I too believe that more people would take an annuity than a lump sum. In which cases would it be better for someone to take a lump sum?
26 replies (most recent on top)
I think it depends on your age as well. I left last year, far from retirement age(but met the modified rule of 75). I knew I would go back to work, and I did. I also had enough saved outside of my retirement accounts to last me a long time if i didn't work. So, I took the lump sum, and I've been gradually investing it. But, for folks that don't have a lot saved outside of retirement accounts, and those that don't plan to work elsewhere, but are not to the point of drawing social security, an annuity may be the right call depending on family situation, ect. Personally, i took the lump sum because the monthly payment was not much especially when I factor in my age and inflation, putting it towards diversified investments(Index funds) when the market is down was a better move since I'm 8+ years away from being able to draw it without penalty.
If you are single/divorced/widowed, then take the lump sum. That's what I did. My kids will inherit it now if I die. If I was married, I would have taken the annuity. Of course this also assumes your spouse has good health and will live long enough to collect more than what the lump sum is.
Just invest it conservatively. I did that. Avoid risk. Beating inflation isn't that important compared to maintaining the value.
"Ask yourself what are your plans to generate a steady source of Retirement Income, outside of Social Security. "
My plans?
Take the lump while the benefit is still high!
Invest in MYGA's with state guaranteed at a rate between 4-4.5% ; 1/4 portfolio.
Invest Invest in SPIA with state guaranteed at a rate of 6.5% with full death benefit; 1/4 portfolio.
High yield dividend stock ETF's to keep taxes down to 15% 1/4 portfolio.
Total stock market index (VTI) to hedge inflation long term 1/4 portfolio.
Take inflation protected social security at age 70 to allow the inflation to build and protect longevity income (should longevity hopefully occur :) .
Pension Plan Issues and Discussion
Much discussion on the future of the Company Pension plan and which option to pursue (Lump Sum vs. Annuity)
I do realize not everyone is entitled to an AT&T Pension plan. For those that do, I thought I would post this summary if it may help.
You might review this article:
https://files.consumerfinance.gov/f/201601_cfpb_pension-lump-sum-payouts-and-your-retirement-security.pdf
There are PRO’s and CON’s on deciding on a Lump Sum vs. Monthly Annuity. Everyone’s situation is different with intangibles involved in the decision process. Choose wisely and visit with a Financial Advisor or start educating yourself on Retirement Planning.
Ask yourself what are your plans to generate a steady source of Retirement Income, outside of Social Security. Pensions were designed to help in that regard.
Lump Sum payments benefit the company on releasing them from future obligations, shifting the responsibility to you.
Also, every year the company must file a report to the US Department of Labor outlining the Pension plan financial specifics and health of the plans. There are multiple Pension Plans AT&T provides depending on the affiliate you are employed under. It is a very interesting report to read. All plans roll up under the Umbrella Corporate AT&T Pension Benefit Plan.
You can find the report at this location.
https://www.efast.dol.gov/portal/app/disseminatePublic?execution=e1s1
You only need to enter DATA on these two fields and then perform a search
Enter PLAN number as: 006
Enter EIN as: 431301883
A listing of filings will come up and you would review the last plan submitted for the Plan Year ending December, 31 2017
Also, the company produces a condensed annual report summary for the past 3 years (ANNUAL FUNDING NOTICE for the AT&T PENSION BENEFIT PLAN). This report should be available on the Company Web site (or via Fidelity) under Pension Plan Documents applicable to the plan you fall under and should be showing a summary for Plan years 2015, 2016, and 2017. Data for the 2018 Year I believe will be available in October 2019 based on the Department of Labor filing dates submitted.
Also, these sites may also be of interest on the Pension Benefit Guaranty Corporation (PBGC).
https://www.pbgc.gov/
https://www.pbgc.gov/news/testimony
Corporations pay a Premium PBGC to fund this Agency Responsible for Insuring Corporate pension plans. The AT&T Pension plans are categorized as SINGLE EMPLOYER Plans.
There is always the option that the Company may terminate the plan.
There are two ways they can terminate the pension plan.
First, they can end a plan in a “standard termination,” but only after showing the PBGC that the plan has enough money to pay all benefits owed to participants. Under a standard termination, a plan must either purchase an annuity from an insurance company (which will provide you with periodic retirement benefits, such as monthly for life or for a set period of time when you retire) or, if the plan allows, issue one lump-sum payment that covers your entire benefit. The plan administrator must give advance notice that identifies the insurance company (or companies) selected to provide the annuity. The PBGC’s guarantee ends upon the purchase of an annuity or payment of the lump-sum. If the plan purchases an annuity for you from an insurance company and that company becomes unable to pay, the applicable State Guaranty Association guarantees the annuity to the extent authorized by that state’s law.
Below are links for issues on the State Guaranty Associations
(each State has their own guidelines, Coverages, Benefit Limits, etc)
https://www.nolhga.com/
https://www.nolhga.com/factsandfigures/main.cfm/location/stateinfo
Second, if the plan is not fully-funded, AT&T may apply for a distress termination. To do so, however, they must be in financial distress and prove to a bankruptcy court, or to the PBGC, that they cannot remain in business unless the plan is terminated. If the application is granted, the PBGC will take over the plan as trustee and pay plan benefits, up to the legal limits, using plan assets and PBGC guarantee funds.
Good Luck with your decision and hope this may have helped.
“ I just went to the Schwab annuity calculator and they have … $1mil annuity pays $61K or $5100/mo for life. That is $800 better than the AT&T annuity with 100% survivor. “
Don’t confuse the direction money flows. When you take a lump sum over the annuity, you get the money. When you buy an annuity you pay the money. Annuity companies are profitable because they take a cut of your payment. Pension funds like giving lump sums because they take a cut by giving you less than you deserve. I call BS on any annuity costing less for the same benefit as the pension-vs-lump sum decision a retiree makes. The calculation is supposed to be value neutral to the pension fund, hence the dependence on interest rates.
On a side note, always take the pension if you are in good health. 30 years of pension payments will be more than the growth from investing at comparable risk. If an advisor tells you take the lumpsum and you’ll make millions, you may lose it all too.
Lump sum is what I chose as I didn't trust the Stank/company. Plus, I have invested a portion of this and am doing fairly well. Lastly, if I get hit by a bus then my spouse only gets a percentage that I would have chosen. Carefully check out how they do the math here; e.g. 75% survivor benefit isn't really 75%. You've been warned.
but as long as you don't sell when the ETF is down you'll still earn 5-7%.
This presumes that the companies continue paying a dividend at the same level. As we know from Sir Stank, that ain't always the case.
I just went to the Schwab annuity calculator and they have an annuity paying 6.17% now and if you die before 20yrs your beneficiaries receive the balance of funds. Will probably increase some when the Feds raise rate another .75% next month. $1mil annuity pays $61K or $5100/mo for life. That is $800 better than the AT&T annuity with 100% survivor. But there is no factor for inflation with this annuity or even the AT&T annuity. But there are some dividend based ETFs that pay a monthly dividend and have an annual rate of 4.7 - 7.2%. The principal of these ETF will fluctuate with the market but as long as you don't sell when the ETF is down you'll still earn 5-7%.
If you are worried about your employer's financial state, which all of AT&T employees should be...... You work with your wealth management company and open Rollover IRA.
I was very comfortable with our decision to take the annuity. That along with mine & my spouses social security allows us to pay all our bills and usually a little left over each month. We have converted our 401k to Rollover IRAs. We have not yet had a need to withdraw from these accounts yet. We may need to tap into it to help with financing a new vehicle, home rennovations or repairs etc. We were getting nervous about losing so much money in our IRAs so we stopped some of the bleeding by placing a portion of our portfolio in a fixed annuity that yields @ 2.5% compounded daily for 3 years with the option to withdraw $10k each of the first 2 years. This made us feel alot better about risk. You should ask your Financial Manager what financial tools are available to you as a safety net in this volatile market to ease your mind.
“ Lump sum gives you the possibility of growing the money to fight inflation but also exposes the lump to market risk. We have experienced some of that risk lately.
The annuity is guaranteed either through AT&T or the PBGC so you don't have to worry about market risk but you do have to worry about inflation eating away at the monthly check.
And to those who have posted that they can get an annuity with COLA protection for the same price as their monthly pension from AT&T, I call BS. I priced annuities out when I retired not that long ago and the COLA protection pulled the monthly payout down way below the AT&T monthly pension.
It's market risk vs. inflation. Who really knows how that will play out down the road.”
UAL retirees lost nearly 30% of their monthly pensions through the PBGC when United had a significant shortfall on their pension funding when they filed bankruptcy. People need to quit believing their pension is “guaranteed “ by the PGBC. You are only guaranteed to get something, not all of it.
How many are actually a financial adviser here to allure you to take lump sum and hand it over to them to manage? Be careful! Watch your money carefully.
Omg AGAIN? Take the cash dummy and run!
Lump sum would be better.
You will end up with more over the long run guaranteed.
You leave what you have to your children. Annuities have strict rules when you die.
"when I retired not that long ago and the COLA protection pulled the monthly payout down way below the AT&T monthly pension."
And to you sir/mam, 1 year ago insurance annuities were 1/2 (or less) of what they are today with the rising interest rates!
Lastly, you can purchase multiple Insurance annuities from different companies to raise your state level of protection. I. E $250k policy from X-X and $250k policy from YYY. both are protected.
Also, I like a mix of "Single premium Immediate annuity" (SPIA) and and Multi year Guaranteed Annuity (MYGA) or "Fixed Annuity".
Stay far away from indexed or variable annuities!
If you have questions, I'll gladly answer!
Also, only purchase an insurance annuity at your state protection limit!
Go here for info!
https://www.annuity.org/annuities/regulations/state-guaranty-associations/
"And to those who have posted that they can get an annuity with COLA protection for the same price as their monthly pension from AT&T, I call BS. I priced annuities out when I retired not that long ago and the COLA protection pulled the monthly payout down way below the AT&T monthly pension."
BS? go to the link below, sign up and get the rates! You will quickly find that this is no BS! You can plug in things like inflation protection, refund at death, 10-year guarantee, etc. most provide protection from long term care yada, yada.
All, this is a very tight window of opportunity and hasn't come along in a very long time... you have the opportunity to take the lump, purchase a high paying annuity with multiple benefits. Insurance annuities rise in payments with the interest rates just like lump sum pensions go down in value at the same time!
Don't take my word for it go do your research and realize the opportunity!
https://www.blueprintincome.com/
BTW, blueprint income is owned by one of the top-rated insurance companies (Mass Mutual)
If you’ve been disciplined enough to save enough money to even consider taking the lump sum then you’re disciplined enough to make that money last for your lifetime.
Lump sum gives you the possibility of growing the money to fight inflation but also exposes the lump to market risk. We have experienced some of that risk lately.
The annuity is guaranteed either through AT&T or the PBGC so you don't have to worry about market risk but you do have to worry about inflation eating away at the monthly check.
And to those who have posted that they can get an annuity with COLA protection for the same price as their monthly pension from AT&T, I call BS. I priced annuities out when I retired not that long ago and the COLA protection pulled the monthly payout down way below the AT&T monthly pension.
It's market risk vs. inflation. Who really knows how that will play out down the road.
With the lump sum, you have to make the right investment choices to make up for its reduced amount, when compared to the annuity (and yes, Fidelity calls it a single life annuity, for the nitpicker from the other post) over 15-30 years. This means that you'll have to let it grow over time without withdrawing principle.
On the other hand, you'll have to hope the PBGC comes through, to pay you in full every month (most are far below the PBGC monthly limit), as promised, if it comes to that scenario.
If you take the annuity, you will always have money coming in every month. If you take a lump sum, if you blow it all, it's gone forever.
It’s not an annuity it’s a monthly payment payable until death and then it’s gone unless you take the survivorship which reduces it even further and doesn’t adjust for Brandon’s inflation
You have far more flexibility with the lump sum as long you have some financial discipline
One nice thing about the monthly payment option is it is ERISA protected. This means it cant be taken away no matter what. It is protected from bankruptcy and lawsuit. OJ Simpson had everything taken away, but he still collects his NFL pension. Now odds are unlikely this will happen to you, but I thought I would point it out.
If you take the annuity, there is only a death benefit available for a spouse. So if you pass away and don't have a spouse, it's gone. If you take the lump sum and pass away it can obviously be left to whomever you choose.
Do you think AT&T will be around and viable to pay the annuity when you retire? If not, take the lump sum and invest it yourself. I took the lump sum and it was the right decision for me.
If you take the annuity, you will always have money coming in every month. If you take a lump sum, if you blow it all, it's gone forever.