I am 31 and leaving a job where there is a pension plan. I am vested and can take out $37000, my contribution thus far and roll it over to an IRA. Or should I leave it in the pension plan and get $902/month at age 55 until death.

I figured at a rate of 7% compounded annually, $37000 will be 187,677.57; 8% compounded annually for 24 years, $37000 will be 234,623.68.

Thanks!!!

MustSav3 said:I am 31 and leaving a job where there is a pension plan. I am vested and can take out $37000, my contribution thus far and roll it over to an IRA. Or should I leave it in the pension plan and get $902/month at age 55 until death.


I figured at a rate of 7% compounded annually, $37000 will be 187,677.57; 8% compounded annually for 24 years, $37000 will be 234,623.68.

Thanks!!!
It looks like you already did the research. If you make 7% returns, you should be able to take >$902/month at age 55 and still have money in you account. I really can't see an upside to leaving it in the pension plan.

I think likely the best option is to take it out and invest it.
Since you have a fixed payout at age 55 of 902 it's not that optimistic to beat this given stock market avgs over long periods of time.

As you said with 8% annually you could have 234623.68.
If you take interest income off that amount once you turn 55, (I used 4%) you get 782.08 a month in interest.
If you wait till your past 57 you will be making slightly more than your guaranteed payout at 912.22 a month.
Obviously the longer you wait the longer it has to compound and the more will have to draw interest on.
Waiting till your 65 and 8% and taking only 4% in interest after that you get monthly payments of 1688.45.

In short, take the money and let it compound for as long as possible then enjoy

p.s. I have your situation in an excel sheet you can change the interest rate predictions and time periods etc. If you want it just PM me.

MustSav3 said:When can you take out funds from your IRA w/out penalty/extra taxes consequences? And can you use it towards buying a first home?

You can use an IRA for a first time home purchase. I think you are allowed to take 10,000 with no penalty. A Roth IRA I think has to be open for 5 years though, a traditional IRA doesn't have this stipulation.

Also No penalties for money taken out between 59 1/2 to 70 1/2 years old. After 70 1/2 years there are some wierd rules for not taking out enough money which I don't know anything about.

Is the 902 in current dollars? Does it get adjusted for inflation? 7 percent is a little optimistic, considering you'd likely scale your risk back as you approached retirment.

Always take the money and control it yourself. As for people saying 7% is optimistic they are investing in really bad investments. You should be able to invest in things that return 8-10% long term with a normal amount of risk.

What if you die at 56? Your wife/kids get nothing whereas if you control the money you can pass it on.

This is an example of a low risk portfolio (I would go much higher if I were your age) and even it returned better than 8% over the last 10 years. Control the money and put it into a portfolio that fits your risk level.

If your investments perform poorly and reach $187,000 (Your 7% figure), great. If they do what they should and perform over 10% for the next 30 years, even better.

A traditional pension is special, and hard to find nowadays. I mean, risk is a huge problem in retirement saving, and an old school pension takes away a huge portion of that. I'd give my eye teeth for a pension.

to confirm, since this pension benefit wouldn't kick in for another 20+ years, you're saying it will STILL only be $902 in 203 dollars, and will remain at that level forever? That would be a bit of a bummer, since $902 won't be much money in 25 years. Might pay your utility bill, though.

As a reality check, if a 55 year old Ohioan RIGHT NOW were to buy an annuity good until they die from Fidelity, with $37,000, it would get them $225 a month (also non inflation adjusted)

Now we have to extrapolate 24 years in the future. First, extrapolate the $37,000 at an risk-free rate of 4%, and you get $94,800 when you retire. A Fidelity annuity bought with that much money yields $577 monthly payments. As far as I can tell, no other inflation adjusting would need to be done.

Of course, with the pension, there is employer risk. If the employer defaults on the pension, it's probably taken over by teh Pension Benefit Guaranty Corp, and that might reduce the benefit (I'm not sure, I'm not very familiar with it, and it's not a very large pension, you might be clear).

If it was me, I'd vote to keep the pension.

MustSav3 said:....After 70 1/2 years there are some weird rules for not taking out enough money which I don't know anything about.RMD - Required Minimum Distributions are intended to encourage retirees to use (and pay income taxes on) their retirement savings instead of leaving tax-deferred estates to heirs who might then defer paying taxes until they too pass the estate on to their heirs, ad infinitum. The government wants those taxes!

At age 70 1/2, the retiree has to withdraw a minimum of 1/27.4 of the balance. If he has an IRA of $500,000, the RMD is $500,000 divided by 27.4 = $18,248.

The next year the divisor changes to 26.5, then 25.6, etc.. At age 80 it's 18.7 and at age 100 it's 6.3.

Expect the divisors to change. They were just increased to reflect increasing life expectancies. That means retirees are required to withdraw less each year.

Don't forget to google "underfunded pensions".

If you assume a fixed rate of return for your investment, then the breakeven annual rate is 0.0648 (just do a Goal-Seek in excel).

I am not saying you can achieve an average 6.48% rate of return over the next 24 years for sure, but to me, it seems like a better option to have control over your own money.

Use / invest it wisely, though.