Buyout or not? How to decide? 15 years until age 60. Buyout is $125k. Monthly payments would be $2k starting in 15 years. If buyout taken, annual expected return on 401k assumed to be 5%. Looks like I would benefit staying in the pension plan if I expect to live longer than age 75, and assume GE will still be there in 30 years. Is this correct? Thoughts?
fyi... Good podcast to listen to:
https://knowledge.wharton.upenn.edu/article/ges-pension-freeze-will-help-right-ship/
Um, I know salaried people hired in after 2000 or 2001 (don’t remember the exact cut in, before my time) can only start receiving pension benefits after they are 65, instead of 60 before.
Is there an option that actually allow this population to start receiving pension at 60? Or just the folks hired in before that can claim benefits at 60 also have this wonderful option (for the General) to start receiving what they have earned 5 years later?
That's what my calculations said. Taking the lump sum only makes sense if you think you can beat the market. Thinking that doesn't make sense.
Interesting Forbes article, suggesting that the lump sum payouts being offered are only about half the present values of the pensions.
https://www.forbes.com/sites/baldwin/2019/10/20/how-much-is-ge-shortchanging-pensioners-taking-lump-sums-use-our-calculator/#43bd9fed691c
The only choice that makes sense to me and I think to just about everyone else too is to take the pension at age 60. Losing 5 years of interest on the company provided benefit is a big loss. So I guess if you put a lot and I mean ALOT into PPA it makes sense to delay to 65 but I just don't see how anyone could have put that much into PPA.
Age 60 is when you get the full benefit. So if you plan to take the pension, always take at 60 as it is not growing. Any delay is money in GE’s pocket. Doesn’t matter if still working or not. And don’t forget if you are hourly, you will get a supplement to 80% SSI which is currently to about age 64. So almost 4 years, $21 x years service per month.
Because your pension is frozen as of the date you left GE. The only reason they show to 65 is because of the voluntary or other moneys you contributed due to your wage amount which does continue to grow.
Why the payment of the last choice at 65 is the same as 60? If you take it 5 years later it should be more.
Choice a, the lump sum, is generally a poor choice. It puts all investing mistakes on you. It also assumes a high rate of return. Aggressive investing leads to investing mistakes. Choice b, monthly payments now, is also a poor choice as it is not indexed to inflation. It will fade away to nothing in 20-30 years.
Based on your comments, you are currently 45 and plan to retire at age 60. Using the life expectancy published by the IRS, your expected life is age 83.
http://personal.fidelity.com/products/retirement/inheritedira/lifeexptable.html
Your 5% might be a little conservative, most people use 7%. If you run the calculations using 7%, retirement at 60, and death at 83 leaving a 0 balance in your 401k would give you a monthly payment of 2341.87 instead of your $2000 / month.
However, if you work until age 65 you would qualify for medicare which you should seriously consider. In addition to the medicare, your 401k also has more time to gain valuable interest which would bump your payment to $3,644.90 / month.
Another way to look at it would be if you rolled it into a 401k now and lived until age 83 and retire at age 60, you still want at least $2000/month. In this case you would need to beat 6.28% on the market. But if you worked until age 65 you would only need to beat 4.68% on the market.
My advice would be to take the lump sum and plan to work until age 65, with the average market return of 7% giving you a $3644.90/month payment while you also qualify for medicare.
Basically taking the lump sum doesn't make sense for people already above ~age 50, but it will vary some depending on your offer.
Note: I am not a financial advisor, but mine told me to take the lump some offer basically because I was younger. I of course was skeptical and ran the math myself.
Enron had a different pension plan than GE has.
https://www.wsj.com/articles/SB1008712386485424000
what if you have very little in your pension. Take my chances and get taxed. Look at ENRON
A financial advisor is more interested in how much he can make than what you get. wake up
Sounds complicated. Each person's case is different and depend on several factors. I would spend little money and take the advise of a financial adviser before rushing into rushing into decision. Seriously.
Take money and run dont spend roll over to annuity plan no taxes if u dont spend it im in a energy dependent annuity .............nxt time they shake u down might be far less!!!!!!!!!!!
I'm assuming your quoting a single status pension payment. GEs pension is currently a lifetime with 5 year certain benefits. Also be aware that the estimate could be high especially if interest rates stay very low as they have for the last ten+ years. You can see what annuity that lump sum would buy in 15 years by going to immediateannuities.com. I get $1146/month for a "Life & 10 Years Certain" policy starting in 15 years …..so if your not in a financial bind and going to get $2000 I would stay in the pension.
Also don't forget that you pay TAXES on that $125,000 when you receive it. Now run the math (and also consider that the $125,000 will push you into a higher tax bracket!).
Lump-sum buyout only make financial sense for a few type of people, such as those in poor health who don’t expect to live decades in retirement, and those with other sources of income, such as another pension or independent wealth.
You should read about the limit insured by the pbgc. Assuming you are below the insured limit stay in it. If you are above the insured limit you could lose the difference if GE turns into Enron.
Stay in pension plan. Do not forget your spouse will get 50% after you die.