Thread regarding Chevron Corp. layoffs

For Chevron employees now retiring. Lump Sum or Annuity?

Please post your comment here on whether you will take your pension payout as a Lump Sum or an Annuity and why you prefer it that way.

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"you are leaving your job in late 50s and in appalling health. You are fat and you don't exercise enough. There is cancer in your family tree. You eat processed foods and drinks"

WOW!!!! Speak for yourself, buddy!! That's not me or too many people that I know or work with!

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You outlined things well, , but you forgot to add in Social Security. You can start collecting it as early as 62 and that will counterbalance any inflation concerns you have about the annuity. Chevron as a company will be around a long time and the PBGC as a backup adds security to taking the annuity as a lifelong guaranteed income stream. I decided on taking the Chevron annuity and conservatively investing my 401k balance (no CVX or energy stocks for now).

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What most of you miss is one of the most important factors in this decision - your life expectancy. If you are a typical American in Chevron you are leaving your job in late 50s and in appalling health. You are fat and you don't exercise enough. There is cancer in your family tree. You eat processed foods and drinks. You won't make it to 75. You should take the lump sum unless you have a fit wife. If you or your wife is likely to live over 85 or so, take the annuity. If inflation kicks up, you may be sorry but nobody really expects that and your 401k can always bail you out.

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Life doesn't come with many guarantees, my friend. If the wheels fall off the Chevron machine and your annuity is threatened, then the PBGC will step in to continue paying it. However, your $6,900/month will likely be cut back. Currently, the PBGC has a limit on the maximum it will pay per month. The 2016 maximum monthly guarantee for a 65-year-old retiree is $5,011.36 which amounts to about $60,136 per year. You will need to keep tabs on this at PBGC.gov as the maximum can change every year. But, I wouldn't worry much, as Chevron will be here long after you have lived your life.

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Life doesn't come with many guarantees, my friend. If the wheels fall off the Chevron machine and your annuity is threatened, then the PBGC will step in to continue paying it. Your $6,900/month may be cut back some, however. Check the website at PBGC.gov to keep tabs, as the maximum guarantees can change every year. But, I wouldn't worry much, as Chevron will be here long after you have lived your life.

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The response about the annuity was helpful and a comfort. Do the guarantees cover 100 cents on the total amount of the annuity, say $6900 per month, nto the future if the wheels fall off and the annuity must go to the government guarantees?

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Chevron Corporation pays and guarantees the annuity. As its a private pension, Chevron is Federally regulated under the Employee Retirement Income Security Act of 1974 (ERISA). Furthermore, the Chevron pension is protected by the Pension Benefit Guaranty Corporation (PBGC), an independent agency of the United States government. In short, an annuity from Chevron is very safe - much safer than an annuity issued by an insurance company. I retired from Chevron in 2015 and selected the 100% Joint and Survivor annuity option, as it suited me best given my whole financial situation.

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All the posts are very helpful. I do have a question. Who guarantees the annuity?

Chevron is a great company in my opinion and good to work for. It is sound for 10 or even 20 plus years. Any thoughts on beyond 25 years? And the impact of the world global warming initiatives as impacting the long term for Chevron and the ability to pay the annuity?

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Chevron’s lump sum vs joint survival pension benefits are tremendous employee benefits relative to what other companies offer. The major vision drivers for choosing one over the other include the following:

  1. Inflation outlook (Chevron’s annuity doesn’t include COLA)

  2. Tax Impact (near and mid term)

  3. Lump Sum growth potential (near term)

  4. Other Sources of Income to fund your early retirement expenses

  5. Ability of Annuity Payor to pay for extended periods

  6. A personal comfort view of market risk linked annual income versus guaranteed annual income

The big one is inflation, if inflation averages 2.5% per year through a 25 year retirement period the purchasing power of a year 2016 $100K annuity in year 25 of retirement is in the neighborhood of $20,000. The tax you pay on an annuity of $100K per year will be in the neighborhood of say $32,000 per year (assuming an IRS rate of 32%). If this tax bite can be deferred your tax costs may be lower. The IRR of a Chevron annuity over 25 years is roughly 3.15%. One should be able to assemble a financial portfolio of dividend yielding stocks, growth stocks with rebalancing and social security income that would exceed this IRR.

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Thanks, PapaSmurf. You offered lots of good advise and information for future retirees to consider. As for me, my 401k balance is quite high and invested in low-risk, low-cost funds. I'm very cash liquid and I saved my 1-year severance payoff plus have another 2 years of salary in bank accounts and CDs. For a number of years, I have been debt-free and my living expenses are pretty low. For these reasons, I opted for the Chevron annuity. Since I'm not yet 65, I'm waiting to take Social Security. Later, that will add to my cash flow. Living on my annuity alone provides me a low enough annual income to get a low premium on my Healthcare.gov Marketplace medical insurance, starting Jan 1st. The HMO Silver-level medical insurance premium for me and spouse is only $58/month. I never thought this would be so inexpensive. Enough about me, I wish you the best in your retirement.

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Retiree Extraordinaire - I'm currently in the process of deciding between lump sum or annuity, being still on the payroll for a few more days having had my EOI honored in the recent ROMs. I have been leaning toward the lump sum, mainly because interest rates are low by historical standards, so the lump sum you get is pretty good. I've run simulations at various places (Fidelity has a good one, if you're a client), and it looks like in these simulations the lump sum will beat the annuity in around 80 to 90% of the time if I invest in a reasonable sort of allocation that's recommended for those in retirement. I don't think there is a correct answer, in the sense that it not only depends on your personal situation, but on how well your investments do in the future, something you can only guess at now.

Here are some thoughts that may not have been explicitly mentioned yet.

  1. Even if you think of yourself as a sophisticated investor now, as you age you're likely to be less able to handle it well. Also, if your spouse outlives you, he/she may not be as good or interested as you are, so you may need someone to trust (whether paid or not) to handle your investments. My father had an annuity in his retirement and it sure was nice that when he passed away about 10 years before my mother that we didn't have to worry about someone scamming her out of that money.

  2. Annuities present a somewhat greater exposure to high inflation risk than a lump sum. Since the 60s interest rates have tracked inflation pretty well, stock prices, not so much, (value stocks better than growth stocks). In my parent's case for example, by the last few years of her life in order to pay for her assisted living we were using about 1/3 social security, 1/6 pension, and 1/2 from IRA/401K. Early in his retirement my parents easily lived off the pension and social security alone. I remember several years ago doing simulations in Financial Engines and at first being surprised that it predicted I would eventually run out of money even when I pegged my expenses at less than my pension. It was because it was modeling the effect of inflation on my pension.

  3. One big risk for a lump sum is a large market downturn early in your retirement. The problem is that if you're forced to liquidate a lot of your assets to pay for current expenses, you don't get them back if/when the market recovers. It's often recommended that you keep 3 or more years expenses in cash when you retire, so that you can weather an early downturn without being forced to sell at the market bottom. This is easier said than done because you can only call a market bottom in the rear view mirror, so deciding when to start selling assets again can be tricky.

  4. Some people have recommended "if you have a large 401K, relative to the lump sum, take the annuity". While there is some logic to this as a method of hedging risk, the reality if that if your 401K is large, you can tolerate more market risk. If you investments go down 35% you'll probably still survive, though maybe not as well as you would have with the annuity. If the pension is all you have then I would probably recommend going with the Chevron annuity (unless you are planning on living of off just a fraction of your annuity) because you can't afford the market risk you'll need to take to allow the lump sum to beat the annuity.

  5. One concern people have about lump sums is whether they will outlive the money if the live especially long. It is now possible to buy "longevity insurance", which is just a deferred annuity, from within an IRA (within certain limits). This will pay you a monthly stipend for the rest of your life starting at a certain future age, such as 85. Since the chances are that they won't pay out very much, if anything, the rates for this type of annuity are comparatively low. In some sense you can get the best of both worlds in that you then only need to worry about your lump sum lasting for a fixed number of years, so you can afford to invest it a bit more aggressively. I'm not necessarily recommending this approach, but it is available if one's major concern about the lump sum is "what will happen if I live to 100 and my investment returns are poor?"

  6. One finally issue is tax planning. The lump sum allows you to adjust your withdrawals to try to minimize your income taxes (both federal and in some cases state) and shelter your nest egg longer. For example, I will be getting a severance package early next year which will be enough for me to live on that year. If I take the annuity right away I may well be pushed into a higher tax bracket for the year, and in general postponing the annuity doesn't pay if you are 60 years old or more. People with Chevron RRP or Deferred Income, or who decide to consult or work after retirement, may want to keep their nest egg sheltered from taxes as long a possible. You also can't scale back your annuity income when you have to start taking RMDs from your 401K/IRA at 70 1/2.

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- Excellent post and congratulations. I too have the same plan as you, although my annuity is closer to $3200/mo and my 401k is just over $1MM. I am able to live with that for another 4 years until Social Security gets me to my monthly goal of being more flexible to travel. I will administrate my own 401k investments, much like you outlined. It's obvious you did quite well in your Chevron career. Best to you in your retirement.

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Good comments and the best justice is done to all here by keeping it real. On the lump sum side of things there are a lot of “what it’s” and “coulds,” that at some point have to translate into actually doing something, making critical decisions with a life’s work worth of money. Your financial advisor of course will do it all for you, for a fee, and promise (but not guarantee) fairly meager returns. At the end of the day they tend to balance out to be “market performers” if the market is good so are they, if the market is bad, they are not so good. Also keep this in mind, that to get any kind of living wage for you, they are going to need ALL of your money, the lump sum plus whatever you have in your 401K. Do the math with half of it, either the lump sum OR the 401K and reality starts to hit home that you won’t be getting a living wage and will end up being a part time worker somewhere. So with a financial advisor you’re back to square 1, with all of your eggs in one basket, having to trust a failure prone human who has control of your money but not the 30+ years of skin you put in the game, and pray to God every night that he doesn’t run off to Bali or that the market doesn’t crash or have an overly delta correction, damaging your principle forever. After all that, (giving them all your eggs) with a conservative portfolio, they still tell you to pretty much plan on being out of money by the time you’re 85 or 90. My thoughts, and soon to be actions are as such, my Chevron Annuity will pay me over $8K a month, over $100K a year, in what is essentially a “job I can never be fired from.” The money in my 401K, roughly $1.6MM today, is going into a rollover plan, administered by ME, and will be invested in a balanced and diverse portfolio of “Dividend Aristocrat” type stocks (27 as of today), in blocks of $50K to $100K, generating for me a very conservation $60K to $70K a year of “discretionary” income that I can take if I need it, and re-invest for growth if I don’t. Through the years WHEN I have an opportunity to sell out of a stock or sector that has jetted up I will, taking large chunks of gain (profit) and re-investing it into a solid, long term dividend sector that is on a down cycle, and repeat the process as conditions allow. If this sound like day trading, it isn’t but it’s the same concept, conservatively spread out over years and decades, with a virtual guarantee of patience and sound process based phenomenal returns. I’ve visited with about every financial investor out there in the last few years, picked their brains, and come up with the strategy I am going to use. The last one told me, “if everyone was like you, I’d be out of business,” but acknowledged that most people will not do what I described above, hence his livelihood is safe. Bottom line is that each of us needs to make informed, intelligent decisions about their own future, based on the condition and circumstance that each of us has in our lives. But I will say this, come find me in 30 years and let’s compare numbers, I have a very very high degree of confidence that few if any of you reading this will be anywhere close to where I am sitting at that point, my $1.6MM will be substantially north of there, and I am very confident on my strategy. It’s a win for me, and a win for my legatees, it’s my chosen path.

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Thanks for your comment, PapaSmurf. I also appreciate your analysis in your previous post. The topic of Chevron lump sum and annuity is both interesting and a complex one. Debating the ideas can be a learning experience for many who will soon confront the decision on which way to go. I've taken the annuity and it's working well for me. Are you retired and if not, which method will be the preferred tact for you personally?

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Retiree Extraordinaire - If you didn't like my comment to , just realize that I'm trying to prevent this thread from being reduced to people calling each other stupid for not agreeing with their favored choice. If it came off a little harsh, I apologize, but it really struck me that he attacked the idea and the poster without giving a single reason why his idea was a bad one. I suspected that he fundamentally misunderstood what the idea was, and it appears that I was right.

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- No, I'm not the poster of the strategy, just someone who gets annoyed when people attack others rather than explain their errors. Don't be so suspicious, I've been labeling all my posts in this thread as PapaSmurf to try to keep some continuity.

As far as your critique of the original post is concerned, I think you made some false assumptions. First of all, I don't think the poster was advocating taking the lump sum after taxes, but rather rolling it over to an IRA and investing in some safe short term investments. If interest rates rise significantly over the next couple of years, then you would invest in CDs within the IRA. The best strategy would probably be to stagger the maturity lengths rather than 3 years, but that would depend on whether you think interest rates will continue to climb, have peaked, or are leveling off. Secondly, "annuitizing" doesn't necessarily mean buying an annuity, you just set up withdrawals at a rate that would draw down the balance to zero over your life expectancy given the interest rate you're receiving.

Why not just take the annuity now, you say? Well the annuity to lump sum conversion (as well as the cost of annuities on the open market) are highly interest rate sensitive. The annuity you get now is based on the current interest rates, which are low when compared to recent history, which means that the lump sum you get now is relatively high. So it is quite possible that someone could take the lump sum, put it in an IRA and then in a few years buy CDs inside your IRA that pay better than the annuity you would get from Chevron now.

How likely is it that you will be able to do this? Hard to say. The historical rate for 3-year CD's is 5.1%, but it's been lower than that since 2007 (see / for a graph of CD rates), and a lot lower since 2009. Also, 3-year rates are now around 1%, and they don't typically move much more than 1 point a year. With the Chevron annuity you're getting an implied rate of between 4 and 5% (it's a bit complicated because of the 3 segment rates that are used). So it's probably a stretch to think you'll be able to beat the Chevron annuity in 3 years or so, but it's possible.

So in my opinion, the poster's strategy of waiting and buying CDs might work, but probably won't be as good as the Chevron annuity, though not for the reasons you so belligerently stated.

by | Post ID:

Today is November 30, end of month. I just got a direct deposit confirmation text from the bank. Chevron sent me another annuity payment. Love it. Pardon me as I pour myself a scotch. Here I am relaxing and enjoying the posts on this Chevron Layoff site. I'm tuned to this thread for obvious interest with the subject. Wish more people would chine in. I also noticed and PapaSmurf are one in the same. I thought he was making interesting points at first but this latest comment of his throws that out the window.

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- You want me to explain why I think 's idea is wrong or to keep my mouth shut? First of all, I think YOU may very well be the poster of that silly suggestion. There are suggestions and comments being made that don't merit an explanation or a reply, just a rebuke. The comment made was: "Why not take lump sum now and put it in short 3 year cd or annuity and then when rates go up, annuitize it at higher payouts with a death benefit at a low cost provider. Best of both worlds." If just to please you, I will offer my explanation as to why I think it's silly. If you take the lump sum now and put it in CDs, that would mean you'd have to take the lump sum as a "cash payout", which is the most insane choice possible. Why? Because you'd receive all that cash at once and owe Uncle Sam a huge tax bill, keeping for yourself perhaps 2/3 or less to "invest". The next part suggests, then putting that cash into an annuity. Question to you: Why not cut to the chase and choose the annuity option to begin with? Then the next part of the master plan goes on to: and when rates go up, to annuitize it at higher payouts. Annuities on the secondary market are not anyone's best deal. These are middle men and want their slice of your money. Come on, ... Are you serious? I don't mean to demean you, but if you had to stand up and defend (or yourself), well there you go. That's the explanation.

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- Either explain why you think 's idea is wrong or keep your mouth shut. Simply attacking the poster adds nothing to the conversation. And before you attack me, I'm not saying the his/her idea is a good one, just that it's more productive to educate the poster rather than attack him/her.

by | Post ID:

I'm thinking of splitting the risk too. I have almost as much in my 401k and taking the 100% Joint and Survivor annuity would provide enough income for my wife and I to live on. When Social Security kicks in, our cash position will be much more comfortable. I won't need to touch my 401k or be forced to take minimum distributions for a long time. Having the 401k money invested in low-risk funds will minimize my exposer to loss. When I need to buy a new car or have a need for cash, I can always dip in and make a withdrawal.

by | Post ID:

The best advice being given is to talk with a financial advisor about your individual circumstances. I worked with one that would get a percentage of my funds every year for giving me advice and a second one that would expect me to use their services a la carte with no annual fee. Both ended up making the same recommendation for me, to split my risk. I took the 100% spouse annuity as we could live on it comfortably without touching Social Security for either me or my wife. I left the 2 mil on the 401K and will roll it over into an IRA next year.

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- You certainly are joking or know very little about investing.

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Why not take lump sum now and put it in short 3 year cd or annuity and then when rates go up, annuitize it at higher payouts with a death benefit at a low cost provider. Best of both worlds.

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Chevron HR is not here to serve the average employee. They take and follow orders from the top. That's all.

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If Chevron HR doesn't publish the statistic I suspect it is because they are concerned that many people would be tempted to assume that whatever most people did was the "right" thing to do, and would just follow the crowd rather than figuring out what's right for them. What other people do shouldn't really matter, though I suppose if 99% of retirees took an option different from the one you're going to take, you might want to double-check your analysis :-).

by | Post ID:

Thanks PapaSmurf - an interesting link, for whatever reason I always thought that the number is more than 90% - there are so many numbers that relate to #pension and #retirement that make no logical sense though, so I guess nothing should surprise us

by | Post ID:

That is one confusing report the link points to. Christ and all those charts! Give me break. Who is going to understand this? The aggregate statistics include pension balances in the $5,000 to $10,000 range as well. Talk about muddying the water. Typical Chevron pension amounts are so much higher. Why can't the Chevron Benefits Connection website display key statistical information and dashboards about its own Plan that will help everyone? Maybe it's not The Chevron Way.

by | Post ID:

I think avid investor made it clear from the beginning to me: if you have plenty of savings already in your 401k, etc. and if you are near or at retirement age, it's safer to go with the annuity so that you have a source of guaranteed monthly income. However, if you don't have a lot of savings/investments or don't feel what you have is sufficient and also are still young and hope to work a decade or more, maybe you will be inclined to take the lump sum.

by | Post ID:

Appreciate the link, PapaSmurf. Interesting it's about the 70% who go for the lump sum. I had the impression it would be higher than that. I've read many articles over the years since the Pension Protection Act was enacted, suggesting large private companies prefer retirees to select the lump sum option over pension annuities. My understanding is that paying out the lump sum reduces the company's burden to sufficiently fund the pension plan per PPA guidelines, or something to that end.

by | Post ID:

Nationally about 70% of those with a choice take the lump sum (see / for more details than anyone could possibly want to read). I seem to recall being at a Chevron retirement seminar some years ago where I heard that the Chevron percentage was about the same or maybe a bit higher.

by | Post ID:

, I'd be interested in knowing that statistic too, but only out of curiosity, since what other people do should not sway what is best for you. Just like you, I've heard practically everyone at work say they would jump at the lump sum, no questions asked. But I don't think there were any "strange circumstances" that led retirees to select the annuity. I would say they informed themselves sufficiently to prefer the annuity over the lump sum. The reasons are as varied and complex as you can guess at.

by | Post ID:

This thread is interesting to me because in all my years with the company I have never met or heard of anyone selecting or being recommended anything other than the lump sum. Financially it seems the clear winner for most people but obviously the old style pension annuity must be chosen by some or the company wouldn't bother to offer it. I wonder how many people have ever taken the annuity and what strange circumstances led to that.

by | Post ID:

Put it in VTSAX and forget about it? It will handily beat the annuity value in at about 99% of 30 year market scenarios? VTSAX is the Vanguard Total Stock Mkt Index Admiral Shares Fund. You should take another look at the Overview page for this mutual fund. It has a very low expense ratio of 0.05% (a Big Plus), but it's Risk Potential is rated 4 out of 5 (Too High for "put it in and forget"). About "handily beating the annuity value...", hold on and look at the Performance of this fund. When doing so, cast aside the 16% and 14% average returns for the last 3 year or 5 year periods. Many US funds did very well after the 2008 financial collapse, thanks to the Fed's QE Program. Pay more attention to the 4.38% for the last 1 year, 8.10% for the last 10 years and 5.59% since inception in Nov 2000. Also, don't forget the 8.10% and 5.59% returns average-in those 16% and 14% periods the Fed's gifted to us all. The prospect of "put it in and forget about it" doesn't support the argument anymore. The Lump Sum beating the Annuity is not always true. I go back to saying both methods of taking your Pension are actuarially equivalent. The determining factor will be your future financial and health outlook and the risk tolerance you have. Everyone should do their own analysis and choose wisely. It's apparent to me you have decided to go with the lump sum. Great, since it works for you.

by | Post ID:

No analysis. Only opinion and gut instinct. Brave way to go through life, Aphid.

by | Post ID:

The risk for the annuity is low, assuming the payor stays solvent. The upside and downside are simply your longevity. If you don't live to least your actuarily-calculated age you and your family are getting screwed. If you live longer, you come out a bit better than Chevron expected but you will get killed by inflation.

The risk for the lump sum investment is determined by you. The downside is you invest it in a bad stock and lose it all immediately. Most are smart enough to put it in VTSAX and forget about it. It will handily beat the annuity value in at about 99% of 30 year market scenarios. You stand a very high chance of the value soaring significantly, despite your withdrawals. Withdrawals, by the way, can be managed. When the market soars, take out 2-3 years of living expenses. That way when it is down, you don't withdraw while the market is low.

In 30 years the annuitant folks will be eating a Big Mac Meal with a coupon for $20 at McDonald's while the lump summers will be riding high on the hog.

by | Post ID:

The answer is a mental one, with an annuity you will sleep well through market downturns, with a lump sump your fate is in the hands of the market and you may go years without sleeping well and worrying yourself to sleep when you do sleep. On a risk benefit (some of you should be fluent in hazard analysis) the risk in lump sum is massive and the results potentially grave.

by | Post ID:

Avid Investor - The Bank Rate calculator DOES include the monthly withdrawals of principal! Look at the table that's generated after each calculation. It shows the remaining balance after each payment. Each year the principal gets smaller and at the end of the specified number of years the principal is goes to 0. That's how annuity calculations are done. Just dividing the lump sum by the annual amount of the Chevron annuity does not give the equivalent interest rate, as it completely ignores your life expectancy, for example. Just like dividing the yearly payment on a loan by the initial principal doesn't give you the interest rate of the loan, you have to take into account the principal that you're paying off. As I said, the interest rate you would have to earn to match a fixed-length 25 year annuity paying out 6% of the original principal is 3.74%, not 6% as you implied. In other words, if you take out 6% from you 401K/IRA each year, then you only need to earn 3.74% return in order for the money to last 25 years, or 4.7% to last 30 years, not the 6% or even 7.5 to 8.5% that you seemed to suggest.

Also, I did not say that the lump sum was necessarily the better deal, just that it's not the awful deal you seem to suggest. There are dozens of factors that go into such a decision. And, yes, the lump sum calculation is designed to be actuarially equivalent to the single-life annuity. Also, I agree that the annuity you get from Chevron is most likely going to beat any annuity you can buy on the open market, though if interest rates rise significantly, you might be able to buy one in a few years that beats what Chevron would have given you now.

by | Post ID:

I agree with the previous post. In actuarial terms, the annuity and calculated lump sum amounts are equal. The variables in one's health and financial picture is the deciding factor for which is best. I've gone to retirement seminars and also visited with financial advisors at places like Charles Schwab and Fidelity Investments. These are excellent sources for information and to ask your own questions. I highly recommend you do so, even if you plan to retire many years from now. Have ever present in your mind when talking with them, they are in the business of managing investment portfolios and they want your business. Although they have a fiduciary duty to represent your interests before theirs, but don't be so naive to think they don't skate that thin line and will try their best to convince you on bringing your Pension Lump Sum to them. You opting for the Chevron annuity provides them no gain. But, a frank discussion with a Certified Financial Advisor should put a lot of confusion to rest. Have that discussion and put all your cards on the table. You will be much better informed. I did, and (emphasis) "in my case" my CFA at Edward Jones advised me the Chevron annuity was a good choice.

by | Post ID:

, Your argument fails to include monthly distributions from your lump sum investing. Just as the annuity provides monthly income, your Bank Rate calculation needs to include monthly withdrawals at the same amount as the annuity amount. How long will the lump sum last now? Keep in mind the Chevron Pension is paid as a Single Life Annuity. The lump sum amount you are provided is a conversion to a Present Value amount using actuarial assumptions and the 3 month average of the corporate bond rates. One method of payment does not have a slam dunk advantage over the other. Your financial and health outlook is the pivot point where you will ultimately determine your best choice. Why is it so difficult for you to understand this?

by | Post ID:

The calculations of the annuity interest rate that have been described in these posts by dividing the annual payout by the lump sum amount are oversimplified and misleading. To get the correct annuity interest rate you need to do a proper annuity calculation such as the one at / . Having $1,000,000 and earning 6% interest for 25 years is a lot better that getting $60,000 a year for 25 years and then dying because in the former case you (or rather your heirs) still have the $1,000,000, whereas in the latter case they get nothing. The two are only equivalent if you plan to live forever, which is probably an optimistic assumption. The equivalent interest rate for 25 years is 3.74%, for 30 years it's 4.70%, for 35 it's 5.27%. One reason many people have recently been taking the lump sum is that the interest rates used to compute the lump sum equivalent (pre-2008 plan) have been near historic lows, making the lump sum large. If interest rates go back to more historically normal levels (and yes, that's a big if), then it may not be so difficult to generate enough income with little to moderate risk. In any case, don't be mislead by the oversimplified calculations being put forward here, use an annuity calculator such as the one at / to get the equivalent interest rate.

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