Thread regarding Chevron Corp. layoffs

@srzl, “actuarially equivalent”...here I think we differ. I am fairly confidence it means same “cost” at the start, and not equivalent projected outcomes...there is a big difference. If I say after 10 years there is a 90% chance I will give you $1000k, or, if you prefer, I will offer you 100% chance that after 10 years I will give you $200k... which is the better deal? Well the answer is, on average, clearly the $1000k is the better deal, but some might prefer the $200k if that is enough to secure their security. There is a reason there are choices.

-ttwf: Interesting point, perhaps, is that although I personally think the lump is a better financial bet than the annuity (hands down), I am personally seriously considering taking the annuity. Why? Like others have said, I have significant other money in stocks and bonds already, have no kids, and am a bit worried on how my wife might handle money if I go first (and, indeed, how I might handle money after age makes me a bit soft). There is, I think, a space for diversification, and, indeed assest protection, that is not just focused on maximizing returns. Again, your mileage may vary.

There sure seems to be a lot of posters on here trying desperately to convince others, and obviously convince themselves also, that risking their little lump sum (little for many of us who have appreciable assets) in the market will yield better results than anything else. Of course it will, and the risk that you take is the price that you have to be willing to pay. No one cares if you think that's the best choice for you, but it's just not the best choice for all. We have no need to convince you of that fact. That's not an opinion, that's a fact.

Why don't you go ahead and do that, you have no one here to convince. Go for it. Joking about how pathetic that you think others are who have enough to not have to rely on investing a lump sum because it's such a small percentage of their overall assets is not doing you any good personally. Those people can afford it. They do not have to risk as much in the market to make ends meet. Do what you feel is best for you, or rather your only option, since you did not save enough or invest wisely, so you still need to risk most of your assets to remain solvent. No one's judging here. It's not a one size fits all situation.

Interesting analysis @tqeq. It’s arguments and thinking like yours that makes reading through all the threads on this site useful and interesting. It’s true when it’s said your mileage may vary. My choice was the annuity and through the pros and cons, I still don’t regret my decision. Thanks for your contribution. Very helpful.

Lots of apples and oranges being discussed here, but the take home should be all choices have risks and rewards that one can not know with certainty in advance. If you assume just 2% inflation the value to your annuity payments drop by half in 25 years: a best case). If you assume your invested lump makes nothing, equivalent withdraw rate ad the annuity indicates it will last 17 years (worse case). My thinking is the best case annuity is comparable to the worst case lump... which makes me lean toward risks associated with the lump, but your mileage may vary.

Wrong again, @sket. If you argue they (referring to the pension annuity and lump sum) are “actuarily equivalent”, you cannot assume an extremely conservative growth rate, like treasury bills. The lump sum will have to consistently earn better levels of returns than that to last the average life expectancy be equivalent to the the annuity.

They are actuarily equivalent assuming an extremely conservative growth rate, like treasury bills. Anyone with even the most rudimentary middle school understanding of investing will be able to double or triple the assumed growth rate and thus come out millions ahead with the lump sum. Those who fear they would be tempted to fritter away the lump sum on a fishing boat, shiny new truck or luxury shopping trips to Cabela's might be better of with the annuity.

@srzl, I buy most of what you say, however, just to be clear, “actuarially equivalent” means exactly what it means— equivalent value based on the average life expectancy of mortality rate. It does not favor Chevron or the retiree beneficiaries. No one knows what cards you are dealt in life. You can live longer or shorter than your statistical mortality. If you live longer, the annuity works against Chevron who will continue to dole out the money. If your lump sum doesn’t last your lifetime or spending habits, tough luck for you.

“actuarialy equivalant“ ... does not mean similar expected outcomes. It means the price to Chevron is about the same. In fact one expects most to do much worse with any annuity long term compared to investing directly, because it costs a lot of money for someone else to be willing to insure your investment risk. The types of risk you are comfortable with, within your pun investment strategy, will define who chooses what. There is no correct answer here, just different choices. Live with it

@sgub, There is one credible source that recommends the annuity as your first choice of pension. It’s Chevron, the very company you worked for. It’s the reason they offer the pension as a single-life annuity. To fit the needs and desires of their retiring employee, they offer other pension alternatives that require conversion from the annuity. Based on the average mortality rate, the conversion to another form of payout is actuarialy equivalant. Your premise is a bit flawed, but you are free to do what you like with your pension. I’d say most retirees already have lots more than the lump sum amount already at risk in the market. Why put everything at risk in the market?

I have never seen a credible source or analysis recommending an annuity. This advice seems to come mostly from slick insurance salesman or so-called "financial planners", typically a brother-in-law of someone from your Baptist church or pinochle group.

If anyone has found a credible source recommending an annuity of the sort recklessly offered by Chevron, post it here.

-rwps: the 17 years is also the period during which you are only getting the lump slowly returned to you...and if you die during that period they keep the difference. Mean while during that 17 years the invested value of that lump is likely to have more than doubled. The most likely outcome is investment returns will cover all your annuity payments, so the big difference is who owns the lump residual at the end of that period. If you are too afraid to invest your own money, then by all means take the annuity....but the insurance you get costs a lot!

Very well said @rxxy. I also give a simply math example for the ever-lumpers to consider— Take your estimated pension annuity and divide it into the estimated lump figure. That’s how long the lump sum would last you if you didn’t invest it. A little over 17 years is all it would last if you spent at the equivalent monthly amount as the annuity payment. It’s up to you to invest the lump sum wisely to make it last a lifetime, while the markets go up and down. And keep in mind when the market underperforms while you take your monthly distributions, it takes higher performance to recover your trajectory to making it last the average 30 years that most retirees live in retirement. Think carefully which pension type you choose.

The financial performance of the Chevron pension annuity is exceptional and well above average in it's class. It has been extensively researched and compared to open market alternatives and consistently excels. It would behoove each and everyone one of you to consider making it a part of your well balanced, diversified portfolio. You will never regret it, because it will continue to pay dividends until the day both you and your loving spouse dies. That and SS combined will make it effectively COLA'd. For your lifetime. Taking a lump sum risks your resources getting completely devoured down to nothing by any of numerous economic termites at the very time when you should be adjusting your asset allocation to be more conservative, after you've won and are in retirement. After all, if you are like most of us, you have plenty at risk in the market already. Only a fool would risk it all and pass up the best chance to have a lifetime pension annuity in your lifetime. Only a fool would use the argument that you should risk all of your investable assets in the market in some form as a means of diversification - lol! That's like saying, to make the best investment choice, you shouldn't diversify and you should put all of your eggs in one basket. Choose wisely.

Yes, it is sad that there are those who took the lump sum out of fear and lack of risk tolerance and now they are regretting it. Risk of company bankruptcy, fear of inflation, hysteria and insecurities about this and that, the excuses are endless. I certainly hope that they did not read this thread for advice and listen to some of the people here who are mathematically challenged and "financially impaired" trying to appear educated, yet illiterate and giving poor advice. That would be like rubbing salt on their lumpy wounds. Most people who take a lump sum are not only financially illiterate and mathematically challenged but also spendthrifts. It has been widely documented that over 80% of those who take a lump sum buy out spend it all within the next 5 years and are left with nothing to show for it. That goes to show what fear and cowardice and making hasty decisions can do for you. As for the annuitants, they thank you for letting the company buy you out and shoring up their finances. Good luck.

The financial performance of the annuity is appalling, independent of whether you have any other investments or not. The degree to which you are financially impaired by the bad choice may be mitigated by other savings, but the result with regard to the annuity is the same. Diversifying a good portfolio with terrible choices which degrade it is not smart. Take the lump sum and diversity as you like with stocks, bonds, t-bills, etc.

The fallacy in the straw man argument from the ever-lumpers is the misinformation that taking a guaranteed actuarialy equivalent lifetime 100% joint survivor annuity would result in not being invested in the stock market and losing value to inflation. That is the farthest thing from the truth. In fact, I , like others, have much more invested in the stock market than the value of the lump sum will ever be. It is only about 20% of my assets, as a lump sum, if taken. Yet it is still substantial and enough to live on monthly as an annuity. The false argument put forth is premised on non-diversification, as if every penny needs to be in the stock market to hedge against inflation, not diversified, or you lose in all aspects. Lack of diversification is never a good thing.

Please guys, you can do better than that, are you purposely being obtuse?

You like headlines? Read this recent one. “Bond market says not only is a recession coming, but the Fed will cut interest rates to stop it.” So, if you are fearing rampant inflation, this should dispel your anxiety. The United States will not have or see Jimmy Carter inflation levels ever again. At least not in your lifetime. As for the next recession coming, you better start worrying about that lump sum you put to work in the Wall Street c-sino.

@qjod, Quoting your information source up front as the position you take was your pitfall— “Forbes Financial News Reports”. These people advocate almost 100% for stock market participation and investment. They don’t push the positive reasons for retirees to consider taking their pension as an annuity. Please, man. Are you so gullible?

Forbes financial news reports:

"Earning 6% guaranteed feels like a good exchange for the uncertainty of the markets. But it is not. Here's why.

First, the S&P 500's return over 2002-2012 years was 6.34%. So even in some of the worst markets in recent history, the return of the S&P 500 was better than the perceived return of this guaranteed annuity.

Second, the annuity does not have a 6% return, even if the Jeffersons lived forever. Buying an annuity begins with the immediate loss of 100% of your original investment. So for the first 15 years, the annuity company is simply giving you back your original purchase price. The way most salespeople describe thinking about the annuity discourages investors from realizing that their original money is gone forever. They do this by referring to it as an investment. I would not call it an investment because after you purchase an annuity, your principal no longer has any value.

The entire selling point of the annuity is a lower return in exchange for a guarantee. But when analyzed, the purchase price is a loss you can never recover from. We can analyze this annuity purchase like an investment and calculate an internal rate of return (IRR). For the first 15 years, the IRR is 0% because the annuity company simply hands you back your own money.

...

Third, immediate annuities are not indexed for inflation. Part of their appeal is having at least some stream of guaranteed spendable income, but guaranteed to buy what? This annuity quote is for a fixed payment of $30,000. The payment is fixed in dollars whose buying power diminishes by inflation every year.

According to the government consumer price index (CPI), $5,081 in 1970 had the same buying power as $30,000 today. Imagine thinking you had your future retirement needs guaranteed in 1970 by buying an immediate annuity paying $5,081. An annuity is supposed to be longevity insurance. But now at 104 years old, you are trying to live off a sixth of what you needed when you began your retirement.

The only real guarantee of an annuity is a diminishing lifestyle because of inflation. "

I agree, It is terribly sad that so many come to this thread to get advice and learn that they have made the poor decision of taking the lump sum and end up regretting it when it has been reduced to almost nothing, as so many have. I wonder if there is any way that they could get a special form of welfare, or federal assistance in their cases, you know, for those who are financially illiterate and just need a helping hand? I would be willing to contribute to that cause. My annuity + SS check is at least double what I can spend in a month. I have everything that I need and literally have nothing to spend my extra money on. I am socking it away for my favorite charity which I have a tremendous amount of respect for.

Both options are given for a reason - so that you can choose the one that fits your needs. There is nothing wrong with the annuity if you don’t have any future cash influx needs. Even so, between the annuity and SS, you can still put away a few thousand month. If you live to !00, you made the right choice. There is comfort in believing you will be cared for by financial institutions. A $7,000 annuity is more than enough to live on. For now.

I agree, the annuitants need to redirect their hate and anger toward those who gave them poor advice. I wonder if there is a way to sign over your annuity payments to a third party in order to get some cash back? Sort of like a reverse life insurance.

I would like the annuity takers to highlight the posts that identify the hate and vitriol because I cannot find it. Leave emotions behind. You made your choice. Help those people soon to make theirs. I chose lump sum because I want my kids to have a leg up. Hate me.

As long as you are going in eyes wide open that you 1) are afraid or unable to invest and 2) accept the financial "hit" of the annuity at current low interest rates plus the guaranteed inflation degradation, go for it. If you die young, the annuity may still have value.

Yes that is the original point of this thread. Totally agreed. Make the decision and stick with it. There is no turning back that makes financial sense.

@nghd, It’s an “either one” question. Take the annuity or the lump sum, which ever satisfies the retiree’s wants and desires. But don’t go converting a lump sum back to an annuity. That’s plain dumb for whoever takes that route, especially an annuity on the open market.

As I mentioned before, if you have no debt, house is paid for and no other obligations (and you have no intention of leaving anything to your children), there is nothing wrong with the annuity. I would take the company offering rather than buy one later to avoid the fees.

I totally agree with @nszz because I’m a retiree in that situation. Long time employee, a better than average paygrade in my last 3 years before retirement and a 401k and IRA savings that is almost 4 times the lump sum offering. Heck, preserving that amount of money is difficult enough to manage. My annuity and social security at 62 is more than I require to live on comfortably into my late 70’s or early 80’s. I have a nice home that was paid off 10 years ago and no kids to support. The two boys both have their life well made on their own. Life if good in retirement for me. I owe it all to good discipline in saving all I could during my working career and living within my means.

To answer the topic of this thread, if you are a long term employee of Chevron and ready to retire, most would profit from taking the annuity. There’s a reason why Chevron offers the pension as an annuity. Long term employees who are prepared for retirement, are on average, persons over 55, have already paid off their home mortgage, have manageable or no debt, have built a large enough 401k balance and have external savings. An annuity would serve this type of retiree best because it offers a steady and guaranteed income stream, while maintaining their retirement savings growth and tax deferment. ^^^^+1

@ncal, With all due respect, I think that you are missing the point of the people who can afford both. They have in many cases more than the lump sum that you mentioned already invested in the market which can grow to whatever it will. And also they are given the opportunity to have a steady stream of income, in addition to Social Security, and that is more or less guaranteed. Many older folks take some of their savings, when they have more than enough, and do just that, purchase a guaranteed annuity, so that they can have a budget to live on uninterrupted, while the rest of their stash can be invested more aggressively, or still conservatively, or whatever. It's a very common strategy for people who have literally "won the game" as they say and can do what they want. Sure, they are missing a little potential upside with the annuity but that's the price that you pay for the guaranteed stream of income which is basically a 5 to 6% return. It's not that they are not invested in the market. It's that they don't have to draw from their investments nor be concerned with market volatility. It's preferred by older folks who don't really care about messing with investing and bothering with it in their day to day life. More people are like that than not. Most people just want to live their life, not hassle with the day to day issues of balancing their portfolio, setting up withdrawals, etc. And they have more than enough money so they don't really care.

nzlf, Negative. That would be false. Not BS. I am a higher earner(to me, anyhow) in the upper range of my pay range and those are roughly the numbers that I calculate also based on my figures today, give or take. Just because there are higher earners than you does not make it BS. I understand that may be the exception, not the norm, but "average earner" is entirely subjective and I would assume that this person is a San Ramon (or similar)office worker and in that area his or her numbers may indeed be average in their eyes since the COL is so high in the West coast/Bay area. You would be shocked to learn with those people pay for rent, housing, utilities, taxes, etc. in average areas.

If you were highly paid you would not be concerned about your annuity. You would have enough money to not worry about that. More bs.

I worked with Chevron for 27 years and was a highly paid employee. I can assure you my annuity calculation was not anywhere near $7,000 per month. The troll who started this talk about $7,000 needs to be ignored. It’s BS.

If you have a $7,000 annuity and $4MM in assets then well done but I would not consider that the average person. I believe the discussion is more centered on what the more average person should do.

It would be bizarre for someone who wants to be invested in the market and preserve their capital to not take the lump sum. The average value of a $1.4 million lump sum in 30 years will be $3 million, even with withdrawals. Every value of the annuity is zero when you (and spouse, if joint) pass away.

This is the same flawed logic that has people paying their low interest mortgage early. It may feel good but don't fool yourself that it is financially optimal.

mzae, Was there a mistake in the math that you noticed? I'm asking because I am approaching those figures myself soon as an average earner but diligent saver/investor and could easily exceed them. I don't find them to be the least bit extraordinary, in fact a bit mediocre. Would you please clarify your point?

@lesm, Yes, good point, except that My pension is closer to $7k a month and since it pays for everything in my budget today with plenty left over to save or spend how I please, my over $4MM in invested assets, will continue to grow. That is much more than my piddly little $7k a month pension and I am afforded the luxury of not having to touch it if I do not want to. That's my main nest egg nut. I don't even have to worry about it being mostly in the volatile stock market, with the Pension + cola's SS as a backup. That's in addition to 2 full time worker's Cola'd SS payments after 70, to receive the maximum cola'd SS benefit. That's where you're missing the utility value of a non-cola'd pension annuity to tie one over until SS kicks in. That's a relatively guaranteed return. The rest of my income source is not, other than SS, and even that is subject to reduction.

-2

If you had retired at age 60 in 1965 on $5k/mo ($60k/yr) annuity, by 2005 (when you are 99 years old) it would withered to a paltry $824/mo ($9.8k/yr) due to inflation. So, you might not be on the street corner but paying property taxes, medical bills and whatnot could be an issue. And good luck pinning your backup plan on social security as it has too many glaring issues to continue as it is.

Too early for regrets, jnnx? It seems to me that it’s YOU who are already regretting the choice you made.