I'm 55 & taking early retirement. I can choose between $86 per month for life or $15,000 lump payout. Great retirement for 20+ yrs. of service --- NOT! Anyway --- which should I do? If I take the $15,000 what do you suggest I do with this amount to get some kind of return~~~~
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Just take the $15K. You may well live beyond 70, but that $86 won't buy you lunch in 15 years.
well at 86$ a month it would take 14.5 years just to hit 15k so it depends on how long you live, but id just take the 15k i wouldn't even notice 86$ going into my bank account every month.
Let's you live to 85. $86/month would net you $30K. You can turn that $15K into $30K in 15 years by only earning 5%/year on it.
It's a no-brainer. Take the lump!
Oh wait...will you be paying taxes on it? Even if so, you are still probably better off taking the lump.
My 2 cents.
I'd suggest to go for 15K, put it to bank under 6% interest, that is 900$/year = $75/month.
And total control.
If you instead choose monthly payments, you will be vulnerable to any change in regulations, funds availability, hurricanes and lost of records etc. Will have to call and ask and proof yourself whenever they miss payment. Do you need this hassle ?
first of all --- Thanks! Now, I forgot to say that there's a cost of living increase every year. Does that make a difference? State retirement, so somewhat secure ----
laurel said:first of all --- Thanks! Now, I forgot to say that there's a cost of living increase every year. Does that make a difference? State retirement, so somewhat secure ----
Viewing from that point. The $15k lump sum invested at a standard return of 5% beats standard inflation anyways. Whereas a fix payout is a set pricing of return over X amount of time.
also investments keep you "locked-in" but you still have the liquidity there
TheAccuser said:Let's you live to 85. $86/month would net you $30K. You can turn that $15K into $30K in 15 years by only earning 5%/year on it.
It's a no-brainer. Take the lump!
Oh wait...will you be paying taxes on it? Even if so, you are still probably better off taking the lump.
My 2 cents.yea but that $15k is only $11k after taxes.
I would go for the $86+COLA. All kinds of things can happen to the $15,000. Someone might steal it, or it might be reduced drastically by bad investments, or it might get spent for an "emergency", or almost anything. If you end up living on Social Security when you're old, and it's barely enough to pay your monthly bills, leaving you with $1.50 in discretionary income per month, $86 can make a huge difference. Three months to save up for a new high-tech TV, vs 200 months. Or being able to pay bus fare to visit your friends and relatives. Or being able to eat at a Chinese restaurant once per month, vs never being able to eat anything but ramen and oatmeal. Even just being able to buy some seeds for your garden can make a big difference in your standard of living when you're old and poor.
Keep in mind that the older you get, the more relatives you have, and the more pressure to spend money on family emergencies. Getting $86 per month does not make you a resource for resourceful relatives.
I take it you cannot take a standard retirement that pays real money but doesn't start until you are 65? A friend of mine did it at age 38 after 20 years in a government job. (Michigan Public Employees Retirement System)
I'm not sure if her checks will be based on the salary for her job in 2025, or if it'll be based on her last three years' salary in the 1990's, but it will be 'full retirement'.
Too bad you aren't military. A client of mine started drawing military retirement in his early 40's at a huge fraction of his working pay and opened a consulting business that contracts with government, so he makes a lot more while working a lot less.
Take the $86 per month. You will not be able to find any reasonably safe investment which will return 6.9% per year with COLA.
BradMajors said:Take the $86 per month. You will not be able to find any reasonably safe investment which will return 6.9% per year with COLA.The monthly payout is "safe" only if the ex-employer will stay in business during OP's lifetime, an iffy proposition when they're spending money to RIF their employees.
the company can easily file BK and recover (think LNT) and you'd get squat.
take the money and spend it on something that will appreciate. or give it to your kids since they'll end up taking care of you eventually when you are wearing diapers. put it to their education and those might be pampers deluxe rather than costco generics.
that is the wisest investment your children - if you have them, if not; disregard.
Remember if you take the 15k and just take the interest each month, then you will also have 15k (in future dollars) to bequeath. The pension simply stops when you croak.
Laurel,
i faced a similar decision 3 years ago. I took the lump sum, rather than the monthly payment, and rolled it into a traditional IRA, hence no tax hit. This is the best option to maximize your money. Go to a discount broker like Etrade, Schwab or Scottrade, and they will show you how to do a Traditional Ira rollover. Invest in a no load mutual fund such as The Fairholme Fund, or an S&P 500 index fund. Don't let them sell you a bad high cost fund. Do not go to a bank for an IRA either, only a discount broker.
If you need the money and intend to take the tax hit, i would not take the lump sum, but rather the monthly payments.
AchtungBabichka said:I'd suggest to go for 15K, put it to bank under 6% interest, that is 900$/year = $75/month.
And total control.
If you instead choose monthly payments, you will be vulnerable to any change in regulations, funds availability, hurricanes and lost of records etc. Will have to call and ask and proof yourself whenever they miss payment. Do you need this hassle ?
Where do you get 6% these days? 
An $86/month COLA payment on $15K is actually a pretty good return. If you check out a SPIA (Single Premium Immediate Annuity). At your age $15K you would get about $80/month with no COLA. And yes the COLA makes a BIG difference.
Since this is state government pension, this is essentially a 6.9% risk free return. I most definitely would take the monthly pension.
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