After a few years at a previous employer, I am entitled to a small monthly pension when I turn 65, which is about 9 years away. The company is offering to cash out employees with lump sum payments, along with other options that aren't interesting. I'll probably work until I am 67...and maybe 70. I have a variety of other investments, all of which are worth more than this one.
I'll use fictitious numbers, that are more or less in the ballpark. If I do nothing, the pension will start paying me $100 a month, forever. If I take a cash settlement right now, it would pay me $9710.00. I can roll it into an IRA, otherwise it's taxable right now.
So I take the $9710, invest it in an IRA (I'd probably do mutual funds or ETF), and earn 8% compound interest. I have $20,963 after 10 years. Assuming I used the right formula
and continue making 8% compounded interest, I could withdraw $184.50/month for 20 years.
The pros of cashing in (as I see it) are:
-if the company goes broke before I die, the pension is at risk.
- after 59½, I could cash the IRA with no tax penalty, if I really needed it.
- After retirement I'll probably be buying a home to retire to, and cash reserves will be handy.
- I control my money
cons:
- I take the money and buy a Rigby (or something equally irresponsible)
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So I am inclined to take the cash out option. Opinions?
