Thread regarding Chevron Corp. layoffs

I did the exact same thing, calculated the Net Present Value (NPV), however with altogether different results. For me, the lump sum is $1.4 MM and with the annuity, it is about $1.75MM which made the annuity a no-brainer as you stated. I may be older and a slightly higher pay grade, though. Not trying to toot my own horn, just the opposite. Please don't take it the wrong way. And my investments are very conservative. I prefer lower risk mutual funds. I have other safety nets of much larger value in any event. Too old for all the excitement and stress.

It's not difficult to compare the NPV of the two choices. In my case, the current NPV of the lump sum is about $1 million. The NPV of the annuity stream is around $700,000. No-brainer.

No one is talking about insurance costs. The fact is many boomers do not have much saved for retirement and their health care and old age assistance will come out of the public purse (one way or the other), which could make today’s trillion dollar deficits seem like pocket change. The Fed may have some smart cookies on its board, but there is only so much even they can do in the face of reckless spending. As more of our GDP goes to repaying IOUs, the cost of that left for domestic consumption will increase, which will lead to significant inflation pressure. Have fun in your fixed pension.

@1ddnu, what does high insurance costs have to do with the argument? Higher costs affect all retirees, no matter if they choose the annuity or lump sum. Think of inflation in other basic terms, like food, utilities, transportation. Those are the things that affect everyone. I can always choose to drop medical insurance all together or purchase it every other year or when I think I’ll need to use it. As a last resort, I can resort to medical tourism by going to another country to get medical services.

“Inflation is very low now and will stay relatively low for a very long time”. Not so sure about this. With continued trillion dollar annual deficits and flux in money supply by quantitative easing, and record low prime rate the Fed is already making some of it’s key tools impudent. Add the boomer retirement wave and associated huge health care bill, be might be heading to perfect storm for period of high inflation.

Yes that's certainly true in many cases of the financially inferior lump sum buy out. Some people are insecure and haven't had much luck investing throughout their lives. They may have close to nothing saved. The lump sum gives them that feeling of something tangible that they've never had, and they can get the peace of mind that one gets from settling all their debt. Some need that to be secure and feel better. The successful should not be ridiculing those poor investors who need a leg up. They should respect that.

You guys are all talking past each other. The annuity may be inferior in any number of ways but if it makes people feel better and more emotionally secure, it is the right choice for them. Respect that and leave them alone.

what the heck are you guys on here talking about market timing for. that's the last thing you should be doing at retirement age, from what I learned over the years. many many years, in fact. you should be in a position to limit your exposure to equities, unless you're doing it just for fun, like I do. i've always kept a high percentage of equities, and I will probably continue to. and I will most likely choose the pension annuity, because you can't get a much better deal on one. but that's just me. but it wont affect me much, my pension wont be the bulk of my income. if it is, you may have to reconsider. its a personal choice.

Most of you annuity detractors are making too much noise about inflation. What? You think investing all your money in equities and bonds is safe and guaranteed? Go for it then. Don’t go cursing when one swift downturn erases 2 or 3 years of gains when at the same time you’re taking distributions to live on. It takes a lot more time to gain back the percentage you lost.

I think this post put it most aptly; "Most people who chose the annuity have a lot more at risk in the stock market than the majority posting here on the laidoff loser's forum and are more wealthy, which is why they can afford it. Keep making fun of and insulting them -now that's rich - lol!"

Kudos to 18nac !

I agree, if you didn't save and had to work more than 20 years to retire, are afraid of investing and determined to live a declining lifestyle of suburban decay while working your way down the ladder toward middle-lower class, you have no choice but to annuitize. Chevron makes it the default in the hope that a few s---ers will fall for it. A few do!

Inflation is very low now and will stay relatively low for a very long time. We are living in the era of Jimmy Carter anymore. World equity and bond markets are highly developed and are better controlled by sound central bank policies that have been fine-tuned by blunders if the past. We are in the age of super computers, in-depth financial reporting, and sophisticated investors. We don’t use hand calculators and trade stocks using the financial section in the newspaper anymore. Like I said, inflation is easily controlled now, so don’t propagate that myth. Take the annuity without fear. Invest your 401k and IRA as you please.

The annuity is not a “wise” choice. It takes nearly 2 decades of annuity payments to just get the cash value of the lump out, at which time inflation will have reduced the real value of those payments by about half. For a conservative investment profolio one needs to half about half your investment in cash and bonds and the other half in stocks, and you must rebalance those weights as stocks rise and decline. Locked up in an annuity that part of your moneys can not be used in rebalancing: not smart!

@1cbqv, the annuity of Chevron pension is a wise choice for longterm Chevron employees with 20 to 25+ years of service and a well funded retirement 401k. It’s no wonder why the Chevron Retirement Plan pays its pension as such as a default. Pensions are one thing and retirement savings is another. Unless you have large debt going into retirement or your health is questionable, take the lump sum and good luck. Otherwise, most longterm employees will profit from the guaranteed fixed income that the annuity and social security will bring.

You don't understand financial fundamentals if you think a return of -2% to -10% per year, compounded, can magically work out to +6%. Someone sold you down the river!

1bfkp, An annuity which offers an IRR of 6% or more and is 100% joint/survivor is not a loss at all relative to historical average inflation, bonds, CD's, and many other conservative investments. A savvy investor may hold Stocks, Bonds, Real Estate, and in many cases fixed income and cash-like vehicles. Those allocations mature over time, particularly in the retirement years.

But keep tooting your little bitty "lump sum" horn based on your extremely limited experience, savings level and knowledge of finance if it suits you and makes you feel better. God bless your heart!

There is a huge difference between intelligent diversification, like stocks vs bonds (one may go up when the other goes down just like upstream vs downstream oil and gas earnings), and holding a non-COLAd annuity just because you can afford the losses. These annuities never go up or even hold their value!

Lots of you lumpers fail to grasp the annuity, the subject this thread is referring to, is the Chevron pension annuity only. Some of you seem to be choosing sides based on whether your entire retirement is better off as an the annuity or invested in the market. That’s not the case. The discussion is on how you would prefer take your pension only. Calm down and make a coherent point. There’s no right answer here. To each his own.

I agree. If interest rates were well above historic averages, like over 10%, the annuity might be a consideration since there would be at least a chance of falling rates and low inflation. The lump sum would be miniscule and investing it unlikely to beat 10%.

But when rates are near historic lows, like now, the lump sum balloons and it too fabulous to pass up. Investing has never failed to deliver returns well over the current rate assumption. It's a no brainer and conditions like this that the lump sum option was designed for.

Have to agree with -1ayug on this one, which is why I would not sleep right with a fixed annuity. Once your rate is locked, that’s it: your gonads are gone forever. Might be a case for it if interest rates (and therefore the annuity lock rate) were abnormally high. The current record low inflation and corresponding low interest rates are not going to last forever, particularly with our current rate of federal deficit spending. The baby boomers $hit is just starting to hit the fan and when they they all line up for free old age care, most having saved nothing at all for retirement, watch you pocket book!. When interest rates start to rise your only hope is to shift your stocks towards commodities, utilities and staples and your bonds to short term quality. You might still take a nasty ding, but nothing like the poor old geezer on a fix pension with no where to hide but the casket.

Stocks and bonds are your best beat for BEATING inflation and always will long term. A non-COLAd annuity is guaranteed to ALWAYS LOSE to inflation every single year, compounded!

19iwi, That is correct. and also applicable to any source of income, savings or investments, including Social Security, which doesn't always readily keep up with inflation, although there is an attempt made there.

-19iwi: Sure, pick your poison. Life’s a b--ch and then you die.

Ok, but during a period of high inflation I am not going to have a whole lot of “peace of mind” watching my spending power dwindle year after year.

Playing with firecalc just now, and one lesson was just what a huge impact estimates of inflation have on the long-term results, with either the lump or annuity choices. Wow! Let’s hope the Fed stays in good hands.

I agree Firecalc is a reasonable reference for testing scenarios, but exactly how do you quantify “utility value”?

-18pom: Ok fair enough, those were just off the cuff numbers, but those numbers are also considering that I never spend down the lump itself. In reality, to be a fair one to one, the lump would have to be totally spent the day I die.

@18kpu, Run those numbers again. Your calculator is putting out average annual return percentages, but fails to take into account the net return including monthly or periodic distributions. How are you planning to eat and pay living expenses? The investment returns you are posting here fail to take the entire picture into consideration.

What retirement calculator(s) indicate the annuity would provide better outcomes? Hard to believe, as the basic calculations are simple enough. My numbers, based in Chevron’s annuity calculator estimates, indicate about 6% of the lump per year (5.65% if joint annuity with wife). Historic USA full market returns for any ANY 20 year period from 1950 to present suggest 6.4% to 18.5% annual returns, with the average being just under 10%. Although real returns, adjusted for inflation, are lower (average 7%, and 4.4% for the worst case), the annuity payment amount would have to be adjusted for inflation also. So, with no inflation adjustment to anything, the worse case market return is still better than the expected annuity payment. Can you explain this discrepancy with your calculator results?

Chevron pension ... a lifetime guarantee. Correct. A guarantee of a fixed money payment that gradually looses value due to inflation as you get older. In return Chevron pension fund keeps your lump and guarantees you about half their expected returns of its investment. Thanks for putting you money in, however, as the pension fund is about two billion underfunded and the more we can keep in the fund rather than pay out in lumps the more left to pay my stock dividends. Thank you for your support!

Every calculator I have used comes out miles ahead, with or without taxes, taking the lump sum. The tax savings are just gravy.

I'm glad for the guy who doesn't worry about taxes. It means he has extra money and doesn't care if Uncle Sam takes a lot since he has no better use for it.

15zui, Thanks! Excellent display of ignorance and illustrating, using yourself as an example, why some need to work forever. - rotfLMMFAO@d-bag 15zui!

Agreed - nothing worse than missing out on a historic buying opportunity with nothing better to do than peer through the drapes to see when the next drip-feed annuity check is coming to the mailbox.

-14zrx: I am not convinced you would find many that would “love to see a big setback”, but it is true that if you have a conservative asset mix (let’s say 50% stocks and 50% bonds plus fixed), then your biggest gains do tend to come by rebalancing during a dip. If you have a more aggressive mix (say 70% stocks and 30% bond), you will see bigger gains during a rise (because you have more “in”), but there is less to reshuffle during the dip. Whatever mix you decide on for your own comfort level, it is important to hold that long term. Trying to time the market taking in a bigger stock mix during rises and switching to more bonds during a fall almost always leads to worse results...because the tail wags the dog and you end up always late for the show.

Every retiree I know would love to see a great big "setback" so they can rebalance, sell some bonds and load up on cheap stocks. Rinse and repeat. Not scary at all.

-14qoy: that’s where we differ, I do not see it as a “gamble”, but rather just everyday life....no riskier than walking down the street. To each his own, you go your way and I will go mine. That is what freedom is all about.

No reason to use so many words explaining yourself, @14dgz. Like I said, just one big setback and you’ll be seeing things very differently in retirement. One can afford to take those risks while you’re young and working. Not so much when the paychecks have ended. Safeguard the fortune you made over your working career. Retirement is for enjoying, not for taking regrettable gambles.

-14zht: One does not need to be lucky, well informed or clever to profit from the stock market. I have done very well over the years in a collection of simple, broad-based, low-cost mutual funds. One chooses funds based on your risk tolerance (which mostly defines the ratio of stocks to bonds held at any one time...but also the types of companies). The idea is to keep the mix about the same in all markets, so sell bonds and buy more stocks when the market falls and sell stocks and buy bonds as they rise... not rocket science. Indeed with balanced mutual funds they do all the work and for those funds based on an index the costs are very low. I buy and hold long term for the most part, so I have been though every big crash over the last 40 years as well as all the up swings. Guess what, at the end of the day everyone who does this is always “up”, as long as their time horizon is long term. The folks that get in trouble are those that think they can do better than “average” and start placing riskier bets or panic and change their assets during fluctuations (buy more stock when it is booming and sell when things are falling: the exact opposite of what one should do). The way I see it my money is already in thousands of different “baskets”... very broadly diversified across a huge number of companies and bond classes. I do not see an annuity as increasing by financial stability, because it is static money, that can not be used to rebalance assets during changing markets. I sleep just fine at night, because I seldom look at how my investments are doing. I know after each huge crash there is always a rise again within a few years...down 25% up 25%...all normal shifts. That said, one does need enough so that the ups and downs never get close to impacting ones day to day expenses. The market is really only scary if you tend to obsess over the fluctuations, or need to pull ALL your money out in the short term (like to buy an annuity!). I do not have either problem, because with any luck my retirement will span another 30 years plus, and at the end of that time I will have more wealth than today. If you want an annuity, get one! It is not for me.

10avp, it's not such a "rare case" for wealthy older people to mostly not touch their investments and live modestly. In fact it is extremely common. They are used to that. They did not become wealthy by being spendthrifts. Many of them also consider small luxuries living large. Don't feel sorry for them, whatever you do. They are very, very happy and content. Take care of yourself and don't worry about rich people with big pensions. Someone has to fund the church improvements and new educational wings for the schools to educate the offspring of you plebeians, right?

14zht, Very good point, which is why the person who you agreed with, @13akl, has included their opinion that the 100% joint-survivor annuity is an excellent means of diversification for those like her/him, who like to play the market and take risks with the bulk of their holdings.