I have a very small pension from my first job that I left over 10 years ago. I honestly haven’t looked into it much since the payments at retirement would be so small. It looks like the cash benefit right now is around 18k with an estimated lump sum of 61k or 410/month if I waited until I’m 65 in 22 years.
A couple weeks ago, I rolled over my old 401k into Fidelity where I have my current 401k and personal investment account. The benefit of cashing out the pension now is I could consolidate that into fidelity as well. Is that dumb?
You might consider what its value would be within a 401k vs. what you get from the pension assuming you live to age 90 and see which one would put you ahead.
(You might want to do a range of estimates of the 401k value.)
That is exactly what I did. Moved the commuted value to my IRA. One less piece of money to keep track of. My pension payment would have been around $400 per month. Not worth keeping it around with another company.
It is amazing how often these bits and pieces can get lost or forgotten over the years. I always suggest consolidation unless there is some significant financial penalty to do so, which is probably not the case here.
I have no advice in this situation, it’s a decision that is specific to every individual’s circumstances, but I do strongly advise that you have both cash available at retirement as well as guaranteed lifetime income. A $400 monthly benefit is not worth a whole lot, especially 22 years from now, but if you need more guaranteed lifetime income beyond what social security will give you (you mentioned a 401k so am assuming US here), it’s worth considering keeping it in the plan. I personally plan to keep my DB money in the DB plan for this reason.
I was thinking along the same lines in terms of comparing the net EV of the “guaranteed” income vs. what could be realized through the 401k.
Using the age 90 timeline; the DB will provide ~$120k. Would that $60k PV result in a similar cash value (and when) using some very conservative returns?
But at $400/mo, the best (IMO) that this would be helpful for is a sort of hedge against inflation; which could still be useful.
Oh, and leaving it in the plan will stick it to your former employer in terms of paying for administrative fees on your benefit (they’ll likely do a buy-out at some point in the next 22 years, but in the meantime, they’re paying those fees each year). If you feel any ill will toward the former employer, this can be mildly cathartic.
Some pensions have limits as to what portion can be commuted. My old employer ceased letting new accruals be commuted at some time in the mid 2000’s, and the commutation could occur no earlier than earliest retirment date (timing limit was in plan doc no later than 1991).
You want to leave it where it is or roll the funds to another qualified plan, obviously. Points of consideration:
If there is any question of the financial soundness of the pension, roll the funds.
If you’re thinking that filing taxes with a bunch of small 1099-R forms will be a pain, roll the funds.
If you have health issues which make the probability of survival to age 90 low, roll the funds. Most of us in good health at age 65 should expect to live to age 90.
If you pass the three tests above do a comparison of the forecasted payout to age 90 compared with what you think you could draw from the lump sum and take whichever comes out better.
I had the same situation this summer regarding almost the same exact dollar amount and I had it put in my IRA. It was only going to be on the order of $300+/mo and I didn’t think that size annuity was ever going to be life changing money so I preferred less accounts not more.