Pension v Monthly Benefit at Electric Utility

[ironhold]

Hi, I was lucky enough to get into an electric utility in 2012 just before they stopped DB pensions, so I have one. I don’t pay into it, no one does. I’ve been there 12 years and I’m 66, not at FRA (SS) yet. I lost it all in the 2010 recession and had to start over in my fifties. So the monthly pension amount (around $1500) a month is important to me. It goes up more every year I stay. If I retired at 67 it would I could pick the monthly ($1700 then) or a payout of $329,000. I prefer the monthly but our company has not been doing as well as it used to. It merged with another, is now a tri state company, and has lost a lot of money in one of the states. The stock prices have gone down by $20. The political scene about electric costs in one of the states is getting ugly and the word monopoly is being thrown around in news articles. The pension is fully funded. Can I count on my monthly benefits? Idk, maybe this is a climate change question too.

 

[ixoye01]

@ironhold Financial Advisor here.

most of the time, taking a pension isnt worth it. if you took $1,700 a month, it'll take 16.12 years (you'd be 83 at that point) to reach the amount of $329,000... and thats with the $329,000 NOT growing.. at all.

Theres other options out there that still get you the funds, and dont include the risk of:

Company going away

Early death, and no one else gets the payout

no interest earned.

at the very least, you could very easily take the $329,000, toss it into an IRA... put it into a safer, low interest, well diversified fund, and draw out the $1,700 a month yourself. at that point, at LEAST the $329,000 is growing.

like I said, theres other (likely better) options out there too.

 

[ironhold]

@ixoye01 Thank you - this is what I was looking for. Lots to think about. This helps.

 

[donica]

@ironhold A good way to evaluate a pension is to use the PV (present value) formula in Excel or Sheets.

At 67 your life expectancy is 18 years (85) according to social security. If you use a 5% discount rate--fairly standard for these types of calculations--the present value at age 67 is about $242,000. Given the buyout is substantially higher, you can invest the amounts to get better than a 5% return (assuming reasonable investment decisions) and have the residual balance, taking the lump sum is likely the better decision. It's the decision I made when I retired 12 years ago.

 

[ironhold]

@donica Great response, thank you!