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148 - Annuity vs Lump Sum - Which Pension Option Should I Select?
Description
Scott and James discuss which pension option they should select, annuity or lump sum?
Listener Question
Hey guys! Thank you so much for the amazing podcast! I have a pension question. I am a teacher, and I am eligible to retire and begin taking my pension payments in July 2023. I have heard some people say to take the lump sum distribution, and create your own pension/annuity, but the math doesn't seem to work out right for me. I will be 51 at that point, and likely moving to a different profession with an income to add to the pension payouts. The amount that I would receive as a lump sum would be approximately $210,000. That represents all of my contributions over the 28 years I have been teaching plus 4% interest per year. It does not include the contributions from my employer, as I am not entitled to take them if I elect for the lump sum. The pension option that I would choose is the reduced amount that would continue for my wife after my death. It is $3408 monthly, which comes to nearly $41,000 per year. There is no way that I could expect to earn that much on the lump sum of $210,000 to make that a logical choice, is there? Am I doing something wrong on the math?
Planning Points Discussed
- Utilizing Time Efficiently
- Capital Appreciation
- Purchasing Power
- Other issues (IRAs, Inflation, Financial Goals, etc.)
Timestamps:
3:54 - Pension Overview
6:37 - How to Determine the Best Choice
9:35 - Inflation Protection
11:46 - Importance of Your Situation
13:51 - Aligning Your Financial Goals
LET'S CONNECT!
James
Scott
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