Life annuity

L1: Life annuityHaving a couple years to go for early retirement, I am not sure whether to take a lump sum w/401k and combine both into a 72t, or take Life Annuity along w/401k and pick up a term life insurance for 15 yearsbetween$600-$700K?
Many former employees took a bath over the last 5+ years in thier portfolo’s andmany felt they should of taken some type ofpension annuity now.
I am not a big believer of FP’s since many are biased with the companies they work for and after you sign the dotted line your tied with them for the next 5 years.
Seems to me that going the first route may be a little more secure?2004-04-19 21:22, By: LA, IP: [66.215.114.28]

L2: Life annuityHello LA:
The issue of whether to take a lumpsum distribution from a pension or wait & collect the monthly beneifit for life is primarily an exercise in mathematics that ususally takes no more than 30 minutes. Most financial planners (FP’s?) will tell you to take the lumpsum as that way they can get their hands on your money and invest it for you thus collecting their fees. Actually, most of the time, but not 100% of the time, they are right but for typically the wrong reason.
The right reason would be that you can, or at least think you can(safely?) invest the lumpsum distribution from your pension for NN years such that NN years later your lumpsum is larger than today; further, that NN years in the future you can (if you choose) purchase an immediate annuity from virtually any insurer that will provide a larger monthly benefit for life than had you chosen to not take the lumpsum distribution.
One last thought; we all have heard of interest rate risk and market risk; there is now a new risk “pension plan risk”. PPR is the risk that your ex-employer whois also the funder of the trust that will eventually pay you your monthly benefit will go bankrupt or otherwise become unable to continue the pension plan funding. In this case, the pension plan may be underfunded and eventually will be turned over to the Pension Benefit Guarantee Corporation. The PBGC is kinda a like an insurance company for private pension plans and picks up SOME but not all of the monthly benefit payments of a bankrupt pension plan. It is a very unpleasant experiencefor a pensioner at age 75 to suddenly learn that their monthly checks are going to go down by 25% to 40%.
As a result, when the mathematics described above com out a tie, but for the extremely risk adverse, I tend to advocate the lumpsum to avoid PPR.
Lastly, if you are looking for a financial planner (FP), I would further advocate that at a minimum you look for one that is fixed fee; e.g. avoid FPs that tell you that there time and plan is free (or materially subsidized) as they will make it up in spades through the commissions on the products they sell you. Even better, seek out an FP that simply does not sell investment products at all.
TheBadger
wjstecker@wispertel.net
2004-04-20 08:18, By: TheBadger, IP: [66.250.23.21]