Pension losses

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anonymous said:
The modeler is now on Fidelity so I ran the numbers… the lump sum is down 30%. Ouch!!!
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Your monthly pension payout is the same, nothing changes. It will only grow if you continue to be employed by Merck. What changes with interest rates is the lump-sum payout; the higher the rate, the lower the payout. This is because the interest rates are used to "discount" the stream of future payments.

We are now in the same place and we were ~3-4 years ago. Those that retired in the last 3 years AND chose the lump sum did unusually well.
 






anonymous said:
The modeler is now on Fidelity so I ran the numbers… the lump sum is down 30%. Ouch!!!
Click to expand...

Anyone in middle mgmt or lower who takes a lump sum is asking for trouble.

You can't live off accrued interest alone--especially when rates tank. Many have ended up on the losing end. If you retire at 55 and live to 85--the pension paid is much greater than any lump sum, interest yield included.
 






anonymous said:
Anyone in middle mgmt or lower who takes a lump sum is asking for trouble.

You can't live off accrued interest alone--especially when rates tank. Many have ended up on the losing end. If you retire at 55 and live to 85--the pension paid is much greater than any lump sum, interest yield included.
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The flip side, you die in your early 70’s Merck gets to keep much of your earned pension, if you took the annuity option
 






anonymous said:
that’s because interest rates are up. Takes less money to annuitize out your monthly payment.
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Exactly right. AstraZeneca retiree here. The lower the interest rate, the higher the lump sum payout. Pros and cons to taking a lump sum. We actually had people who took the annuity when I retired, and a year later Mercer sent several of them letters saying their annuity payment was miscalculated and they had to pay money back!
Lump or annuity is a very big decision.
 






When the pension switched from defined benefit to defined contribution, we were never told that the new one was targeting an annuity payout. We were sold on it being essentially a second form of a 401k. Where is it described that it targets a level of payment and what is that level? Does that make sense? Looking for clarity.
 






anonymous said:
Anyone in middle mgmt or lower who takes a lump sum is asking for trouble.

You can't live off accrued interest alone--especially when rates tank. Many have ended up on the losing end. If you retire at 55 and live to 85--the pension paid is much greater than any lump sum, interest yield included.
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To replicate an annuity payment in your example you must also run down principle to 85 as well. Also the annuity has inflation risk since it is not inflation adjusted. Given the recent propensity for the government to not only print but hand out money like a drunken sailor, that should also be part of the discussion with your financial planner.
 
























Always better to take the lump unless you’re in the middle of a divorce and your spouse might get half of it. The lump sum can be passed on to heirs; annuity payment is usually cut in half for remaining spouse, and payments ends when both of you are deceased. Monthly retirement payments are generated by an annuity… why not take the lump and buy your own annuity so the money is in your hands and not the company’s?
 






Well said poster. Annuities allow Merck to pay you the interest they are making on your lump sum which benefits only them. Take control of your own money and see a good financial planner. I took the lump 10 years ago, haven't taken a dime yet out of it, and have invested it conservatively. If I die, my wife gets 100% of it, unlike an annuity. Sever all ties as you don't know what the future may bring for a company. Control your own destiny!
 






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