Jacob: Hey, friends, welcome back to another Friday Q and A where I take your real life questions about retirement, try to answer them for you to hopefully give you more context. That way you can hopefully apply these different concepts and ideas to your specific situation so that you have a successful retirement. Okay, today's question comes in and it says, should I take the lump sum and manage that money or should I take the pension? Here's the details. I'm 62, I have some health concerns and I would do 100% survivor benefit for the wife, she's 56.
She would be around for a long time lump sum would be $196,000 The annuity would be $10.53 dollars a month for the rest of my life and then also for her life. That's the reduced amount based on the 100% survivor benefit I'm assuming. I would need to make and take about 7% to equal the monthly amount and not deplete the amount as long as my investments are staying consistent. I would roll the lump sum into an IRA if I took it, still trying to decide who to use for fund or management, T. Rowe Price, Fidelity, MetLife, open to suggestions.
Okay, so this is always a big question for people with pensions, obviously, do I take the lump sum if I am eligible to, or do I actually take the pension amount, take the monthly benefits? It's hard to say sometimes here's maybe I don't have enough information to be honest with you to answer this. I think that I need to know a few different things. I've got to know how much other income they might have that would be fixed perhaps a smaller pension. Are they gonna turn those social security right at 62?
What does their fixed income look like? If they have no other fixed income, that's a benefit of maybe taking the pension to kind of get a base built up of fixed income every month in retirement. Another question is, well, what are your expenses? Because if you're getting a thousand dollars, a $10.53 dollars every single month and you spend $8,000 a month, that's a small amount of your total expense need every single month. If you only spend 4,000 a month, that's 25%, which is really good.
So the hard part here is, I typically lean towards taking a lump sum because here's something he mentions. I've got some health concerns and I would do a 100% survivor benefit to the wife. Now, that's fine and good. My question then would be, well, the wife in this situation, she's 56, is she working? I don't know the answer to that.
If she's still working, she might not need that survivor benefit should something happen to you in the next couple of years, right? She might not need that because she's still working and could support herself perhaps on her own based on her income. If she's not working, she might need that money. So that's one question is, is she working? Is she not?
If she is working, when does she plan to retire? Also too, what is your social security benefits gonna look like? What are her benefits gonna look like? Would that be enough to support her lifestyle on its own at some point because she would be eligible for a survivor benefit on yours. If you pass away, she would also be able to receive obviously her benefits and depending on which one's greater, she would get the greater of the two.
Another question is what about kids, family, legacy, something like that. The hard part with a pension is that yes, it secures in this situation with a 100 survivor benefit. It secures income for you and your spouse, but if there are kids, grandkids, legacies, whatever it might be in the future that you'd like to help with, that goes away if you take the pension. That goes away whenever both of you pass away because there's no additional survivor benefit after your wife. So that's something to factor in here as well, which I don't know the answer to.
So there's a lot to consider. I typically like to take the money for myself, which means take the lump sum. I typically like to do that so that I can control how much I spend and when I spend it. Here's an example. Let's say you get a thousand and $53 every single month.
That's great. But what happens if you need $10,000 one month for a random thing? You've to purchase a new car, do some major car repair, a new AC unit, whatever it might be. Well, if you don't have the money to support that expense at one time, you've got to take out a loan or put it on a credit card or something like that and then pay it off as you receive your monthly income. Or if you have the lump sum in your name, it's in your possession, you control it, you can take out that $10,000 for that expense, that one time deal.
You can take that out in one month, pay everything in cash, be done with it, and then just take out less over the subsequent remaining months or over the next however many months, so that your monthly income out of that particular sum of money is less to offset what you spent upfront. So what that does is, is it gives you flexibility to spend when you need to spend and how much you need to spend in that moment. If you're on a fixed income for the rest of your life, you just get it, it comes into your bank account and that's all you have. In the lump sum situation, you have control over when and how much you spend. So if you ever needed to cut back on spending, you absolutely could.
You can say, hey, I'm not gonna spend a thousand dollars every single month that I would have gotten out of my pension, I'm just gonna spend 500. Great, you're gonna keep that invested in the market a lot longer so that it grows for you again, for perhaps kids or grandkids down the road. So I like to take possession of my money whenever I can. It's maybe hard in this situation because again, he's already planning on doing that a 100% survivor benefit and she's only 56. I don't know that she might not need that money yet.
She might be having more money than she needs if you were to pass away and you'd already started the pension and she's still working, making an income, she might not need the money, which means she's getting taxed on it for no reason. It could be in an IRA accumulating and growing over time tax deferred for her in the future. So hopefully that helps maybe give you some context around like how to think about this. I like to take the lump sum myself, invest that over time. I think you would get more than 7% on that money.
It's just a matter of, you know, how you would invest that, which is a big decision and all this as well, and then go from there. So hopefully this helps as you kind of evaluate lump sum versus pension. There's a lot of details here that aren't covered or mentioned, but hopefully you can kind of take some of the ideas and thought patterns I'm going through here to apply to your situation, and then you can be better off because of it. So thanks so much for tuning in. We will see you next time.