Take pension early as lump sum rollover to IRA QLAC?

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gbronc
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Take pension early as lump sum rollover to IRA QLAC?

Post by gbronc »

My wife and each have small pensions from jobs long ago that have an immediate lump sum provision. We are in our late 50s with the full pension paying out monthly lifetime with no COLA at age 65. I've realized that if I take the reduced lump sum immediately, roll it over into a Traditional IRA and then buy a QLAC (both pensions are under the $135k threshold) in the IRA, immediateannuities.com best plan shows I would be getting the exact same monthly payout starting at 65 for a lifetime non-COLA pension. This is probably not a coincidence since my old employer isn't likely to offer some premium over the open market.

I see the main advantage is that I'd have greater control of the money and insurance provider and timing of QLAC purchase. The QLAC RMD deferral really isn't buying that much per Kitces: https://www.kitces.com/blog/why-a-qlac- ... bligation/

I have always intended on buying a single-premium QLAC annuity to take advantage of mortality credits so this isn't really outside my plans anyway.

Am I missing something? Makes me really wonder if any non-COLA pensions are ever worth keeping if you are under QLAC threshold.
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arcticpineapplecorp.
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Re: Take pension early as lump sum rollover to IRA QLAC?

Post by arcticpineapplecorp. »

if the annuity payout amount in the qlac is the same as what your employer is offering, what is the advantage of the qlac over the pension, other than:
1. the fact you can defer payments (you'd otherwise receive from the pension) til 85, so you're reducing your income (which could allow for Roth IRA conversions)
2. the solvency/health of the pension plan may not be as strong as the health of the insurer of the qlac?

Are you also sure the payments are the same between the two in terms of apples to apples? What I mean is, if the qlac doesn't start paying out until 85 is that the same amount you're comparing to getting your pension payment at 65? If so, I'm not sure that's the right comparison, unless I'm missing something. Or are you comparing payouts at 65 from pension vs. 65 for qlac and coming out with the same amounts?

Did you look into a joint qlac vs a joint pension payout with the company? Or are you just looking at 2 individual payouts with no survivor benefits?

I would be interested in hearing from others as I am looking at a non-cola pension as well but hadn't considered the qlac.
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chassis
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Re: Take pension early as lump sum rollover to IRA QLAC?

Post by chassis »

I took a lump sum. I hold the view that the investor can earn higher returns than the pension custodian can, which translates into higher future cash flows for the investor.

Secondly, a lump sum is heritable by heirs of the estate, beyond a surviving spouse. A pension is not.

I would take the lump sum, especially since you have done the math and it appears you aren't receiving in unfair lump sum offer.
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arcticpineapplecorp.
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Re: Take pension early as lump sum rollover to IRA QLAC?

Post by arcticpineapplecorp. »

chassis wrote: Mon Jun 27, 2022 9:03 pm I took a lump sum. I hold the view that the investor can earn higher returns than the pension custodian can, which translates into higher future cash flows for the investor.

Secondly, a lump sum is heritable by heirs of the estate, beyond a surviving spouse. A pension is not.

I would take the lump sum, especially since you have done the math and it appears you aren't receiving in unfair lump sum offer.
the issue isn't just lump sum or not. the OP is asking if the lump sum should go in a qlac.

wouldn't the qlac also not be heritable by heirs, similarly to the pension?
It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events. Asking Portfolio Questions | Wiki
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JoMoney
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Re: Take pension early as lump sum rollover to IRA QLAC?

Post by JoMoney »

Would the pension potentially be covered under PBGC in the event of insolvency, whereas the annuity would rely on state insurance guaranty associations?
I'm not sure how to evaluate the relative risk of either, but just pointing out there could be some difference to consider there.
Depending on your state of residence, there may be differences with regard to judgement exemptions on one over the other, there may also be differences with regard to how some states tax pension income versus a qualified annuity.
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Topic Author
gbronc
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Re: Take pension early as lump sum rollover to IRA QLAC?

Post by gbronc »

arcticpineapplecorp. wrote: Mon Jun 27, 2022 8:41 pm
Are you also sure the payments are the same between the two in terms of apples to apples? What I mean is, if the qlac doesn't start paying out until 85 is that the same amount you're comparing to getting your pension payment at 65? If so, I'm not sure that's the right comparison, unless I'm missing something. Or are you comparing payouts at 65 from pension vs. 65 for qlac and coming out with the same amounts?

Did you look into a joint qlac vs a joint pension payout with the company? Or are you just looking at 2 individual payouts with no survivor benefits?

I would be interested in hearing from others as I am looking at a non-cola pension as well but hadn't considered the qlac.
Good questions. I checked and re-checked with both immediateannuities.com and Blue Print Income where I have a MYGA.
  • To make it apples to apples I'm comparing taking a lump-sum payout immediately from pension and purchasing a QLAC to begin payout at 65 for life. This mimics just waiting until 65 to start monthly pension payout
  • Looked at both single life annuity and 50% Joint & Survivor
  • All providers at Blue Print Income are A+ or A++ so not too worried about that, plus this isn't a retirement changing amount if one were to default. I'm guessing California and other protections listed above would protect this amount in the $80k range during an insolvency anyway.
This second pass actually had somewhat better results with the QLAC, so seems like a no brainer. I guess it's possible my pension is just quite flexible and the advent of QLACs make this more appealing than just rolling into Trad IRA. It just seems too obvious so really wondered if I was missing something.
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gbronc
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Re: Take pension early as lump sum rollover to IRA QLAC?

Post by gbronc »

chassis wrote: Mon Jun 27, 2022 9:03 pm I took a lump sum. I hold the view that the investor can earn higher returns than the pension custodian can, which translates into higher future cash flows for the investor.

Secondly, a lump sum is heritable by heirs of the estate, beyond a surviving spouse. A pension is not.

I would take the lump sum, especially since you have done the math and it appears you aren't receiving in unfair lump sum offer.
What you are overlooking with monthly payouts for life from a pension or QLAC is mortality credits. I have family history of late deaths and strong health so would likely get an advantage there. I use the QLAC or pension as a partial replacement for the low risk portion of my portfolio. But you are correct, it is lost forever if I die younger than expected.
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arcticpineapplecorp.
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Re: Take pension early as lump sum rollover to IRA QLAC?

Post by arcticpineapplecorp. »

gbronc wrote: Tue Jun 28, 2022 4:17 pm
chassis wrote: Mon Jun 27, 2022 9:03 pm I took a lump sum. I hold the view that the investor can earn higher returns than the pension custodian can, which translates into higher future cash flows for the investor.

Secondly, a lump sum is heritable by heirs of the estate, beyond a surviving spouse. A pension is not.

I would take the lump sum, especially since you have done the math and it appears you aren't receiving in unfair lump sum offer.
What you are overlooking with monthly payouts for life from a pension or QLAC is mortality credits. I have family history of late deaths and strong health so would likely get an advantage there. I use the QLAC or pension as a partial replacement for the low risk portion of my portfolio. But you are correct, it is lost forever if I die younger than expected.
If you live long (and i hope you do) aren't the benefits if the qlac:

1. Delaying payments til 85 at latest (which means higher payments when you need them more)
2. Delaying RMDs for 13 years (start as late as 85).

Doesn't sound like you'd be utilizing either of those benefits.
It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events. Asking Portfolio Questions | Wiki
chassis
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Re: Take pension early as lump sum rollover to IRA QLAC?

Post by chassis »

gbronc wrote: Tue Jun 28, 2022 4:17 pm
chassis wrote: Mon Jun 27, 2022 9:03 pm I took a lump sum. I hold the view that the investor can earn higher returns than the pension custodian can, which translates into higher future cash flows for the investor.

Secondly, a lump sum is heritable by heirs of the estate, beyond a surviving spouse. A pension is not.

I would take the lump sum, especially since you have done the math and it appears you aren't receiving in unfair lump sum offer.
What you are overlooking with monthly payouts for life from a pension or QLAC is mortality credits. I have family history of late deaths and strong health so would likely get an advantage there. I use the QLAC or pension as a partial replacement for the low risk portion of my portfolio. But you are correct, it is lost forever if I die younger than expected.
I'm not overlooking anything. I eschew annuities and anything that resembles one. I hold the view that the investor can do better for him/herself than a custodian can. Apparently you don't agree. That is your choice.

Take the lump sum, invest it according to your AA. I recommend minimum 70% equities. Yes, for all ages.
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