DB Pension Plan – Lump sum vs. Pension

Submitted by Tracy Hawbaker on Tue, 2022-02-01 22:54

We have a client who is 74-years-old that has been receiving a monthly pension payment of approximately $6,000 gross for several years. It also has a 75% joint and survivor option of approximately $4,500. His wife is 73-years-old. They use this as a portion of their retirement income. They are both in relatively good health. The company is now offering a lump sum option of just under $1,000,000. We are looking for a calculator or information to best compare the two options available to the client in an effort to provide them with an unbiased comparison.



Submitted by Alan - IRA critic on Tue, 2022-02-01 23:11

Don’t have the calculator info, but am curious how long the 1mm lump sum figure is good for. With interest rates poised to rise very soon and continue rising barring a recession, the present value could drop sharply and soon. 
They also need to determine how the plan will calculate the 2022 RMD which will not be eligible for rollover. See the following article:
How Do the RMD Rules Work When a Pension Plan Lump Sum is Paid? | Ed Slott and Company, LLC (irahelp.com)

Submitted by Tracy Hawbaker on Wed, 2022-02-02 19:30

The client will receive his final offer on February 15th and has to make a decision by March 15th.  I was wondering about the RMD too.

Submitted by Alan - IRA critic on Wed, 2022-02-02 21:34

I would expect that the quoted lump sum would go down if not elected by 3/15 due. The next Fed meeting is 3/15 and 3/16, so the 3/15 deadline date may be related. It’s pretty well baked in that there will be an increase announced at the close of that meeting on 3/16.

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