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  • Avatar Drknowsbest 
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    Status: Physician
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    Joined: 07/09/2017

    I got a letter from my previous employer that sent me an updated on the amount of pension I have from them. It’s somewhere along 86,000 and it goes up by a fixed amount yearly. It seems like by the time I will be 67 it will accumulate to something like 240,000. Although I know it may not exist at that time, I do have a couple of questions…

    Is this taxed when it is withdrawn? Do most people take pension in a form of a lump sum or take it out in monthly installment (annuity)?

    #162206 Reply
    Avatar Tim 
    Participant
    Status: Accountant
    Posts: 3105
    Joined: 09/18/2018

    Is this taxed when it is withdrawn?

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    Yes.

    Do most people take pension in a form of a lump sum or take it out in monthly installment (annuity)?

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    Varies base on your age and life expectancy. They will do an actuarily case settlement option. Because of the increases, its due to either the stepup in deferral or inflation adjustments. Either way, you will pay tax on a lump sum or monthly installment. Lump sum will be a big tax bite. If it is a true pension, it will be guaranteed by the PGGC, the US government agency. It will survive any mergers or acquisitions. Will you feel comfortable investing beating the options and live long enough to collect more than the net lump sum?

    #162212 Reply
    Avatar StarTrekDoc 
    Participant
    Status: Physician
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    Joined: 01/15/2017

    LOL, when I was initially reading it, I was thinking your annual pension is $86,000 and $240,000 when retiring — i was like ‘get me that job yesterday!’.  Alas, it was the sum total 🙁

    We are looking at the option of x20 year certain and single life.  The hit is modest ~5% compared to straight single life

    #162293 Reply
    jfoxcpacfp jfoxcpacfp 
    Moderator
    Status: Financial Advisor, Accountant, Small Business Owner
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    Splash Refinancing Bonus

    Is this taxed when it is withdrawn? Do most people take pension in a form of a lump sum or take it out in monthly installment (annuity)?

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    Lol, I was thinking the same as @startrekdoc initially.

    Yes, it is taxed as it is withdrawn, but is not taxed when you r/o to an IRA. Whether you r/o the lump sum or take payments is an individual decision typically based upon the expected return from the annuitized payments versus the return you expect to get by investing on your own. When we run the comparison for clients, most opt for the lump sum.

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~
    http://www.fox-cpas.com/for-doctors-only ~ [email protected]

    #162347 Reply
    Avatar Seabass 
    Participant
    Status: Physician
    Posts: 80
    Joined: 01/19/2018

    Somehow my employer still has a healthy pension and I am thankful to be vested.

    If I work till retirement age it will be worth something like 2 to 3mil

    Option for lump or annuity. If taking before 65 it decreases 5% for each year taken early. ie age 55 would be 50% pension

    I don’t plan on working till 65 but will let it sit there till then as I have 457b and 403b to bridge the gap

    I plan on taking lump sum if still available as life is too unpredictable and choosing a survivor benefit in the annuity decreases the payout significantly. I would hate to choose annuity and get hit by a car or a bad cancer a year later and my family not have the wealth passed to them.

    A 6 figure yearly pension annuity is quite the benefit and seems to help with recruitment and retention incentives (just one more year!) of docs that are in their prime. I wonder if they may make a comeback and be popular once again as employersbattle the FIRE movement.

    #162376 Reply
    Liked by Zaphod
    Avatar StarTrekDoc 
    Participant
    Status: Physician
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    Pension reforms are going the opposite direction more the reason because pensions are a drag on the financial accounting books.   UC (Univ California) has transitioned with their reform back in 2013 and now offer a capped pension OR a matching 403b fund.   The clear incentive is to push to 401k as it’s a clean contribution on the books….the double edged sword is that it doesn’t promote the ‘golden handcuffs’ as mentioned.

    I believe R+R is important, but financials trump that all too often.

    #162382 Reply
    Liked by Seabass, Zaphod
    Zaphod Zaphod 
    Participant
    Status: Physician, Small Business Owner
    Posts: 6201
    Joined: 01/12/2016

    Pension reforms are going the opposite direction more the reason because pensions are a drag on the financial accounting books.   UC (Univ California) has transitioned with their reform back in 2013 and now offer a capped pension OR a matching 403b fund.   The clear incentive is to push to 401k as it’s a clean contribution on the books….the double edged sword is that it doesn’t promote the ‘golden handcuffs’ as mentioned.

    I believe R+R is important, but financials trump that all too often.

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    And a liability, has to be properly managed, conserved and do well, etc…just far too hard. So many pension time bombs on the books of companies and municipalities.

    #162413 Reply
    Avatar Panscan 
    Participant
    Status: Resident
    Posts: 1094
    Joined: 03/18/2017

    Somehow my employer still has a healthy pension and I am thankful to be vested.

    If I work till retirement age it will be worth something like 2 to 3mil

    Option for lump or annuity. If taking before 65 it decreases 5% for each year taken early. ie age 55 would be 50% pension

    I don’t plan on working till 65 but will let it sit there till then as I have 457b and 403b to bridge the gap

    I plan on taking lump sum if still available as life is too unpredictable and choosing a survivor benefit in the annuity decreases the payout significantly. I would hate to choose annuity and get hit by a car or a bad cancer a year later and my family not have the wealth passed to them.

    A 6 figure yearly pension annuity is quite the benefit and seems to help with recruitment and retention incentives (just one more year!) of docs that are in their prime. I wonder if they may make a comeback and be popular once again as employersbattle the FIRE movement.

    Click to expand…

    Why would it have a comeback? If anything they are all going to go away because almost all of them are under-performing.

    #162417 Reply
    Avatar Seabass 
    Participant
    Status: Physician
    Posts: 80
    Joined: 01/19/2018

    Just wondering outloud Panscan

    Sometimes what is old gets new again. Like bellbottoms.
    Maybe the pendulum swings the other way 20 yrs from now and some smart folks figure out what went wrong and what went right with the pensions. The 401k idea is the here and now and I totally get it.

    If half the docs start retiring 15 years or more early I could see some sort of incentive needing to be built in. Golden Hancuffs as mentioned above.

    I am worried about potential time bomb so I am maxing my retirement and savings as everyone else is doing and treating the pension as a potential cherry on top and not depending on it to reach my goals. Fingers crossed it remains healthy. Did ok with the stress test of 2008 so I’m hopeful it all works out when I’m due

    #162434 Reply
    Zaphod Zaphod 
    Participant
    Status: Physician, Small Business Owner
    Posts: 6201
    Joined: 01/12/2016

    Just wondering outloud Panscan

    Sometimes what is old gets new again. Like bellbottoms.
    Maybe the pendulum swings the other way 20 yrs from now and some smart folks figure out what went wrong and what went right with the pensions. The 401k idea is the here and now and I totally get it.

    If half the docs start retiring 15 years or more early I could see some sort of incentive needing to be built in. Golden Hancuffs as mentioned above.

    I am worried about potential time bomb so I am maxing my retirement and savings as everyone else is doing and treating the pension as a potential cherry on top and not depending on it to reach my goals. Fingers crossed it remains healthy. Did ok with the stress test of 2008 so I’m hopeful it all works out when I’m due

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    It makes great sense from a golden handcuff and incentive proposition. However, they make zero sense in any other sort of way. The accounting is hard on the institution, it is extremely costly, company bears all the risk/liability, etc…and so forth, many, many drawbacks. A 401k is simple and immediately transfers almost every single risk and hardship to the employee. They use it, great. They dont, who cares, neither helps nor hurts you. Company bottom line is bigger and more nimble overall, no long term obligations as it sits as a liability on the balance sheet.

    The burden was way too heavy on the pension supplier, it will definitely not shift back to that model, ever. Especially once more and more companies/municipalities/states start reorganizing and going bankrupt from them, which is bound to happen. This is why you see pensions with insane return expectations, its an accounting gimmick that allows them to not seem over levered or recognize their cash shortfall. We need some sort of common sense pension reform/clean break but its so politically dangerous and everyone wants theirs that the problem continues to get worse. We’ll probably let it blow up here and there before we realize it needs addressing globally, as we like to do.

    #162444 Reply
    Liked by Seabass
    Avatar StarTrekDoc 
    Participant
    Status: Physician
    Posts: 2056
    Joined: 01/15/2017

    Pensions aren’t coming back unless the stock market stops measuring success in quarters.

    Legacy companies laden with pension funds cannot compete against the new generation companies.  Their financials simply can’t.   Every sector:  auto, airline, banking, and now healthcare moved to 401k and won’t go back.

    Next benefit victim — employer supplied healthcare.  The first domino to fall will be the pre-tax benefit, and then erosion from there.

    #162445 Reply
    Avatar Seabass 
    Participant
    Status: Physician
    Posts: 80
    Joined: 01/19/2018

    Yikes. Scary.

    Good info to chew on zaphod

    ?

    #162455 Reply
    Liked by Zaphod
    Zaphod Zaphod 
    Participant
    Status: Physician, Small Business Owner
    Posts: 6201
    Joined: 01/12/2016

    Pensions aren’t coming back unless the stock market stops measuring success in quarters.

    Legacy companies laden with pension funds cannot compete against the new generation companies.  Their financials simply can’t.   Every sector:  auto, airline, banking, and now healthcare moved to 401k and won’t go back.

    Next benefit victim — employer supplied healthcare.  The first domino to fall will be the pre-tax benefit, and then erosion from there.

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    Indeed. If done well, which lets just say I have my reservations, its net a good thing for everyone. People shouldnt be tied to an employer for that, its too volatile and its definitely too much to ask of an employer.

    People would be more likely to build things, take risks, etc…if not the need to stay employed for such benefits.

    #162458 Reply

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