Pfizer Lump Sum Pension Buy-out... Have you spent your time thinking about this option?

Discussion in 'Pfizer' started by Jack Wish, Aug 12, 2015 at 8:14 PM.

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  1. Jack Wish

    Jack Wish Guest

    Pfizer, like many other companies in 2014 and 2015, has offered a lump sum pension payment, a buy-out election. A little over a week remains before the August 21, 2015 deadline. Why have I spent so much of my time thinking about this option?

    It is a great decision for Pfizer (and the stockholders)---
    • Push as many future pension obligation dollars, aka risk, off the balance sheet.
    • Do this in 2015, before the actuary tables that value pensions legally increase. Yes, starting in 2016 we're all going to live four years longer (on average, on paper) than we live in 2015.
    • Reduce the payments to PBGC (pension insurance), which recently increased.

    In less common situations, it could be a good decision for an individual---
    • Taking the lump sum may make sense if you are in poor health and reasonably sure you will fall well short of your life expectancy (please carefully consider your spousal options in this decision).
    • The buy-out may also make sense if you already have a significant portion of your retirement income guaranteed (such as other pensions or annuities).

    However, it does not seem to be a good decision for the majority of us---
    • "If you take the lump sum, you control your money, not someone else." This thought process goes against the principle of diversification. For those of us who have a larger portion of retirement income in funds that we control (401k, IRA, and similar), keeping a portion of your money in fixed income protects you from poor stock/fund decisions and protects you from market downturns (you do not want to be forced to draw down capital when the value is low due to market conditions, this is the trap we saw many retirees we love stuck in from 2008 until 2012).
    • "Take the money now, the pension is underfunded and in the future you may not receive anything". This fear is not rational. It is not likely that Pfizer will go into bankruptcy and, as mentioned above, the plan is insured under PBGC (however, look into the payment amounts under PBGC, especially if this pension is a significant portion of your retirement income, and note the maximum monthly payment under PBGC is $4,789).
      Worth mention: We have seen friends go through company collapses that devastated their retirement, example Bell/Lucent. In the less common cases individuals were forced into early retirement packages, resulting in lifetime payments being hundreds and even thousands of dollars less each month than expected. In the more common cases, the devastation was not pension related, individuals who did not know better and who had a majority of their stock and their 401k portfolio invested in the same company they worked for. As an example, Lucent went from $64 at the start of its collapse in 2001 to $12 in just nine months, and another year later it was only worth a few dollars, as it is today.
    • Here are two goals for retirement that should be at the top of your list. (1.) Live, do not hold onto every penny so tight that you die rich. (2.) Do not outlive your money. To satisfy both of these points to the fullest you will need die and become "broke" (excluding the inheritance you have *planned* to pass down), at nearly the same time. This is a difficult state to achieve outside of annuities and pensions.

      Here's a simple question to demonstrate the challenge we face, how much of your savings will you spend each month in retirement to ensure that you enjoy your retirement to its fullest and, at the same time, that you do not outlive your money?

      In the future we are going to spend a lot more time thinking about this question than we have spent thinking about this lump sum offer. For those of us who refrain from taking the lump sum offer, the answer to this question is likely to be a lot easier because there will be a decent portion of money that we will not have to calculate into that difficult equation.
    • You may think that you can solve the above bullets by taking the lump sum offer and using the buy-out money to purchase an annuity. This is where we can clearly see the value of the Pfizer pension versus the lump sum offer. I have not been able to come close to the same benefit for the lump sum value. In some quotes, the lump sum value would need to be two times greater to buy an annuity with the same future value.

    So back to my opening question. Why have I spent so much time thinking about this offer? The two bullets on “less common situations” do not apply to me. Given all the remaining bullets, this decision should be one that requires very little thought. The answer to the question is that one day, many years from now, I will know without doubt, just how right or wrong I was. This is a big decision.

    I am not a professional financial consultant, so please consider the above, consider your own personal situation, and perform your own research as well. Also give the hotline a call. I have posted this writing because it helped me to think through the decision and to identify areas to research further, I hope it does the same for you. I am also very interested in reading your comments, additional thoughts and additional information, some of which will be contrary, and that all of which will help us each to make a better informed decision.
     

  2. anonymous

    anonymous Guest

    Well said. Each situation is different. In my case, I left the company three years ago with a severance package & stock worth @ 660K. I took 1/3 of the capital and purchased a small business that has sufficient cash flow to fund all of my expenses by having the owner hold part of the note. Book value of the business is @ 500K. I took the balance and invested it along with other retirement savings - giving me about 750K to work with. I was 50 at the time. Assuming that I can sell the business and that my 'savings' can grow at between 5 & 6%, it gives me about 1.75M to work with at retirement age PLUS the Pfizer pension and SSN which 'guarantee' me an income of @ 100K/year. Given that an annuity would yield only about 70% of the Pfizer pension at best; I declined the lump sum. For me, its about risk management and diversification. This allows me to defer taking income off my other retirement investments until I'm 70 when it is required by the IRS. Barring a major catastrophe, there should be ample resources for my daughters when I'm gone.
     
  3. anonymous

    anonymous Guest

    SS is minimal; pension sounds way too high for someone with??? 20-25 years. Sounds more like a 30 plus year pension.
     
  4. anonymous

    anonymous Guest

    This board has so much diversity among retirees, potential layoffees, etc.
    Yes, everyone has options. Lump sums and pensions for 25+ years are lucrative, much more than the majority of us with less than 20 yrs. Many post pure bullshit to make themselves look
    good, I guess. My REAL numbers from 2007 were: 17 years, 58ys old, lump sum 265000, severance 240000. Pension at 65 would be 2869/month.
    I took the lump. Bad genes. IF I make it to 80 pension would pay more than lump, but my lump has increased 35%. Either way, 'Im happy with my decision. Would rather enjoy life now vs. when I'm 80 and can"t. If/When I die, wife and kids have a nice sum to enjoy.

    And I do not trust Pfizer or Prudential.
     
  5. anonymous

    anonymous Guest

    Good analysis. With one week to decide, I still haven't make up mind. My situation: lump 55k, 47 year old, $700/month at 65. Healthy and no other pension. My friends all pick roller over to IRA. I'm thinking of collecting at 55($460/month), not a big difference compared with $700. Any suggestions will be appreciated.
     
  6. anonymous

    anonymous Guest

    I would still staying working first if that's possible. It will be very difficult to duplicate your salary or come anywhere near it not to mention benefits. You will need to purchase a car. If it is not possible for you to continue working take the lump sum and invest. You will probably never get a pension again that is one reason to stay with it and do something on the side.
     
  7. anonymous

    anonymous Guest

    Jack, great analysis and many points to consider.

    I probably have not spent as much time as you have evaluating the Pfizer pension buy-out offer, but right now I'm not going to take their offer. I'm still going to meet with my financial advisor, but I don't think I'm going to change my mind (you never know though). For me, the decision will likely come down to diversification (all of my retirement funds are either in stocks or bond ETF's that I control, with the exception of my Pfizer pension), health (still in good health) and the fact that I do not need to leave a legacy (single, no dependents). I think these are the exact same variables you are evaluating.

    Regarding your analysis on "buying" an annuity with your lump sum, I found that my lump sum would purchase about 80% of my monthly pension (same start dates, single life). I don't know why your lump sum offer relative to your monthly pension appears to be lower than mine.

    • You may think that you can solve the above bullets by taking the lump sum offer and using the buy-out money to purchase an annuity. This is where we can clearly see the value of the Pfizer pension versus the lump sum offer. I have not been able to come close to the same benefit for the lump sum value. In some quotes, the lump sum value would need to be two times greater to buy an annuity with the same future value.

    Best of Luck
     
  8. anonymous

    anonymous Guest

    Jack Wish -

    Excellent post - thankfully no silly responses (to date).

    We plan to combine my pension (PFE) with my DH's, not take SS until FRA (or later but collect spousal), and use our savings to help pay for the shortfall in expenses minus pensions pre-SS ("early") retirement (since SS has a guaranteed 6-8% return rate if you wait to collect, also COLA'd). No brainer (for us) to diversify and let PFE (or whomever may takeover the annuities) assume some risk.

    So many people see the $$cash$$ and lose sight of market risk. Also listen to advisors who make money managing the "windfall" but earn no commission from pensions.

    Ex-PFE 20+ years
     
  9. Thanks to everyone for responding, I've been tearing what's left of my hair out over this decision. It makes sense for me, financially, to leave it where it is....so that's what I am doing.

    Thought I was missing something, but sometimes you can glean insight from an anonymous message board. :)
     
  10. anonymous

    anonymous Guest

    I'm 53, single, w/no kids. I'm going to take the money and roll it into an IRA, but I'll be very conservative with the investment mix so that it'll be there when I need it in 15-20 years or so. I have other IRAs and liquid assets that I can be more risky with and use first if I want.

    I met with someone from Fidelity who agreed that, for me, rolling it over is a good plan. He wasn't crazy about the conservative mix idea, but I'm not going to budge from that. He's trying to get me to hire him as my Financial Planner. He doesn't take commissions, which is better than many others, but I'm happy with the "Freedom" mixes that Fidelity offers. I figure they know this stuff better than I and I don't have to pay extra for that.

    As far as how long I'll live? My parents are both in their 80s, but in poor health. I'm in my 50s but already have some health issues that people usually don't get until they're in their 60s-70s, so I'm not so sure I'll live as long as them or what the quality of life would be.

    I'll be making my selection today. I'm comfortable with what I've decided. Good luck everybody!
     
  11. anonymous

    anonymous Guest

    How is your lump only $700/month with that payout now? Mine is $1,100/month with only a $49K lump.
     
  12. anonymous

    anonymous Guest

    What is your age? My guess is you are several years younger than the earlier poster. What your current age is, or # of years until pension eligibility, has a big impact on the lump sum payout.

    With the same pension value (hypothetically $1000 per month), a 60 year old ex-Pfizerite will receive a much larger lump sum than a 50 year old ex-Pfizerite.
     
  13. anonymous

    anonymous Guest

    Great post - Thanks so much! It helped to reinforce what I was thinking. I also read a great article on Forbes about lump sum offers which helped me to decide what was best for me. http://www.forbes.com/sites/ashleaebeling/2015/03/23/8-questions-to-ask-before-taking-a-pension-lump-sum-offer/

    Like another poster said, I don't trust Pfizer, but have decided to leave it alone and take option 5. Since the pension is insured through PBGC, I feel more confident that it won't "disappear" when I am ready to retire. Best of luck to everyone.:)
     
  14. anonymous

    anonymous Guest

    So, when do the disbursements come?
     
  15. anonymous

    anonymous Guest

    Don't bet on any govt agency wot disappear.