Thread regarding Chevron Corp. layoffs

One thing for sure is, when I make my decision on how I take my pension, whether it be the annuity or a lump sum conversion, the choice will be based solely on the needs and maximum gain for of me and my spouse. Leaving an inheritance to kids, siblings or nephews is not in the picture or our financial planning. For generations in my family, we were raised to pull our own weight in this world. Those kind of lessons in life builds character.

1Itpu, well, since he had no living relatives, it really doesn't make a lot of difference except for what the state would get. I doubt he regrets it, whatever he did, don't really know if he had a penny. well, maybe he does regret his financial decisions. I should ask him.

-1Iiaq: One thing is for sure then: The annuity would have been a bad choice for your neighbor!

My neighbor who died this week planned to "live another 30-40 years in retirement" also.

I plan to live another 40 years in retirement...that’s “long term”. The minor little short-term market ups and downs (even if they are 20-30%) mean nothing to me as I have more than enough year to year....it is decade to decade I am focused on.

@1Iyrm - “Holds a broad market portfolio long term”. LONG TERM? What are you going to do in retirement while you wait long term? I plan to eat 3 square meals a day and every life, not wait long term for my investments to catch up. Foolish thinking.

Inflation will be tame in the US for a long time to come, so it’s not a worry to me. Putting all my retirement savings “eggs” into one basket (the market) at a time when I’m retired, is not a sound strategy for me. Safety and conservative diversification is my strategy, so building up a large portfolio during my working career was always my goal. I achieved my goal and so now I’m retired. I chose the J&S pension annuity, which the lump sum equivalent was about 1/4 of the total in my 401k by the time I retired. While people use the fear of inflation as an excuse to stay away from the annuity, don’t think that your invested portfolio is immune to it. Inflation affects everything and everyone. Inflation can certainly affect any stock as well. I look at the pension annuity and my social security as a hedge. In low inflationary times, it pays a bit more and allows me to not take distributions from my investments, which compounds in growth. In higher inflationary periods, when and if it comes, will require me to take lower distributions than if I depended only on 100% retirement savings. All around, the annuity and social security serves as a fixed and guaranteed income base. Everything else, I can control to a manageable extend that gives me peace of mind in retirement. Retirement is the time to enjoy life and minimizing your financial problems, not for worrying what might be around the next corner.

-1Iwfe: I am wide awake! Everyone who holds a broad market portfolio long term makes money: Bias or reality?

@1Iyqk, the bias is already built in. It’s tilted toward participation in the market. Wake up.

Inflation in the USA has only been negative over 4 years since World War II (1947, 1949, 1955 and 2009), and in contrast it has been over 5% 21 of those years. Looking over seas, sure Japan has been near zero for decades (with very low market returns, which would favor those on fixed income), but Venezuela is at 800% this year (they can kiss their fixed value pensions away completely!)

I have overall conservative investments (broad market 50/50: stocks/bonds) and the annuity does significantly worse in all scenarios that I think reasonable. You must be entering something unusual, which is why I asked.

I agree, Firecalc (which is completely unbiased) favors the annuity only if you set inflation to zero or negative. That has never happened for more than a year or two but I suppose it could. It happened in Japan for more than a decade, but then Japanese are not undisciplined consumers the way 'Muricans are. I would hate to bet my financial future on it. I would prefer to have great investments in a deflating scenario.

“Have you inquired into who owns FIREcalc?”...yes it is supported by donations and written by a retired investment advisor. There are no advertisements on the site, and very active users community. Suggestions of bias are not well supported.

I had similar results as well, with the annuity coming roughly out the same, not better not worse, but enough to make the guaranteed 100% Joint option worth looking hard at. My after tax and 401k numbers are a bit higher than yours, 1Idqh, and probably invested more conservatively, so that's most likely the difference. (no humble brag intended, but humble brag). If you are invested very aggressively, no doubt the lump sum would come out ahead, I think that's what most people have found here. I have no need nor desire to do that in retirement.

-1Icdi: Can you explain what scenarios led to better outcomes with the annuity? I am interested because I found none based on my numbers (~1.5MM non-tax-protected funds, ~2MM IRA, and ~1.4 MM lump or equivalent annuity...plus house paid off). The only inputs I can imagine is an unprecedented market clash with a long period of almost no inflation.

@1Icdi, It’s not surprising and to be expected. For the average Chevron retiree, the annuity and lump sum are actuarially equivalent in value. It’s a personal choice where a retiree sees one or the other to be more advantageous. The more years of service you have past 20 years, the more benefit the annuity will provide as a stable and guaranteed fixed income stream to your investment portfolio.

1Hpgd, yes I agree, I've tried it with many different scenarios including the lump sum as well as annuity alongside the rest of my portfolio, and SS and I get the highest success rates with the plain old annuity, believe it or not. Still don't know which one that I'll end up choosing.

Yes it is @1Hutj. It’s a glorified 4% rule calculator. I tried it several ways and to achieve a realistic expectation of lasting as long as I should supposedly live, it comes out near the 4% retirement savings withdrawal rate. Actually, it’s closer to 3.75%. Have you inquired into who owns FIREcalc? It’s an organization that promotes retirement investing. Where do you think their bias resides? Investing! To catch fish best, you need to use bait.

Firecalc is a dynamic version of the 1%, 2%, 3%, 4%, 6%, 8%, etc., any rule you want. With historical market fluctuations modeled in to predict a success rate as well as fixed incomes such as annuities and SS. So, no, it's not the 4% rule that you can do in 10 seconds on a hand calculator, but we get your point.

After running it many times for fun, I think FIRECalc is just a dynamic version of the 4% rule. When I need a base number for retirement planning, I use the 4% rule.

Thanks -1Eslo. I think FIREcalc was indented to be fairly simple and broad brush for the masses (like me!) while still capturing the big hitters. It does let you specify your investment areas into a half dozen categories, but not much more. One interesting result using the previously posted “base case” ($1MM vs. $57500/yr. which appears a reasonable test estimate based on the ratio of my own numbers) was if you ask for the safe yearly spent rate to be better than 99% confident of success (under the “investigate” tab in FIREcalc) it indicates $37500/yr for the lump, but only $10,000/yr for the annuity. Thinking about it, those results reflect the 1970s, when interest rates were briefly in the double digits. Shows the problem of analysis of any data, the devil is in the details. Can’t trust the mean (the old joke about the 6’ statistician who drowns in a pool averaging 3’ deep), but you also have to be careful about trusting outliers. In this case, the possibility of the worse case is not random among the cases, but rather reflects how possible it might be to return to double digit inflation in your life time. Same general idea goes for market returns on the invested lump.

@1Eslo, CPI = Consumer Price Index, PPI = Producer Price Index. Both are broad inflation indicators which are updated monthly. Each index is broken down into small subsets of the economy. Does FIRECalc allow you to choose a subset of the CPI or PPI? If not, the calculator doesn’t allow the user the granularity to experiment with probability outcomes dependent on your specific investment sectors.

In FIREcalc, the success of the annuity payments in holding their value (i.e., spent at a given COLA adjusted rate long term) depends critically on the inflation assumptions, but I do not see a detailed description of the different models: PPI, CPI & fixed %. I understand the latter, but not the other two. I ask because market gains historically tend to rise with inflation rate, and I am curious if this relationship is reflected in their analysis. This relationship might be one of the reasons the lump is showing better projected outcomes than the “equivalent” annuity payments.

-1Dhlr and -1Dys, it appears from the disapproval marks you are getting, that you are not convincing anyone. I think you place too much confidence in the calculator that wealth management “advisor” is showing you.

@1Dcyd, I’m already retired and I took the pension annuity for the same reasons you describe. One must always have a fixed income source as part of a well planned and diversified investment portfolio. The Chevron pension annuity is certainly one of the best fixed income streams you’ll find anywhere.

Same game with $35k withdrawal rate, the annuity fails 28.5% of the time, with 30 year residual mean of $740k (upside of 4.5 MM). Lump never fails, with 30 year residual mean of 2.4 MM (upside 6.6 MM).

Ok, but to be realistic at all, I am sure you will agree, the inflation buttons must be left on. Enter pension of $57500/yr OR Lump of 1MM. With default inflation (3%) and default total market investments the annuity fails 72% of the time and the Lump fails 28% of the time to keep base with an inflation adjusted withdrawal rate of $50k!

If you like playing with Firecalc, try this - put in annual spending of $57,000 and lump sum of $1MM. Set inflation to 0% (which means you will withdraw $57,000 flat every year, no COLA, just like the annuity. The result is below - a 96% chance of your portfolio lasting 30 years. The average remaining after 30 is $3.7MM and upside is $14MM. Enough for a new Ferrari every year from there on out.

**FIRECalc looked at the 119 possible 30 year periods in the available data, starting with a portfolio of $1,000,000 and spending your specified amounts each year thereafter.

Here is how your portfolio would have fared in each of the 119 cycles. The lowest and highest portfolio balance at the end of your retirement was $-2,560,075 to $14,642,486, with an average at the end of $3,750,252. (Note: this is looking at all the possible periods; values are in terms of the dollars as of the beginning of the retirement period for each cycle.)

For our purposes, failure means the portfolio was depleted before the end of the 30 years. FIRECalc found that 5 cycles failed, for a success rate of 95.8%.**

It is hard to imagine any credible Firecalc figures which support the annuity. You would need to input like a 2% CAGR (to k--l lump performance) and 0% inflation (to keep the annuity alive more than about 20 years). As we know and have demonstrated again and again, the lump is the clear win on financial terms. The annuity wins for the non-investors as the emotional "sleep well" choice. Pick your poison, boys and girls.

spend rate. not annuity.

@1Chux, When I put my numbers and spend rate using the annuity into Firecalc, -and my spend rate is much higher than the $57,300 per year that you used,($125,000) I get a 100% success rate, a 0% chance of running out of money with the annuity, and an over 90% chance that I will have $10MM or more when I die to leave to heirs. I get an 85% success rate with the lump sum and less remaining.

Since Firecalc is theoretical, and not a guarantee, as a poster below alluded to, I would settle for no less than a 100% success rate. After all, there are assumptions that are made with any calculator.

Typically the people who end up choosing the lump sum and follow the advice of the all-talk no-walk "buy my investment vehicle" unscrupulous advisers have no gonads, and cannot think for themselves. They are also the same ones who have lived in fear of the market and investing, and just heard about this "great new thing". Yes, I know it's sad, but it's true. They have no nuts. Like eunuchs. That's why they end up needing a lump sum buyout, more money than they have ever seen in their entire lives, poor desperate insecure little things, instead of the financially superior annuity. Many of us have 4 to 6 times the lump sum buyoff already and it's no big deal, since we were not afraid to save and invest since we were in our 20's, some earlier. Others think that perhaps if they get a lump sum, they can purchase a pair of gonads and that's all that it takes to become a man. I feel so bad for them. They are in for a rude awakening. It's not like you can just sew them on with a needle and thread.

@1Chux, Indeed those are good odds until you realize Firecalc came without any guarantees after the floor falls out from under you. Diversification will be a word that you wished you appreciated more.

@1Chbo, I suggest you do things your way. After all, it’s your money. But do one thing for yourself today. Please copy your post to a safe place and read it again to yourself on your 70th birthday. No need to come back here to tell us anything. Just know it was your choice to do what you did. Go ahead and roll the dice. We all have only ourselves to blame or congratulate in the end. No one else is going to care.

1Cusn, Having sense is not common with poor people who have no savings, no nest egg, no financial acumen, no knowledge of investing throughout their lives and always choose the lump sum buyout based on the latest water-cooler talk. Therefore, those people take the lump sum and waste it away, commonly. So yes, they would blow it on large TVs and such , whether they need it or not. Feel free to do that. No one's stopping you. You have no one to convince here but yourself. Why are you trying so hard?

Retire in 2006 like I did, and model that, tough guys. yeah. that's right. calculate away. the longer the bull runs, the longer and harder the bear needs to hibernate.

1Chbo. Good analysis, and helpful info, to begin with. However, to be honest, you're not modeling the best or worse scenarios which include true SORR (Sequence of Return Risks) as a historical model iteration based calculator does, such as Firecalc, or with a monte carlo simulation based calc.. You are just throwing arbitrary numbers in at random (say the market drops 25% in one day, then runs like a top thereafter - not realistic, historically). And you also have to consider the potential for one to invest more aggressively and average 10 to 30% returns,( like I do and have, H.B.) because, for instance, they have a annuity + Social Security to fall back on? That's typical, not uncommon. + throw in the lifespan of a 100% JS spouse who, if a woman, lives longer statistically, and if a younger woman (typical) - well, you do the math.

The annuity offers just as much opportunity to manage taxes, if you actually want your money, as the lump, Now if you do not want to have access to your retirement funds, and prefer to roll it over to a tax-protected account until you are forced to take it out via RMD's and end up paying more taxes in the long run, then have at it. The annuity also never runs out until you die, which is a lot more than you can say about the lump sum. In fact, records show that the majority of people who take the lump sum do not diligently invest it, as you lump fans speak of, but instead blow it. Wasted frivolous things such as mentioned below. Have at it. Those are just pesky facts, don't bother with them. Who are you lump guys trying to convince, anywho? You're certainly not bothering people who can afford McMansions, Late model luxury vehicles, world travel, and can also afford 100% joint-survivor annuities for their loved ones until death. You're not bothering them, nor convincing them that their successful careers of intelligent investing were not successful. Are you trying to convince yourselves? Go for it, what's stopping you? Do you think that a older successful wealthy seasoned investor annuitant cares that someone figured out a way to squeeze a few pennies out of an investment? Do you think you discovered something? Think again.

The lump sum offers infinite options for saving, investing, spending and managing taxes. The annuity offers no options. Lumpers can set it and forget it in a couple funds that will thrash inflation, spend it on a family emergency, buy a Ferrari, or donate it to a worthy charity, if it turns out to be more than they can spend.

So Lump Sum guy invested his LS in the market and it is ALL growing tax free. On the other hand, Annuity guy, who is not touching his annuity and investing it all in the market is paying income tax on this annuity and therefore the amount available for investing is REDUCED. Retirement investment decisions are tough, but I'd say it's all about reducing taxes. Round 1 to Lump Sum guy.