///Any financial experts out there...have just a couple days to make a choice and looking for opinions...please excuse my lousy spelling <g>
OK, my wifes work has decided to offer an alternative to her current pension plan ( obviously, different plan then her 401k)...her current plan is basically a guaranteed amount based on a formula they use based on age, final salary and years of service...this is a guaranteed amount based on the formula when she retires..The plan is managed by her company and funded by her company so no investement decisions are needed on our part......the negatives to the current plan as I see it are this : When she retires, she cannot get money in a lump sum...it is payed in monthly installements, so technically it really isn't 'guaranteed', unless she outlives the amount she is due...and there are certainly positives and negatives versus getting a lump sum which you are guaranteed versus a monthly payment that will require you to live a looong time if you are actually going to collect the full amount due....the 2nd negative is the current plan only pays half her benefits to the beneficiary should she pass away. The new plan they are offering would freeze her current benefits which she would be guaranteed and then it works like this...each year, her company pays into her pension an amount based on another formula that is based on salary, age, and years of service, so each year, she gets a higher % from her company.....In this new plan, she can get her full amount due in a lump sum instead of a montly payment, thereby assuring she gets the full amount due...and 100% is payable to her beneficiary if she dies...the negative in the new plan is it is not managed by her company and guaranteed......it would be left up to us to manage and the money would be put into the same things that her 401k offers, which is obviously the equities market, via mutual funds...My concern is I have no clue as to what the market will do over the next 10 - 25 years and god forbid it tanks and we pull a japan with 20 years of misery, obviously her pension would be killed...now, part of me says my wife is only 33 ( I am 40) and has plenty of time to allow the markets to give a decent return, but I just dont know if we can count on history to repeat itself....history says over any 20 year period, the best place for your money is equities...but just because that was past precedent does not mean the same will be true....In other words....who knows what the market is going to do over the next 10 - 25 years...not me..not anybody...If her current plan offered a lump sum payout, it would be a no brainer and I would go with the current guaranteed plan...and if the market goes up, then we will have made the wrong choice ( I think we need an 8.5% annual return for the new plan to outperform the current plan), but at least we know it is guaranteed...in the new plan, we would be hoping and risking everything on the fact that equities will pay off over the next 10 - 20 years or so...8.5% annual return and we come out ahead....lower then that and we come out behind.....So, I prefer the original plan which is managed by her company and guaranteed, but then again, it really isn't guaranteed as it is payed in monthly instalments rather then a lump sum. The new plan, we will have to manage ourself and hope the market at least gives us 8.5% annualy...if so, it is the better plan as we can get a lump sum payment and 100% payable to beneficiary in case of death....but, again, it boils down to whether the market performs...if it does, the new plan is the way to go......if not, we are better with the guaranteed money, even though we cannot get a lump sum and have to settle for monthly payments, in which case we probably wont ever see the full amount due.....anyway, have just a couple days to decide what to do, and I keep flip flopping back and forth...one minute I like the guaranteed plan, even though I dont want monthly payments..the next minute, I think I will regret staying with the new plan if the market goes up...if the market goes up 8.5% a year, we come out much better and can collect full amount immediatley, rather then monthly payments...and if it goes up more then 8.5% we will really miss out on some bucks as the new plan will dwarf the current plan if we get more then 8.5% a year...But, if the market does not give us 8.5% annual average over time we could be screwed...Any suggestions? All opinions welcome.... |
