Thread regarding Chevron Corp. layoffs

Lump sum, at least that’s what worked for me.

Most people that I talked to that are coming up on retirement said they are taking the pension as an annuity, the traditional way, not the lump sum. The consensus was that they already have decent sized 401k's and other accounts, and they have no need to invest any more. They're basically fully invested as much as they want to be. They say the annuity gives them a good stream of "funny money" to splurge on luxuries and such and is a never ending stream until they die. That's sort of what I'm reading here. I will probably do that myself. At the time I reach retirement age, I would like to be at the spending/funny money, living life stage and not be concerned about finances. I know there are some snarky types that come along and say, take the lump so this, do that, I would invest in this and that. I've been hearing lines like that all my life. If they were that successful they wouldn't be telling you what to do in that manner. You would be begging THEM for advice. And if you have planned well and have a big nest egg already and they were actually financially adept they would tell you to take the annuity.

Yes, good point. Most people who need the lump sum take it so that they can pay off debt and bring their net worth back closer to even, some can do it, some can't. When I took the 100 percent joint survivor annuity, I had about three times the value of the lump sum already invested, so I didn't need any more capital for that but the lifetime annuity fit the bill for a source of income to live in indefinitely while my investments grow. So far they have grown over 30%. Thanks Chevron!

Yes, that is so true. Just like you'll never have since you have a negative net worth. But on the other hand, the lump sum may at least get you to a zero net worth, which would be an improvement. Sounds like a plan to me!

I agree, if you have $30-50 million saved and invested and you intend to live strictly on your social security and keep your investments "safe", then the annuity is a great choice as it will give you even more income to save and invest.

• 3Gdtg, Congrats on your retirement, and I concur without a doubt. The best days in retirement are when that care-free payment comes in every month knowing it will be coming until you leave this great Earth and no longer care. Awesome success story!

I really enjoyed my rewarding career at Chevron so much that I didn’t regard it as a job. But the time came in 2016 when I was laid off. Thankfully it was at a time I was able to retire well financially. I chose the annuity over taking the lump Doedid so mainly because I could afford to and partly because Chevron thought they could get rid of me so soon. I’m proving them wrong every month until I die. I chuckle sometimes at the end of the month when the annuity payment is direct deposited.

The annuity is strictly an emotional choice. Less than 10% opt for it.

@3Fexw, It's interesting that you say that because I attended a seminar addressing these options just recently and they said just the opposite, that with the numbers we were given for the CVX options, more people choose the annuity because it is a better choice mathematically. And I know very few intelligent pre-retirees who care or have any need to trust their finances to a F.A. It's not 1975 anymore. Judging by the snark in your comment you are simply trolling and don't have a clue. I'll sign out now, you can anonymously troll false posts to your heart's content by your lonesome, bye-bye.

The truth is about 80% take the lump and 20% settle for the annuity. The latter group presumably are afraid of market fluctuations and did not trust the recognitions of their financial advisor.

It looks to me from the comments on here that more people who have planned and done the math prefer the annuity. At least based on the legitimate comments that are not just trolls and hecklers. I assumed that it would be a little closer to 50-50. I still haven't decided which way to go. I will have plenty already in the market already, as I do today so that it covered. Thinking hard about the annuity, seems like a good fall-back plan.

• 3Eojm: There is a high probability, based on historical returns, that if you invest the lump in a balanced fund(s) and take out the equivalent amount month on month to that you would have received in annuity payments, that the lump sum will continue to grow at the rate of inflation. There is near certainly that a balanced investment of the lump with generate returns at the annuity rate and leave you significantly extra at your death. Hell if you did not invest the lump at all, but just put it under the bed, it would still cover your annuity payments for 17-18 years! The only things guaranteed about the annuity is the value of the payments will decrease as you age, and the money will be totally gone when you die.

If math is not your strong suit, perhaps think of inflation like an ocean tide. An investor is in a boat. When the tide rises, all the boats rise along with it. The annuitant, however, is wearing concrete galoshes. She may start with her neck out of water, but before long she is doomed.

• 3Eojm, That's easy. You would need to pick a fairly aggressive withdrawal rate (~ 6%) to equal the effective return of the annuity. In that case, the buying power of those withdrawals of your lump sum will decay over the years, just like the annuity payment. And since in retirement, your investments tend to lean conservative to avoid SORR (Sequence of return risk), the principal will quickly erode at the same withdrawal rate as the annuities' ERR. So after 20-30 years, you have no lump sum, nothing. The people who took the annuity have the same payment as always, with less buying power due to inflation, until both they and their spouse dies. So the question is would you rather have something with less purchasing power from inflation, or nothing at all?

• 3Ebom, you say “ Over a typical 20-30 year retirement the real value of your monthly annuity check will drop by more than half, even at the low inflation rates that have characterized the last few decades.“ Let me translate what you just said.... I will have effectively half the useful value of my annuity after 30 years. So, effectively how much value will the lump sum still retain after 30 years if I’ve been taking the same Dollar withdrawals over the same 30 years? Do you want to risk living those retirement years hanging onto a theory? Not me.

There’s no guarantees in the stock market, @ 3Eynt. But, there is a guarantee in the Chevron annuity. Those two statements are a FACT.

@ 3Epmg, Good for you, but what you just said doesn’t advocate or disuade for one pension option or another. Can’t you make a case for what’s best for you? The time you spent writing your post was a waste of time. Take a side. Middle of the road are for those who get run over in life, son.

The only thing guaranteed about annuity payments is that they will have less “real” value year after year. Over a typical 20-30 year retirement the real value of your monthly annuity check will drop by more than half, even at the low inflation rates that have characterized the last few decades. Not really a stable income for life, unless you die young.

We don't have forever in retirement to wait, so the phrase "long term" becomes a pathetic cliché for losers with no investment knowledge. For a typical retirement duration, a diversified investment including some market exposure (at least 50% stocks) is MUCH more likely to FAIL to maintain real returns including inflation adjustments over decades than any fixed annuity. The annuity, if yielding and effective rate of return comparable to Chevron's will always prevail. FACT

Long term a diversified investment including some market exposure (at least 50% stocks) is MUCH more likely to maintain real returns including inflation adjustments over decades than any fixed annuity. Simply a fact.

Yes, you are correct, inflation affects the buying power of the annuity as well as all investments identically. Neither one has any net benefit nor disadvantage over the other. I have no need to hurl insults or spout hatred and envy of those annuitants more successful than me to prove my point because mathematics and an MBA in finance does that for me. Thanks for acknowledging, though!

I am taking the lump, but times like this make the annuity seem attractive. U.S. Treasuries offer 2% or less; top-grade municipals yield 1% to 3%; high-grade corporate bonds, 3% to 4%; emerging market debt, 4% to 5%; and junk bonds, 6%. At these numbers an annuity returning nearly effective %6 does sound interesting. That said, I am taking the lump because I need to be in control. Today’s numbers will not continue into future: any position might get better or worse, but it will change. Call me crazy, but I just feel safer being able to move investments with changing circumstances. I am not taking day training, but rather having control over rebalancing over the years.

Well, you may certainly call me the guy “who can live quite happily off the meager annuity and SS”. But then again, I’m not the any-ole-Joe with a meager pension annuity. My monthly 100% J-S payment is $5160 and my SS benefit is $2890. My wife’s SS benefit is half of mine. So add that up and you tell me how meager that looks to you. Inflation is also no worry. Don’t let the wealth management managers scare you with the I-word. Meanwhile, my $1.7MM in retirement account balances continue to grow untouched until RMD’s kick in after I’m 70.5 years old. Retirement is good if you prepare and plan well.

How wrong you are. Inflation lifts investments! The stock market rises with inflation, at a minimum, and generally significantly faster. Pensions and other fixed (non-COLAd) income, by contrast, are destroyed by inflation. If you are the guy in the trailer with the bay window upgrade who can live quite happily off the meager annuity and SS, it won't affect you much so don't worry about it. Return to your tv show.

Yes, that's true, of course about inflation. Yet inflation affects all monies, funds, investments, the same. Every single penny. Don't make the mistake of thinking that somehow because your money is invested, that it is magically immune to inflation. I have met one or two inexperienced, naive investors who are under that delusion. And even with a TIPS security you are getting a return much less than the effective rate of return of the pension annuity.

I took the 100% Joint Survivor annuity pension in 2016. I was convinced it was the best decision for me and my wife then, and we’re still happy it was the best choice. The only concern I had about which way to go with my pension options was on the subject of inflation. Inflation has been quite tame and looks to be low for the foreseeable future. One example of low future inflation is indicated in the inversion of short and long term treasury bond rates. We see the 10 year falling below that if the short term 2 year rate. This indicates that future inflation chances are expected to be very low. It’s also a possible signal of higher chances for an economic recession coming our way. In either scenario, most indicators point toward slow growth and low inflation. So, for those of you contemplating retirement this or next year, don’t fear inflation. If a lifelong income stream is something you can profit by, don’t pass up the opportunity of opting for the Chevron annuity.

3wiee, That sounds about right. It also applies to an annuity vs the lump sum. If you are broke and desperately need the money, or paranoid that the company will go bankrupt, you take the lump sum. It's good to see that so many are still taking the annuity. I am one of those who started early, invested well and have enough of a nest egg built up. With the annuity I can let my investments grow without digging into them until mandatory withdrawals kicks in, at least for the 401k part. The lions share of mine is in taxable. Sounds like a plan. Nice to see more younger people thinking about this as well. So many people neglect their finances until the last minute.

• 3xrra: Take a deep breath and think it through, few here have only the lump/ annuity in the mix. No reason to display the brightness of your wit. No worry, be happy. Life is constantly evolving despite the best laid plans, which is what makes it interesting.

3wvxt, That's a different thread. There are plenty of reasons for when to take SS. You would have to know all of the details. Very few people, unless paranoid or broke, make a wise decision by taking it early. The goal of most successful, prudent, wealthy retirees is not to simply maximize total government benefits. It's about timing and having it when you may need it most. Again, start a new thread if you want to completely change the topic.

@3tzpg, That's some very helpful information and data points. I am mulling over the decision now and considering taking the same approach that you did. Take the annuity, use it for expenses and just let the 401k's and taxable investments ride untouched indefinitely. Having no debt, we can easily live off of the annuity even though mine is less than what you have coming in. That plus 2 social security checks for us would definitely put us in the "can't spend it all if we tried" camp. It's a convenient way to allow your investments to grow unfettered without a care in the world. Thanks for sharing.

Sounds like you are doing very well. That said, you could have saved a lot on taxes had you taken and invested the lump relative to the annuity. The annuity payments are taxed year by year as income, whereas the lump would have grown tax deferred (until min withdraws kick in at 70)

@ 3tzpg, I assume you and spouse are both retired and not working. Why wait until 70 to start collecting SS? It can’t just be to receive a larger benefit. Look at all the monthly checks you’re both leaving on the table right now. Do a break even analysis and see how long you’d have to live past 70 just to catch up with not having started earlier.

Yes, that is more than just one pension. And we have not started receiving SS. waiting till age 70. It's customary in Early Retirement calcs these days to just ignore Social Security and treat it as a back-up. That has been looked at as very non-realistic by some math purists, and rightfully so, it's just a preference. Some people throw it in with the latest predicted 0.75 factor or whatever it may be. Our taxes are high, so about half of our annual burn is that. Yet we still are saving a significant surplus every year. The bottom line is unless we increase our burn rate dramatically, we will never be able to spend it down. That's not a problem for us, also LBYM is a hard habit to break. Just trying to put some perspective into what seems to be a relatively isolated thread regarding annuities. I am not much different than many of my Chevron peers.

I took my pension as an annuity and all together we have over $9000 in monthly pensions, about half of that cola'd. Our invested assets. which we haven't had to touch for several years, produce an income of almost twice that. Because of the depth of our investment portfolio, the decision of taking the pension as an annuity was easy. It's the only guaranteed income/conservative element of our portfolio, by design. Solid pensions with decent IRR's, even non-cola'd are becoming rare these days so if you have enough invested assets to provide a balanced portfolio and no reason to anticipate a shortened life-span, I would suggest taking the annuity.

3ihdn, Same here, took the annuity and have no regrets. It was the best choice with the numbers that were presented at the time, I don't think much has changed. Never miss out on anything because I can't afford it and never worry about finances. Definitely not like some on this thread, apparently.

I’ll tell you where the dividing line is, in most situations, if you don’t have a heavy debt burden upon retirement from Chevron and your health is good, you should fare best taking the annuity if you have 18 or more years of eligible service. If you have less than 18 years, then the lump sum would probably be a more useful option for you.

Yes, I agree for the peace of mind of the lump sum continuous poster, the single person on this thread who goes on and on with repeated non-mathematical, non-economics based comments, insults and jabs about the lump sum behind better ad nauseam, we can conclude that the annuity and the lump sum are equivalent, and choose whatever you can afford. If you have saved enough and can afford to like a king with an annuity, good for you. If you cannot, keep saving and investing. Maybe you'll make it before you die.

What do you want to hear, @3ikfd? You want stories of how selecting the lump sum turned out to be the sound and successful pension retirement choice? You won’t get that story from me. I didn’t take the buyout. I took the 100% J-S Annuity which was the best financial choice.

Sorry for the typo on my last post. I intended to say itappears that more people prefer to invest the lump themselves because to the very high potential for much better returns. One person doesn't, who would have preferred the annuity if he could have, who keeps posting again and again and again.

I hope that we can put this long thread to rest. If you need the answer, read below. It appears that more people prefer the annuity. And one person doesn't who keeps posting again and again and again.