Thread regarding Chevron Corp. layoffs

tVxsy: Glad you are happy with your choices, which is all that ready matters as long advisor you continue to have all you will need to be happy. I do not see stocks and bonds as being one basket, but rather thousands of different baskets. I also have a large and well diversified portfolio built up over many years of strong savings from my generous Chevron salary. As I look across my possible investments (I have not yet retired), I consider the annuity for me to be a bad choice because returns are projected to be low (1-3% on average depending on longevity), those moneys would be locked in for life (so can’t be used in rebalancing a portfolio), and can’t be redirected to higher paying assets with similar risk level in the case of a period of high inflation. That’s just me, however. and I congratulate you on what sounds to be a successful retirement!

@tUugj, You are more wrong than you are right. There’s a lot of truth to the old saying, “Don’t put all your eggs in one basket”, and that my friend is one thing I already have; lots of eggs in my 401k and personal IRA baskets. The pension annuity and SS that my wife and I both receive already covers all our expenses and some more. My retirement accounts will continue to grow untouched until I have to take RMDs at age 70.5. My health is great, so, the annuity is working great and for others like me.

Yes hard to beat the segment rates this days! A great time to pull the plug.

I went over the rates for the lump sum and it looks like the best time to take it, i.e., highest rate, will still be in January. Good luck to all and God bless!.

TUlib: The sick should take the lump for sure, as they might not live long enough to even see the lump value returned! Those with no debt and amble resources to survive market dips will do much better investing the lump. Those that have high interest to debt, would be better using the lump to pay that down. Those with little money will very likely get higher long-term returns from the invested lump than their annuity and will have the flexibility to liquidate some of their saving in case of emergency expenses. Who would be better with the annuity? Only those who know that they are irresponsible with money or who worry to distraction about normal market fluctuations. There can be comfort in thinking papa bear Chevron will always be sending you a check, but it is a false sense of security with no inflation protection.

The annuity or the lump sum is a personal choice. There are several things to consider, which can make one a better choice over the other. However, for the average retiree who retires without any health concerns, the lump sum is usually the best choice if you retire with debt or after a short term service. The annuity is usually the best choice if you retire with very little to no debt and after a long work service period.

Rates are out for November. The averages to be used for January will be higher than Dec 1 lump, so Dec 1 lump start is still the highest payout currently and historically.

Good luck with a fixed income annuity with high inflation on the way. US government is printing money like a drunken teenager. Investing in high quality dividend companies would be a better bet, and lets you give it to your family when you pass away.

I would feel sorry for popcorn if the she/he was not such an unpleasant a$$whip. How does one work for Chevron long enough to get any lump but still end up needing the lump just to pay off their debt (whist wishing they still had pension benefits because they remain broke). It is little wonder the basic points of investing are lost in the outhouse behind his doublewide as there is so little between his head and butt.

@tTdpx+EBvQOkT, you need to understand that there are a lot of immature posters here with no financial abilities, savings or nest egg and the simple fact is they cannot afford the 100% J&S annuity or any other, the wiser choice and they have no other choice. They did not prepare for their future earlier in life, when it mattered the most. They continue to post here trying to convince themselves and others that they know the right choice and it's always the lump sum. If they were that secure in their decision they would have no reason to incessantly whine and you wouldn't hear from them. It's very sad, actually.

@tTldm, well put. The popcorn pervert is either a troll or a financial id–t.

Lump sum as stated. If you don’t lump sum you and your family loss it when you die.

Annuity is like whole life, life insurance. Its the pay day lender and pawn shops for the middle class.

A fundamental misunderstanding/miscommunication from Popcorn for over a year is his use of the word "return". When he says the annuity pays him 6% return, he does not mean it how everyone else uses the word return. He does not retain the value of the lump sum and then get 6% "interest" annually on top of that. He loses the entire lump sum, then gets it paid back 6% the first year and the same amount forever. Thus, as an investment return, extremely low as several have shown. So let's replace the word "return" when taking about annuities with the correct term "payout rate".

If, for whatever reason of your own, you want an annuity with a high payout rate to cover longevity, just buy one when you are old and need it. The rate is something like 12% by the time you are 85. You could buy several at different ages - 75, 85, 90, etc. This annuity ladder would protect against inflation. Taking an annuity now, when you are say, 60, to protect your income for when you are 85 makes no sense because 1) the payout rate is low and 2) there is significant risk in the next 25 year inflation will demolish the value.

If you start with a $1MM lump sum, you could start taking $60k/yr now. If you are lucky and inflation is only as bad as it has been the last 25 years, your $60k/yr buys you about $35k/yr of prunes when you are 85. If, on the other hand, you hide your lump sum under the mattress for 25 years (because investing is too risky), can now get an annuity paying $145k/yr. Huge difference. If you didn't put the lump sum under your mattress but invested it safely (as an inflation hedge if nothing else), it would be worth $1.6MM when you are 85 you would be pulling out $192k/yr, a lot more than $35k/yr. In both cases, if any emergency arose, the lump sum would also be available to you.

Choose wisely boys and girls!

Another option to hedge the potential problem of running out of money with an invested lump is to delay Soc Security as long as possible, as that represents the only annuity you will even get with real inflation protection.

tTosl: yes we know you’re not much good at math popcorn, but I suspect most will find it quite simple. ... it’s simply not hard to do better than a 3% return before inflation adjustment (basically about 1% return after inflation). You think it through popcorn while I heat some more butter.

tSyei: If your getting 6.1% of your lump in annuity payments each year you must be in your upper 60s (let’s guess annuity start age was 65). At that payout rate if you live 16 years (to age 81) you will finally get the full value of the lump returned to you, at which point your rate of return will be ZERO! If you live another 16 years (age 97) your return will be 100% (rate of return will be 100%/(16+16)=3%). If you live another 16 years (age 113) your return will be 200% (rate of return 200%/48=4%). Now I will leave it to you to calculate the impact of 2% inflation over those same almost 50 years... not pretty! Interesting is that 3-4% returns are often taken as the absolutely worst case scenario for diversified investments. So congrats, you got yourself a guaranteed lock into the worst case. Can I get a better deal in a reasonably conservative portfolio that will do better even with inflation ... yes, really seems a no brained easy to me.

@tSpoa, recheck your facts. Chevron changed the default to the lump sum a little over 10 years ago. Main reason was that most folks chose the lump sum. In fact, many long time employees were retiring specifically because their lump sum was going to decline if they continued working.

The reason why Chevron sets the default pension type as the annuity is because it’s the best choice for MOST of their long term employees who are set to retire. If the lump sum was a better choice for their long term employees ready for retirement, they would have made that the default pension type. Think about it.

@tSvxb, the reason I chose the annuity was because it suited me. I needed a guaranteed lifetime fixed income annuity that surpasses all others. The direct J&S annuity, as it was calculated when I started in January 2016, is paying me an IRR of 6.1% annually, based on my statistical 78 age mortality. Where are you going to get a lifetime guaranteed fixed income investment of 6.1% these days? Nowhere! If you care to subtract 2% for inflation, that still gives a positive 4.1% annually, which you can’t get anywhere else. Combining my monthly J&S annuity and both wife and I drawing Social Security, we more than manage nicely. With our home bring mortgage free, having no debts or children at home, and over $2 million in retirement accounts, why not go with the annuity? It works for us. Additionally, with our excellent health, we both expect to be enjoying life well beyond age 78, the “so-called” break even age between the choice of lump sum over annuity. Choose your pension options wisely, people. I know I did.

@tSvxb, There's no need for you to be sorry if you don't understand basic investment principles. Maybe there's an online course that you can take.

There seems to be quite a lot of insecure people who post constantly on this site who are determined to convinced themselves that the lump sum is the best choice and they keep going on and on about it. Give it up, there's no one here that you need to convince one way another. Do whatever is right for you. It is not a one size fits all decision, like when to take Social Security isn't.

@tSnul, And there is a third type of person, the ones who cannot comprehend basic math, that would be your category!

Theres two types of people: people that understand compounding growth and people who take the annuity.

Why do people think the annuity has a Guaranteed return? It doesn't. The "return" is less than zero if you don't live to get your money back, which is like 20 years. If you live 30 or 40 years it is less than a couple percent. If Inflation ticks up, it gets even worse. I really can't think of a worse choice.

Sorry but here is really no logical reason to take the annuity (other than you can’t trust yourself to be responsible with money). Those that take the annuity focus on the fear of the loss of investment value and income but they need to also understand the risk of inflation. Although inflations has been under control since the Carter years, with the Fed printing money like there is no tomorrow (“quantitative easing”) and trillions in pandemic bailouts, it is hard to see how we will not be back to double digit inflation later this decade.

Low risk, low return. To each his own.

That's an interesting choice about taking the pension. Tell us why you did that? What did having other savings have to do with choosing the pension, given the lower value. Do you know something we don't?

It’s a personal choice. I myself decided on taking the lifetime 100% Joint and Survivor annuity as my pension option. Works for me. I have no debts or mortgage and I have a huge nest egg in my ESIP 401k, not to mention an old IRA and over $250k in bank savings. Plus, the mrs and I are both drawing Social Security. I’m flush. Your mileage may vary.

The calculator is correct.

If you take the NPV today of the pension payments for 30 years at 3% interest rate, it will equal the present day lump sum payout (NPV today of the lump sum is the lump sum), approximately. There is no COLA adjustment and no inflation implied.

Example. Using $1MM lump sum and $55k/yr pension, NPV (3%) of the pension in 30 years is $1MM.

In historical terms, if you had invested the lump sum in the mid 1920s (just before the Great Depression) and gotten the worst investment return ever, it would still be about a 7.5% CAGR (nominal). At that rate, the pension NPV will never get anywhere close to the lump sum. At 30 years, the NPV (7.5%) of the pension is about half the lump sum.

This is the fundamental issue - the lump sum payout is calculated using a preposterously low interest rate. Nobody is going to take the lump sum and invest it in T-bills or bonds. They are going to roll quite a bit into VTSAX. But, if you think you can not achieve a 3% return, then take the pension.

@tPxkb: With all due respect (it is not my intention to be a troll) but there is something very wrong with the calculator that you referenced. I entered $1MM for the lump and $55k for the annual annuity payout (don’t remember my exact numbers, but those close enough). The calculator showed at age about 80 I would get more in annuity payments than the lump value ... but that is the wrong answer because I also entered that the lump would be growing at a rate of 5%.... that growth was not included in their calculation (nor was inflation, which is the other big uncertainty). So that calculation is very misleading.

Look at it another way. Take your estimated lump and divide by your estimated annual annuity payment ... you will get a number around 5.5% (give or take a little). That sounds ok... a bit less than the historic 8% stock market returns but guaranteed by Chevron (an f500 Corp). You don’t really get 5.5% return however because you surrendered the lump to get those payments. What do you get? .... well that depends on how long you personally live. In that consideration however note that if you don’t live for about 17 years (give or take a few) then you get less in pension payments than the lump (so retire at 60 and break even is not until 77... basically the age 80 defined by your calculator). That lump however would have been invested those 17 years and money makes money so at age 77 in reality you’re l still far behind taking the lump. You’re still getting your pension however so the shows not over. Let’s say you live another 17 years ( you retired at 60 and you now 94 ... you got from the pension TWICE the value of the lump ... but that took 34 years ... so your rate of return (100%/34) is about 3%... not so great considering the market typically returns 8%. Now it is true that the invested value of your lump will be gradually declining if you withdrawal rate is greater than your gains, which will impact your returns ... My main point is don’t use some cheap c-appy free calculator to work your pension scenarios ... spend a few bucks for a good fee-based financial planner and have them work up some real numbers with all the variables correctly calculated for your consideration. For many folks the lump vs. annuity decision ranks up there with only their mortgage... you want to get this right! Most folks with a good sized retirement nest egg will do much better investing the lump, but you need to discover what’s best for your situation.

Here's a link that compares the present value of a pension vs lump sum.
https://www.calculator.net/pension-calculator.html?

Inputs needed:
Monthly pension estimate
Lump sum estimate
Retirement age
ROR of lump sum investment
Annual COLA of pension

The graph is simple. It compares the present value of the lump sum vs pension at each year of age extending out to age of 120, Very flexible so you can quickly evaluate sensitivities of pension COLAs, lump sum ROR assumptions, etc. I don't believe that CVX has applied much (if any) COLA to their pension in the last few decades? CVX should be able to provide estimates of your monthly pension, lump sum. For me the calculator showed that my average lump sum ROR would have to be less than 4.5% in order to have less present value than the pension (at age 95).

What an epic thread

"actuarily" applies only to a population of thousands of people. To interpret this to mean the choices are the same or interchangeable for an individual is a grave misperception. There is only right best choice for each person and it is typically better by a vast margin.

Any of the two pension types are good choices depending on your personal wants and needs. There are many variables for each of us to consider which would one pension type a better choice over the other. Im not going to knock anyone for their personal preference. In many aspects they are actuarially the same in value to the average person, if you understand what ‘actuarially’ means. Best of all, fewer and fewer companies are offering a pension in the first place, so be thankful that Chevron is paying one to you.

an even funner game is to take the lump sum and invest what's left if you can't afford the annuity. if you take the lump sum buyout to pay off bills like most people do maybe you can beat inflation with what's left if there's any left at all. most people like that are on social security so, there's that. that's called unplanned retirement game. much worse than "not a way to plan a retirement".

Inflation is but one of several terrible shortcomings of the annuity. But you are correct, if you don’t spend the annuity and invest it at a fabulous return you may stay ahead of inflation. Not a way to plan a retirement, but as long as you don’t need the money it can be a fun game.

A poster below incorrectly wrote:
"if inflation averages 2.5% per year through a 25 year retirement period the purchasing power of a year 2016 $100K annuity in year 25 of retirement is in the neighborhood of $20,000."
That would be wrong. It's much closer to $60,000. Check your math. I rounded it, so don't bother with the insignificant details. Also inflation has not been averaging 2.5 And that inflation could be easily offset by investing any surplus that you have during the earlier years. That's of course, if you predict that at 85 years old you need or want to travel around the world and hit all the finest restaurants, hotels, c-sinos, etc. I would suspect not. Not to mention that most here have much more than the pension to work with.

Good thread

"you are leaving your job in late 50s and in appalling health. You are fat and you don't exercise enough. There is cancer in your family tree. You eat processed foods and drinks"

WOW!!!! Speak for yourself, buddy!! That's not me or too many people that I know or work with!

You outlined things well, @2jlcd, but you forgot to add in Social Security. You can start collecting it as early as 62 and that will counterbalance any inflation concerns you have about the annuity. Chevron as a company will be around a long time and the PBGC as a backup adds security to taking the annuity as a lifelong guaranteed income stream. I decided on taking the Chevron annuity and conservatively investing my 401k balance (no CVX or energy stocks for now).