OT early pension lump sum

[Mikej]

Looking for some information- my company started to put pension money directly into our 401k. The stopped putting money in the pension at that time. We are now faced with choosing what to do with the pension money from prior to 401k. Let’s just say I am 48 and the locked pension amount is 60k usd. Should I roll it into my current 401k or let it automatically roll into an annuity. Annuity has not actually been named yet. Thanks for the help. I plan to retire at 67.

[kppolich]

I would roll it in to the 401k. Do you know if the annuity will be fixed or variable? Either way I would still roll it in to the 401k for flexibility.

[54ny77]

my only suggestion is to not put it into an annuity. annuities are great....for annuity salesmen.

they are wickedly complicated and fraught with all kids of b.s. fees and b.s. "guarantees."

nothing is "guaranteed" other than u.s. gov't debt, at maturity only.

some years ago i had to help a relative unwind one that was sold by a scumbag "advisor." not a fun process.

[biker72]

Scott Burns, the creator of the couch potato portfolio, and now retired financial columnist has always maintained that the only person that profits from an annuity is the person that sells them.

Roll it into your 401K.

[Ralph]

Roll it to your 401 K. Or a separate IRA away from your company if possible. If possible....an IRA with someone like Charles Schwab or Vanguard....where there are no account fees and you can buy no load funds (and stocks for $5/trade). Most company 401K accounts have costly fees.

Annuities have their uses (maybe guarantee an income for a certain length of time for someone not able to manage their finances...as an example), but not as an investment for someone your age.

(Retired VP Merrill Lynch.....and I use Schwab and Vanguard....don't/won't own an annuity...but thinking about one for a handicapped step daughter I support, for after I'm gone).

[Mikej]

I would roll it in to the 401k. Do you know if the annuity will be fixed or variable? Either way I would still roll it in to the 401k for flexibility.

Fixed annuity

[Mikej]

401k is my initial choice, just thought I’d ask the pace line for experience. Thanks.

[Mikej]

Roll it to your 401 K. Or a separate IRA away from your company if possible. If possible....an IRA with someone like Charles Schwab or Vanguard....where there are no account fees and you can buy no load funds (and stocks for $5/trade). Most company 401K accounts have costly fees.

Annuities have their uses (maybe guarantee an income for a certain length of time for someone not able to manage their finances...as an example), but not as an investment for someone your age.

(Retired VP Merrill Lynch.....and I use Schwab and Vanguard)

Thanks for your post. Our company 401k fees are paid by the company. We have vanguard funds available to us in this 401k - I’m into the 500 index investor.

[kppolich]

Fixed annuity

Definite No

Someone correct me if I'm wrong but you can't move from a fixed annuity once you are in right? Variable can move to fixed but fixed can't move to variable? Either way, annuities are a a racket.

[woolly]

Roll it to a separate IRA. After much deliberation, that's what we did with both of ours & I've very happy we did. No need to keep all your eggs in the same company 401k basket (plus the probably higher fees that others mention).

And and, what so many others here said about the annuity - run.

[tab123]

A few other thoughts to consider:

If your company’s pension plan is governed by ERISA (the federal law governing pension and 401(k) plans - check the summary plan description to find out), then the annuity available to you is not the same as those purchased in the individual market. The annuity would not be subject to the fees paid by individuals in the individual market.

If your future annuity is provided by an insurance company and not your employer’s pension plan, then you lose the protection offered by the Pension Benefit Guaranty Corporation (PBGC) and would be subject to the credit worthiness of the insurance company. The insurance company annuity would be subject to many of the same rules as the pension plan annuity. Your employer has to do a lot of due diligence on the insurance company but that’s no guarantee of the insurance company’s future solvency.

In a pension plan, your employer assumes the investment and funding risks. In a 401(k) plan, you assume the investment risk.

[OtayBW]

Roll it to your 401 K. Or a separate IRA away from your company if possible. If possible....an IRA with someone like Charles Schwab or Vanguard....where there are no account fees and you can buy no load funds (and stocks for $5/trade). Most company 401K accounts have costly fees.

Annuities have their uses (maybe guarantee an income for a certain length of time for someone not able to manage their finances...as an example), but not as an investment for someone your age.

(Retired VP Merrill Lynch.....and I use Schwab and Vanguard....don't/won't own an annuity...but thinking about one for a handicapped step daughter I support, for after I'm gone).
Agree.

[11.4]

If your company’s pension plan is governed by ERISA (the federal law governing pension and 401(k) plans - check the summary plan description to find out), then the annuity available to you is not the same as those purchased in the individual market. The annuity would not be subject to the fees paid by individuals in the individual market.

If your future annuity is provided by an insurance company and not your employer’s pension plan, then you lose the protection offered by the Pension Benefit Guaranty Corporation (PBGC) and would be subject to the credit worthiness of the insurance company. The insurance company annuity would be subject to many of the same rules as the pension plan annuity. Your employer has to do a lot of due diligence on the insurance company but that’s no guarantee of the insurance company’s future solvency.

In a pension plan, your employer assumes the investment and funding risks. In a 401(k) plan, you assume the investment risk.

Beware of the comfort of PBGC. They've been a client of mine in a couple bankruptcies in the past, and the dirty secret is that if you have a valuable pension benefit accrued and your company defaults, the PBGC only pays to a minimum level, not the full amount you're owed. You might find yourself with $70K a year due to you and only get $20k. Just be forewarned. I've had to negotiate two bankruptcies in which PBGC made it very clear that they only would pay the minimum obligation under their guaranty contract.

I'd prefer rolling the money to an IRA. (I'm a former investment banker in both M&A and wealth management.) It has the most flexibility not only as you accrue it but also in how you can pull it out. That flexibility can earn you a lot more and also be critical depending on your life and health circumstances as you get older.

[a4a]

Former finance guy here... stay away from an annuity. As previously said, it’s good for the salesperson and that’s about it. 401k in your control is the best way to go.

[soulspinner]

Cycling attracts an amazing variety...............I learn something on this board as often as anywhere else on the planet.

[Mikej]

Thanks, great help from from all of you! Mailed it in for the 401k.

[George_H]

Thanks, great help from from all of you! Mailed it in for the 401k.

Good choice. You are in complete control and can alter the asset allocation to fit your needs.

[Louis]

As a reminder to folks who need to calculate the present value of a stream of future payments, MS Excel has an NPV function to help you do that. The only tricky part is deciding what discount rate to use.

https://en.wikipedia.org/wiki/Net_present_value

[Mr. Pink]

Good choice. You are in complete control and can alter the asset allocation to fit your needs.

No, IRA would have been a better choice. Much more control.

[Mr. Pink]

Beware of the comfort of PBGC. They've been a client of mine in a couple bankruptcies in the past, and the dirty secret is that if you have a valuable pension benefit accrued and your company defaults, the PBGC only pays to a minimum level, not the full amount you're owed. You might find yourself with $70K a year due to you and only get $20k. Just be forewarned. I've had to negotiate two bankruptcies in which PBGC made it very clear that they only would pay the minimum obligation under their guaranty contract.

I'd prefer rolling the money to an IRA. (I'm a former investment banker in both M&A and wealth management.) It has the most flexibility not only as you accrue it but also in how you can pull it out. That flexibility can earn you a lot more and also be critical depending on your life and health circumstances as you get older.

70K a year is an awfully good pension in the private sector. Awfully good. Very rare, especially these days. Well, pensions are very rare these days. PBGC pays up to 50 grand, the last I heard, and that was a while ago. Maybe they have adjusted that number to inflation. The only time I have read of pensioners not getting covered was when United went under some time ago, and the pilots, who were working on six figure pensions from the old, government regulated and strong Union days, got screwed down to 50 grand by the PBGC. But, at least they got something.

[Mr. Pink]

Btw, a pension is an annuity, if you think of it. It's why I took fixed payments from mine, instead of the cash buyout. Very secure. And that was in 2007. Remember what happened in '08? No worries, just a constant stream of checks. Big downside is no inflation protection, but, we are in low inflation to negative inflation times.

[jamesdak]

Hmmm, makes me think. 10 years out from full retirement. I've got stuff in a private IRA and private Roth IRA as well as an old employer's 401K and then another Roth setup via the government Thrift Savings Plan. I need to get it all consolidated I'm thinking.....hmmm...

[Mr. Pink]

Hmmm, makes me think. 10 years out from full retirement. I've got stuff in a private IRA and private Roth IRA as well as an old employer's 401K and then another Roth setup via the government Thrift Savings Plan. I need to get it all consolidated I'm thinking.....hmmm...

One word. Vanguard. Low costs.

You should roll the 401k into the IRA. Don't think you can roll it into the Roths. And the regular IRA and the Roths will always be seperate. No way you can consolidate them. But, I tell you, at a time when I'm taking money from an IRA, congratulations on funding a Roth. You soon find out that both IRAs and 401ks are not a pile of cash, as you got used to looking at them all those years, but, are now taxable income. It hurts.

[jamesdak]

One word. Vanguard. Low costs.

You should roll the 401k into the IRA. Don't think you can roll it into the Roths. And the regular IRA and the Roths will always be seperate. No way you can consolidate them. But, I tell you, at a time when I'm taking money from an IRA, congratulations on funding a Roth. You soon find out that both IRAs and 401ks are not a pile of cash, as you got used to looking at them all those years, but, are now taxable income. It hurts.

Yeah both traditional IRA's were frozen once Roth became available. The 401K has been growing at over 20% which is why I left it. I've already got a military retirement coming in. When I fully retire I may move to a state that won't tax the military and federal retirements.

[cnighbor1]

Looking for some information- my company started to put pension money directly into our 401k. The stopped putting money in the pension at that time. We are now faced with choosing what to do with the pension money from prior to 401k. Let’s just say I am 48 and the locked pension amount is 60k usd. Should I roll it into my current 401k or let it automatically roll into an annuity. Annuity has not actually been named yet. Thanks for the help. I plan to retire at 67.
I always rolled my 401k's into an IRA that way no taxes on profits till your 70.5

After I recall three 401k roll ins into my IRA I had a decent amount
The best thing is you manage the IRA yourself or hire a great investment firm
I use Merriman investment out of Seattle They put you first and not them making a large profit for themselves
http://www.merriman.com/

[Louis]

I always rolled my 401k's into an IRA that way no taxes on profits till your 70.5

For those who want to retire early (before 59.5) it might be better to leave the 401k money at the company where you got the $, because that way you can access the money early. Otherwise you have to pay that 10% penalty or get the money using a relatively complicated procedure called SEPP (Substantially Equal Periodic Payments).

Check with your real tax / retirement expert before making any important moves...