Cash Balance Plan: The Annuity Option

Cash balance retirement plans: Annuity options
Excerpt:

If you're retiring from a company with a cash balance retirement plan, take the time to analyze your payout options. While many people take a lump sum payout, the annuity option might be best for you. ... So when you retire, should you take your account and roll it over to another type of account that could generate a monthly income for you, such as an IRA or annuity, or should you elect to have the plan pay you the monthly annuity? One way to come up with the best answer to this question is to compare the monthly income you would get from your employer's cash balance plan to the annuity income you'd get if you took the lump sum payout and bought an annuity from an insurance company. IRS rules specify the minimum requirements for converting cash balance accounts to an annuity; these minimum conversion rates are usually more favorable to you than the annuity purchase rates you could get if you buy the annuity on your own. And some employers go beyond the minimum requirements and offer even better deals on the annuity. ... Note that a cash balance plan pays the same amount for a man or a woman, due to federal laws that prohibit sex discrimination in employer-sponsored plans. On the other hand, an insurance company is allowed to pay a smaller retirement income to a woman because they expect a woman to live longer than a man

Comment: Website with a quick annuity quote: www.immediateannuities.com.  The annuity quotes from our work cash balance plan system beat the quotes from this site. We may take the annuity option because it is guaranteed money vs the risks of the stock market (rolling into an IRA and investing it). If we live a long time the annuity is a better option .. if we die shortly after retirement it is not. And of course as this article reminds, one never knows. Or as the Scriptures say: "you do not know what will happen tomorrow. For what is your life? It is even a vapor that appears for a little time and then vanishes away." (James 4:14)

Take a Retirement Annuity or a Lump Sum?

Take a retirement annuity or a lump sum?

Excerpt:

Theoretically, you often can make more money by taking a lump sum and investing it than by accepting the annuity, which offers a lifetime stream of payments. But perhaps you've heard the quote "In theory, theory and practice are the same; in practice, they are not." Anyone who knows much about behavioral finance knows there are many, many ways such a plan can go wrong. You could pick the wrong investments, take too much or too little risk, trade too much or spend too much, and wind up much worse off than if you'd chosen the annuity. You could turn over the investing decisions to a pro, but there's no guarantee that person won't make mistakes. Even if he or she chooses great investments and allocates your assets well, your nest egg could still take a hit from the market. If you were comfortable taking that extra risk to get the extra possible reward of more cash, accepting the lump sum would be the way to go.

Comment: Image source with a related article: Using Annuities to Generate Retirement Income . We've worked through this and decided to take the lump sums. Both of us qualify (we were grand-fathered in to the previous company's retirement plan) and the total amount is not insignificant. The annuity option would provide a greater monthly income but have nothing left for the estate.