Tom Helps us Weigh Pension Options
Transcript:
Katie Nealis:
What do you think of lump sum, pension buyouts, lump sum pension buyouts?
Tom Vaughan:
Yeah, you actually could, what she’s talking about is sometimes you end up with a scenario where you can get a certain amount per month for life or for you and your spouse’s life, or what have you, or you can get a lump sum payout, and then you get nothing for life, you just get this big, you know, chunk of money. And usually, you can roll that money over into an IRA or something like that, and start to take withdrawals from that. It’s actually a math problem. So you have to be able to take a look at what you’re being offered in terms of the income, and then what you’re being offered in terms of the lump sum, do some, you know, calculations on what you might be able to earn, and what some of the best years were in that portfolio and some of the worst years and you look at all these different aspects of it. And then you can kind of tell, you know, Hey, does this make sense? And it has a lot to do with the, you know, how much of a lump sum they’re giving you?
You know, I mean, I’ll give you an example. So if you look at the lump sum, and you look at the income that they’re offering you, and let’s just say the income is about 8% per year of the lump sum, wow, I’m going to take the income, you know, honestly, because 8% return on that lump sum is going to be really hard to do year after year after year after year, versus they’re guaranteeing me for the rest of my life, you know, 8% of that lump sum. If on the other hand, the lump sum is bigger, and I’m still getting the say the same income, and I’m really only it’s only a guarantee of 2% or two and a half percent. I might feel like that can beat that long term. And I might take that as a lump sum. So that’s just a portion of the calculation. But it’s literally a math problem for starters, just to figure out, you know, what they’re talking about, and how to analyze that. And oftentimes, people end up not taking the lump sum. And it’s sort of by design that’s, sometimes that’s what these pensions want, but it depends.