Just a word to the wise get your commuted value in writing before you make any decisions about your pension and where it goes.
I would recommend if you can get a payout and put it under your control and you can leave it to your loved ones if something happens to you.
The lump sum is down due to interest rates. However, as an example if you have a 1M lump sum, and you invest it wisely or even in low risk areas due to interest rates (dividend paying ETFs, CD Ladders, even money market funds), it would grow over time. I mean there are high interest savings accounts now that are paying 4%+ - that would be 40,000 a year and compounding. Of course, those rates will not last forever. It just depends on your aversion to risk.
That being said. The annuity may make sense if you don't worry about leaving money to your family, or have 401K, emergency savings, and/or can adjust your lifestyle/spending to be covered by the annuity(including potential health care costs in retirement) But, there are no inflation or cost of living adjustments. So, whatever you get per month is what you will always get. That may not matter over 10 years, but 25 years from now will it be enough with Social Security and other savings?
I have no loved ones and expect to live a long and healthy retirement. So, the monthly payout works for me compared to the lump sum which is down about $60k since the interest changes affected it!
If you calculate the annuity option it equates to 8%, given the 25% reduction in the lump sum value due to interest rates the annuity is much more favorable assuming T doesn’t go bankrupt.
If you take the lump sum, you roll it into an IRA probably with your 401k balance depending on your age. You aren't taxed on it until you start to withdraw it after 59.5. Then the amount you are taxed will depend on how much you withdraw and any other income you would have for a given year. If you are worried about putting it in the market, there are some money market options that are currently yielding 4.8% and are probably some low/moderate risk ETFs so if you aren't going to tap into it anytime soon it has potential to grow.
Agreed. Always take the payout so there is money left for your loved ones if something happens to you.
What about tax?
What are the options once you get lumpsum?
Agreed!