Thread regarding Chevron Corp. layoffs

It looks like this thread is being trolled by someone trying to sell you their investment plan or company, like that junk mail you always get.

The only way an annuity makes sense is if you have some significant other source of income (rental income, independently wealthy, etc.) and you have no interest in your heirs. Otherwise, lump sum (handed over to a reputable financial advisor) makes much more sense to the 95% who follow that path.

@4ppm: If you have more total wealth taking the Annuity is a particularly bad move because you are in a strong position to handle any short-term market downturns. If you took the Annuity in 2016 the value of your annuity payments have already declined to 70% of what they originally were due to inflation, while you lost the opportunity to have had the Lump grow by 50% even if only invested in conservative grow and income type mutual funds. By the time you are really old the annuity payments will be nearly worthless (assuming you even live that long). You might as well just flush your money down the toilet.

Deciding your Chevron pension as a lump sum or lifetime annuity is a personal choice. There’s pros and cons to each one. It’s certainly not a “one size fits all” situation. If you are a person who is financially organized and can make analytical decisions, I think you’ll be fine without consulting a financial analyst. Usually, the answer is easier to make if you are a long term employee (20+ years) and have built up a high balance 401k. I for one was a 28 year career employee who retired with a $1.9 million 401k portfolio. I took the J&S 100% annuity and moved my 401k balance into two separate IRA accounts. I conservatively invest my holdings and enjoy a steady and guaranteed annuity, which my spouse will continue to receive if I should pass first. I’m still very happy and comfortable with the decision we made since 2016.

This question pops up from time to time, you might wanna check some of the previous threads about it:

For Chevron employees now retiring. Lump Sum or Annuity?
http://thelayoff.com/t/EBvQOkT or linked @OP+EBvQOkT

Lump sum vs Annuity
http://thelayoff.com/t/GEjhx1M or linked @OP+GEjhx1M

When is it the right time?
http://thelayoff.com/t/1nzW5JcD @OP+1nzW5JcD

I agree with the advice to talk to a Financial Advisor, however it is a good idea to think through the general numbers yourself. Many advisors tend to work up your numbers with the input your provide, rather than trying to convince you to take a different path. So if you say "I am thinking about taking an annuity because I prefer the safety", they will say "ok, then here are your numbers", rather than saying "Why do you want an annuity"?

I don’t still have access to the Chevron annuity calculator because I retired a few years back, so I don’t know the current lump vs annuity numbers. When making this choice one needs to consider two key unknown variables: Rate of return on investment (or lost opportunity) and the inflation rate. Someone posted previously on this thread that with the annuity you currently make about %6 of the lump value each year until you die, so let us consider that number. That sounds like a reasonable rate of return on investment, but taking that number as a return ignores that you lost the money in the lump to get this return. The correct way to view this %6 “return” is that it will take about 17 years to simply get the value of the lump sum returned to you, so if you die in the first 17 years after taking the annuity your return on investment is negative! Consider you retire at 65, the annuity payments will not return the value to the lump to you until you are about 81, and the annuity payments will not double the lump value for you until you are 99 years old. So if, and only if, you live to 99 then the real rate of return on your annuity investment will be about 3% (die younger and your returns rate is lower.

The second thing to consider is the true value of those annuity payments, which progressively declared with inflation. Inflation has been as high as 8% and as low as 1.2% this decade, but long term it tends to be a bit more than 3%. Under 3% annual inflation, the value of the fixed dollar annuity payments will decline to only %60 of their original value by the time the value of the lump sum is returned to you and will have declined to only %35 of their original value by the time the value of the lump sum is returned to you twice (at 99 in our scenario above). Under 3% inflation it takes 23 years of the annuity payments to return the pre-inflation value of the lump. So in our scenario we considered above (retired at 65) you would get zero percent real (inflation corrected) returns from your annuity investment by age 87 and less than 1% real returns at age 99. Die before age 87 and your "real" returns (inflation adjusted) are negative.

Now consider taking the lump payment. If you put it under your mattress and use these funds at the same rate as the annuity payments, then the money is gone after 17 years. However, if you put the lump in a very safe investment that returned 3%, then you could continue to withdraw the same amount as that which would have been your annuity payment for the next 26 years. Consider if you invested your lump sum in the S&P 500 and managed to get the historical average returns of %8, then you could continue to withdraw a sum equivalent to what would have been your annuity payment forever and still have a lot left to give your children (in our scenario above, retired at 65, dead at 99 after taking payments from the invested lump at the rate of what would have been your annuity payments, you would have 3 times the lump amount in your estate!). More generally if you invest the lump in a reasonably conservative well-diversified mix of stocks and bonds there is a very high probability that you can preserve the full value of the lump even under a withdrawal rate you would have gotten from the annuity plus an inflation correction (which means the “value” of the fund withdraws would remain constant, rather than shrinking to 35% of the value with your fixed dollar amount annuity payments).

The only scenarios I can think of where the annuity option makes financial sense are cases where you cannot trust yourself to responsibly manage the lump investment (e.g., gambling or dr-g addiction), or in cases where you need to protect your moneys from legal actions (as generally, future retirement annuity payments are more protected from legal actions than are a lump sum held in a retirement account).

@1oyj, so you are requesting that another person posts names of people on this site so that their post will be deleted, or do you just not have a clue on how to find a fee-based financial advisor? They're literally everywhere coming out of the woodwork.

Check with a financial advisor. I believe they will tell you the vast majority take the lump sum and invested it with their firm and are doing fantastic. Surprise, surprise.

Always take the lump sum.

You can buy bonds with it if you want and it will pay out the same.

@1mef+1uIbB6Zs:

Would you be willing to share the names of the financial consultants, including the fee-based one?

Thank you

Remember GM? U.S. Steel? If you doubt the direction of the company and viability 15-20 years out for your non-COLA payout, add getting pennies on the dollar from the government payout down the road in your risk analysis.

Interest rates/segment rates are dropping and the value of the lump sum essentially increases until age 60. Pretty easy to model taking lump sum and investing in S&P 500 verses waiting until 60 to take lump sum with different segment rates. My simple spreadsheet said it was a no brainer to leave it in. No financial advisor needed.

The simple answer is to ask yourself this question: Are you 100% sure you will be alive 1 week, 1month,1 year from now? Then don't bet on unknown future, live for today.

I plan to rollover to IRA. This won’t be a taxable event. IRA can grow much higher % and i can control if I want to convert to Roth or withdraw to use

Here is the silver bullet

Take the lump sum
Buy your annuity with 50% of it
Buy 40% S&P 500 index fund
Buy 10% Global portobello Index fund

Most people working in our industry in the US plan more than they can spend so 50% gives you the piece of mind
The rest can grow in a slightly aggressive investment portobello but not overly aggressive

Everyone is different but this woks for 95% of Americans and Canadian who have spent more than 15 or 20 years in our industry

Lump Sum. Invest and you can put it in your Will.

Think long term for your family. As some have said the lump sum can be invested, although I highly recommend NOT doing nesting in S&P 500 right now.

Also, lump sum and buy a lake property… 🙂

I retired 2 years ago at age 56. I took the lump sum. I think if you are risk averse you may want to consider the annuity. Guaranteed monthly income (that does not grow with inflation) from the annuity, and 401k money in market, allocated per your income requirements and risk tolerance.

I had 3 different fiduciary advisors provide an analysis. 2 were free and one charged $1000 fee to provide an analysis for me. Each were thorough and made recommendations based on my financial situation and risk tolerance. My opinion is that $1000 was worth the analysis.

As others here have recommended, talk to a fiduciary advisor (some will do it for free, others charge a fee for the analysis). You have a lot of big decisions to make and it will affect the rest of your life. I think it is true most choose the lump sum, but that doesn't mean it is the best choice for you.

For me and my family the lump sum was the right decision.

Be careful if a financial advisor tries to sell you an annuity because they make money on the sale. I only know of one person that took an annuity but he is an engineering geek (I mean you have engineers and then there are engineer's engineers that overanalyze everything) and he ran monte carlo simulations on hundreds of scenarios.

I’m considering 15 years certain.

I have yet to meet a single retiree with significant investments that chose the annuity. The math is pretty simple. Look it up on the benefits connect page. The annuity is worth roughly 6% annually of the lump sump amount. That is a very paltry yield for a zero growth fixed annuity with no payout to your surviving children.

Almost all financial advisors that are not single fee based, and are percentage based and you will assumingly invest everything with them, want you and will advise you to take the lump sum and invest it. (with them). Duh.
Keep in mind what the most lucrative careers in the world are.
Just a hint, it's not industry, not real estate, not Tech.
Do the math.

Most older retired people that I know had significant other savings in investment portfolios so the lump sum or annuity was only a part of it, maybe a third. And a lot of them took the 100% Joint survivor annuity because of it's spousal benefits. If you are pretty much covered by the three legged stool or whatever they call it, it's an easier decision because it doesn't ki-l you either way. Also, at any given time, they are supposed to be equal. Sure, you can go for more risk/reward, but that's not a correct comparison, financially. If you don't understand, see an advisor, like others have mentioned.

The folks that took the annuity during FT now have like 70% of the original purchasing power. If you took the lump sum and put it in a conservative dividend growth fund then you would likely have 30% more annual dividends plus some capital growth. Its hard to come up with a scenario where the annuity isnt a huge loser. And as others mentioned, when you and your spouse die its gone.

Check with a financial advisor. I believe they will tell you the vast majority take the lump sum.

If the annuity payment is 6.5 percent or higher than you might want to think about it. Things to consider on monthly payment.

1. Never has a COLA adjustment
2. When you and your spouse die it dies with you both.
3. You can’t change it.

And of course other things.

The good point is you will get that payment every month until you die.

Everyone’s math is different, I highly recommend that you talk to a Financial Advisor before you make your decision so they can be more thorough with your strategy