at least a years worth of expenses covered by your checking account. I’m at that level and I’ll tell you, I’m already overexposed in the stock market. My 401k has gone down by 30% this year even though I am pretty well diversified - and no one knows where the market will go over the next 20 years. (By the way, it took the market until 1955 to recover to 1929 levels, 25 years! I’m afraid I don’t have that kind of time if that happens now. And I can already hear the trolls - “this time is different, ... blah blah blah ... trump/democrats are gonna save us all and the market will double in a year”. Yeah, take some extra money and go buy some options and we’ll see where you are this time next year. I hope for you the best, but plan for the worst.
The good thing about me taking the annuity - I chose the 25 year annuity so we’ll have steady income until I’m 90 and it goes to the spouse/grandkids until that date - is that in these uncertain times, I have $5,190 deposited into my checking account every month, plus another $2750 deposit from social security. For those math imbeciles, that’s almost $8,000 a month in retirement. Enough for me and my wife to live very comfortably without worrying about trump/democrats saving me or the stock market doubling or halving overnight.
Now, I do indeed hope that my 401k balance bounces back as much as possible as at 72 I’ll have to start taking the minimum required distributions. But for right now, I’m able to put my 401k balance in a little riskier investments (for my age) since I don’t need the money for the next five years.
We use our normal savings account money for splurge items and travel - or we did before this COVID-19 shut everything down, but as you can see, the annuity was a “safe” investment that lets me diversify into a little more risky investments without worrying if the 30% drop this year is going to leave me without money when I’m 90.
And yes, the annuity runs out when I’m 90, so I plan to use the 401k money to carry me on as long as possible. I’ll start moving the money to less risky investments if/when I’m 85 or so.
And you know what, I’ll probably be alright until I’m gone. Then my family will have a little money to help themselves with.
And it’s all because I diversified with the annuity and had a steady income so I didn’t have to worry about the market swings.
Don’t let your financial guy take your lump sum only so he can charge fees on it - and he’ll watch as your balance goes down, down, down laughing all the way to the bank!
Be smart!
Investigate! Diversify! This isn’t for everyone, but CVX retirees should be better than this. I know you guys were good at being O&G works, but you’re horrible investment advisors - and you know nothing of the future stock market.
Another thing to consider is if you have kids you want to support after you die, then lump sum is probably the way to go because once you and your spouse die then the annuity is gone.
It's another personal preference with no right or wrong answer. Personally, my parents left my kids (their grandkids) a couple of grand, but they had a heck of a retirement. My goal is for my last bill payment to bounce.
3gbj: Correct. Average rate of market return over 30 years @ 11.6%yr is 2600%...26 times! Because of compounding. Even with withdrawals at the annuity rate your lump would increase in dollars an order or magnitude. That said, with 3.2% average inflation the real value of you lump after 30 yr would only be about double. By the same assumptions, the annuitants $56k annual payments would only be worth $15,400 yr after 30 years.
The worst 30 year run for stocks started in 1929 and returned a 8% cagr. That is your worst case scenario. The best case historic scenario for inflation crushes the annuity quickly.
I think folks must be using different definitions of IRR: Annuity Rate Versus Rate of Return, see a simple definition here : https://www.thebalance.com/how-to-compare-immediate-annuity-rates-2389017 If I take my numbers from Chevron’s pension calculator (for J&S) prorated to a lump of 1 MM, then I would get an annuity payment of $4720/mo (56,641/yr). The annuity RATE would then be just the lump divided by the annual annuity payout (in this example %5.66, which sounds good compared to my p10 expected market return of 3.5% to 4%). But this does not equal a %5.66 rate of return because part of each annuity payment received is just returning my principal (just returning part of the lump payment that I did not take). To get your rate of return (IRR) you need to calculate the value of your money invested, the inflation rate, and how long you will live. It can get a little complicated if you want to see effects of all perceived uncertainty ranges, but it is easy to look at a few cases (for example there is a simple calculator at https://www.calculatestuff.com/financial/irr-calculator). I am 60 and the 2016 Soc Security table indicates on average I will live another 22 years, so I enter my 1MM as initial investment and then 22 years of annual $56,641 cash flow and the calculator indicates an Internal Rate of Return of %2. But you protest, I will live to 90 or 100 years old … ok you can easily recalculate for those scenarios (you will get 3.8% and 4.8%, respectively). But again you protest, your 4% worse case market return can not be compared to my annuity IRR, because the lumb will gradually get smaller as you pull out $56,641/yr … well that is true enough, and that easy to calculate in excel (each year pull out the $56K and add in 4% of the remainder)…In the case indicated, you will run out of money at age 89. That would not be good if I lived to 100! That said, how would I do if I made the expected p50 market rate of 8.% and lived to 100 … the lump would have grown to over 5 MM! Is that a risk I am willing to take…yes, for sure, as I have lots of other moneys besides the lump. Should you take that risk…well that would be entirely your choice. Party on popcorn....let’s see your go at writing a fake version of this post ;-)
I'd like some popcorn while l read this thread, lol. got plenty butter, though. life is tough during the lockdown
I'd like some popcorn while l read this thread, lol. got plenty butter, though. life is tough during the lockdown
its the "I'll call you popcorn" to your post troll again. joy
Oh, God forbid that you post that! Are you crazy? You could only be the (or one of the thousand) Annuity trolls. Wahhh wahhhh it's the annuity troll! I'm triggered. I'm triggered! Someone posted that they prefer the annuity and my head is exploding !!!! Ahhhh it's the annuity troll and he's haunting me!!!! Ahh! Ahhh!
I retired in October 2015 and have no reason to go check again, but I modeled the relative IRR for my 100% joint and survivor annuity as it compared to the lump sum calculation and my current morality age at that time. The annuity IRR for me calculated out at 6.05%. The Vanguard Investments Retirement FA that helped me, confirmed the math and found it advisable for me as a solid fixed income solution. I already had $1.35MM under investment management in my current 401k and held no debts or mortgage on my home. As a fiduciary certified financial adviser, he didn’t argue against the annuity. He actually advised it as an excellent fixed income choice investment.
2hmy: yes 2-3% is correct. I do not know where some folks get these wild numbers. I have never seen an annuity that pays out over 4% since the Carter years.
IRR of 6.8% for annuity? Where is this number come from? i modeled a minute ago using HR website and it is only under 2.6% IRR
2xkv: that the best ya got popcorn? Insults to a made up pretend person. A projection in the mirror we can assume. Sad. Ready sad.
2qtl: agreed we are not at the bottom yet, but EOI determinations and layoffs are not until this fall and even then it take time to get the lump in hand...so my bet is about then the market will be bouncing off the bottom. Which raises a real question for those already retired, how long after your termination did it take for you to get your lump in hand?
What is a lump Doeam? I am not sure I would take that deal whatever it is. Sounds flaky.
As with is often the case, there is no one "right" or "wrong" answer. Rather, the best answer is circumstantial and depends upon each annuitant's current financial health, proximity to retirement, financial discipline and knowledge about alternative investment vehicles and markets. Me personally, assuming the annuity annual interest rate is 6%, I would take the lump Doeam an active investor and feel confident I could invest my lump sum at a higher return. As an example, even if I was very conservative and parked the lump sum in an S&P index, it is more probable than not that I would realize a higher return than the annuitized value. Historically, the S&P index has provided an annualized return of about 10%, from 1927-2019; 7.65% from 2000-2019; 2.45% from 2000-2010 (which includes the market crashes in 2002 and 2008); and 14.09% from 2010-2019. Obviously, it is possible with our current situation that we could enter into a years long depression, and 2020-2030 could see negative returns. However, if your retirement horizon is much further out than 2030, historically, it is likely the S&P index would produce higher returns than an annuity.
A second thing to consider is an annuity payment is guaranteed only for the annuitant's lifetime, or for the lifetime of the annuitant and spouse - of course, at a reduced monthly payment - if the annuitant so elects. If the annuitant, or the annuitant and spouse, dies before the annuity is fully paid out, I don't believe (but may be wrong) the remaining funds can be devised to the annuitant's heirs, but are returned to the pension fund - which is leaving money on the table.
@2xtw, Sure enough. We'll be cutting you off then!
@2xtw, Sure enough. We'll be cutting you off then!
@2opu, Yes the annuity would not be a good deal for someone like you, in debt with no savings and no other investments, market exposure, financial savvy, or income sources. You need a bail out to get yourself out of debt. At that time you should look for a job to supplement your Social security unless you can figure out a way to get more handouts like rent assistance, food stamps or HUD housing, like many on this board. Good luck to you in any case, dear friend.
@2fxh -
- It's not anywhere near the bottom of any market.
- You don't have a lump sum to invest, so what's your point?
A lump sum handed to you at the bottom of a market swing is as close to dry powder as one can get! Put it under your mattress or in an annuity if you like, but my money is going to work!
If there is one industry shakier than oil it is insurance. One good hurricane can wipe out MetLife. And PBGC is forecast to be out of money in about two years because companies no longer pay in. The annuity is not only a terrible deal for 99% of people, you could lose it completely. If I were you I would sue the advisor who tricked you into it.
Just for everyones information, Chevron does not continually pay out the annuity to you every month. Chevron takes the lump sum check they were going to give you at retirement, and purchases an annuity (from MetLife mostly) and then the Insurance company pays the money out to you. (Chevron gets a better rate on the annuity than you would if you called MetLife because they are an institutional investor.). No need to worry about Chevron’s solvency over your remaining lifetime - but you may worry about the Insurance company going under, but I think the Pension Guarantees from the Federal Government (PBGC) will cover some of the losses. It’s actually a much better deal than the lump sum, a way to spread risk if you already have a good amount in equity in your IRA, and a federal guaranteed return (of some part of the pension/annuity).
Don’t feed the troll! He loves it. Gives him a way to pass the time between dwindling annuity checks.
@1rgn, That' a great idea for market timing. Take that million of dry powder that you just happen to have laying around and invest it. Risk it in this volatile market. Oh, that's right you don't have anything. You're broke and struggling like everyone else. My bad.
“lack of mathematically ability”.... the math is not hard, but you do need to consider the value of long term investment returns from the lump as you gradually spend it and the effect of inflation on the value of your fixed annuity payments: there are many online investment calculators that can help. That said, did not the OP ask about the change in segment rates ... that’s a much more interesting topic that effects all current employees thinking about retirement or being laid off. I think as already said the change was due to a transitory rush from stock mutual funds to mutual funds with quality corporate bonds, and that should reverse nicely when the market hits bottom and begins to rise under the stimulus of lots of injected Fed zero interest rate cash.
That is true, most people with any sense and investment knowledge would not opt for a lump sum. That would be an idi0t's choice. but there are many posting here. Youngsters new in the game with no financial savvy tend to think like that and see everything as cold cash that they need to spend. They want to take the money & run so I get it. It would help the pension plan to get off with an easy payoff vs a long more expensive annuity payout, so Chevron appreciates your decision. Pick the lump sum, please!
I repeat, If someone hands me $1.5 after I retire as my lump sum pension, that would mean I worked for a very long time. Since I worked for a very long time, that would mean I saved a very large nest egg in my 401k, typically larger than my lump sum amount. So why in the world would I want or need more equity to invest? Having a large monthly annuity for the rest of my life paying out a relative IRR of 6.8% would make more sense to me. YMMV. Take the smart route, or take the imbecile route. Your choice.
@1rgn, that's true, I agree. Do you have that to invest and did you do that? Do you have that opportunity? I'll answer it for you - No. Neither did I. I am a worker bee , like you. So STFU, you have nothing new to add that we didn't know.
People, dont believe the hype in some of these posts about "its better to take the annuity". You need to do your own risk-benefit analysis. I took the lump sum because of the following: 1) money in hand and I do with it as I want; 2) I can leave it to my family ... all of it; 3) If Chevron merges, is acquired, or go under, then my money is safe; 4) the annuity NEVER goes up and inflation will eat it away. Yes, inflation is low today but wait, in a year, it could be at 3%. 5% or 10%, and guess what, you will kick yourself for taking the annuity; 5) the hydrocarbon industry will come under increasing pressure due to green movement, and companies like Chevron will suffer ... these are just a few of the reasons, so, do your own risk-benefit ... I did, and I took the LS!
A million invested in the broad market later this summer, when the market truly hits bottom, is likely to be two million in five years time. That’s more than your annuity will ever pay out.
Yes, I would prefer a larger total payment over time than a one-time only smaller buyout amount. All it takes is a little grade school math. Some posting here don't have that ability. No need to be embarrassed about your lack of mathematically ability. No one's judging here.
who is popcorn boy? the lump sum lover with no assets and no savings so they need a bailout? that's very sad, a sad case.
Popcorn boy! Welcome back. You never tire of trying to dupe others into falling for the annuity trap. Your posts keep getting deleted. Sorry!
If someone hands me $1.5 after I retire as my lump sum pension, that would mean I worked for a very long time. Since I worked for a very long time, that would mean I saved a very large nest egg in my 401k, typically larger than my lump sum amount. So why in the world would I want or need more equity to invest? Having a large monthly annuity for the rest of my life paying out a relative IRR of 6% would make more sense to me. YMMV.