At the risk of beating a dead horse, how are those annuity payments holding up with 8% inflation (and rising). Not a huge surprise that after a decade of quantitative easing the fiddler gots to be paid.
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The pension annuity and the converted lump sum payout are intended to be as equal as possible, based a set of actuarial assumptions. Assumptions that are accepted and used by the federal government, banks and insurance companies to run their business. Taking the annuity or lump sum is a personal choice. Each choice has its pros and cons, strengths and disadvantages, all based on each person’s needs, health outlook, and financial status.
If you spent all your annuity on crypto every month imagine the money!!
One big difference I see is that if you put the lump in the market it is way down now. If you used your annuity to buy crypto every month you could be wildly wealthy by now. True.
The annuity is a fanatical disaster under ideal circumstances but with high inflation you basically don’t have a pension any more.
I suspect it is not the engineers here arguing for the annuity, as there is no question that the math favors the invested lump long term. The nervous nellies may all yell "the sky is falling" as the market drops, but anyone who sits back in their chair knows that although markets go up and down they almost always end up way ahead over ten years. If you had all your money in a S&P500 index fund you would be down 22.88% for the year (ouch!), but in the last three years you would have gained 28.88%, 16.26%, and 26.89%, respectively. So you would have been up 190% from the pandemic lows and now are only up 150%: Sad but hardly devastating! Put another way, you are up 12% relative to just before the market crash at the beginning of the pandemic (start of 2020). While a 12% gain in the S&P500 over 2.5 years is certainly well below par, it is not bad relative to all we have been through over the last two years and is better than the estimated 3% annual return on moneys in the annuity (particularly when compared to 8% inflation). I personally have a broadly diversified collection of low cost funds and have not changed anything since the start of the pandemic as I am just too busy fishing to worry about it.
If you view the stock market as gambling, you will be better off with social security and the annuity as a bonus.
If you are convinced the market will fall you should short some stocks. You could get very rich.
@3hlt, Jamie Dimon the CEO of JP Morgan Chase gave an interview last month in mid May saying an “economic hurricane” was coming. This interview was on the cusp of the S&P 500 entering a bear market. As many financially astute people are aware that a bear market is known as the point when a 20% decline from the last high, or in this case, from the beginning of the current year occurs. In the article, he was asked when he thought the bear market would subside or end. I don’t remember the exact date of the news story, but he estimated “about another 13% down from here”. I told note of the S&P 500 index at the close of that trading day and calculated his anticipated turning point would happen after the index had fallen by 33% from what it was on Jan 1. I took another look at the index again after last Friday’s bell. We are currently down 24.5%. If Jamie Dimon’s sharp sense of business and savvy investing is reliable, I’d be looking to wade back into investing in the S&P500 and US Stock market after the index dips another 8.5% lower than Friday’s close. Pay particular attention to the price of crude and the continuing war between Ukraine and Russia. As long as these events remain unabated, high inflation will continue to erode the US economy and hence the stock market. The Fed has started its quantitative tightening program and interest rates are on the rise. I think we have another 2% of QT to go, maybe 3%. This ride to the bottom in the stock market will not be over anytime soon. Depending on how things play out week by week, I think Jamie Dimon May change his prediction of a 33% decline to as much as 40%. We may see the S&P500 Index go down to 3000. If you have cash liquidity in your 401k, keep it on the sidelines. When the tide turns to the upside, the exuberance and market returns will be historic. Lucky me, I’m 100% liquid with $1.47 million in my cash settlement account.
Lots of "all or nothing" advice and experiences here. I took the lump sum in 2020, diversified my investments and income stream (working with a competent financial advisor), and am not even raising an eyebrow at the Dow right now - I'm not using those investments anytime soon, and the market will come back. Anyone with a modicum of financial experience (and sound professional advice) saw this inflation binge coming, just maybe not as bad as it is. I'm more interested in when the 'low point' will happen so I can buy more into the market.
People are telling me there is a back door way to access the lump without actually retiring . Details please.
Investments go up and down over time, but long term there is a high probability that a diversified portfolio will rise. Inflation goes up faster or slower during different periods, but it is almost never negative. Thus long term the real value of the fixed payments from an annuity always declines over time. The decline in the value of annuity payments is particularly fast if inflation is high early in your retirement, but equally a big drop in the market early in retirement has the greatest negative impact on long term investment returns from the lump. Either way you go there is risk, but there is a high probability you will do better at the end of the day investing the lump.
The s and p is still averaging ovee 10% per year for the last decade. So yes if you got you lump sum and invested in the market on Jan 1 it would be down 25%. That is why you should always dollar cost average your investments.
If you took the lump and invested it in an S&P index fund you are down ~25% YTD, If you took the annuity, not only has your check been coming in steady and unaffected by this environment, you probably have a lot of other protected assets, real estate, etc. and don't care about the local economy and more interested in trying to figure out which wine to pair with your prime rib this evening like I am.
Stock market and inflation are not necessarily correlated, matey.
Well they cant say they werent warned.
Those who took the annuity in 2016 will see it cut in HALF by 2025 at 8% inflation. Living fat and happy on $4,000/mo, they will tighten their belts to $2,000/mo. Yikes.
Are you just coming to gloat that you took the lump sum?
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