Should I sell my pension? Is it possible to sell pension payments for cash out an employer sponsored pension for a lump sum?
In selling future pension payment streams, you would get far less now in a lump sum than you would get at maturity time of the periodic proceeds.
Also, by cashing in your pension, you are giving up a steady post-retirement income stream.
What if your employer is offering to buy out your pension for a cash lump sum now?
(To be sure, we're not buying or cashing out military veteran pension, government pension payments, retirement plans, etc..)
Your employer may have good reason to offer you a lump sum instead of continuing your pension plan.
A pension buyout may reduce his administrative expenses and increase the income of his business.
The question is: is selling your pension in your own best interest?
Let me point out some pros and cons of selling your pension to your employer, the way I see it, at least.
First, the benefits:
(The discount rate has traditionally been calculated based on a 30 year US Treasury Rate; however, this has changed in accordance with new regulations by the Pension Protection Act of 2006, or PPA.
The Discount Rate is a very important factor and can have a significant effect on the amount you get from your pension buyout.
As a rule, the higher the discount rate, the LOWER is your present value.)
(Companies offer early-retirement benefits to encourage employees to retire early for various reasons, including sending out older employers in favor of younger, more enthusiastic ones that are of more value for them; reducing administrative and insurance costs; and increasing their income)
(To simply a bit, let's suppose you're expecting to get an amount of $3000/month in pension annuities for x amount of years per your life expectancy.
Let's further assume you'll sell your pension for a lump sum and then reinvest the lump sum and it will earn you income that will last for a given amount of years if you take out the same $3000/month.
Now even if this amount of years will be longer than your life expectancy - but what if you have luck and live even longer?
Well, you'll not get any income since your investment has been depleted. On the other hand, pension will go on for the rest of your life even if you live longer than the expected years of your life.)
You may also want to consider your company's financial strength. Will it last long enough to pay my pension? and what if it goes bankrupt - will there be any backup and security for your payouts? Is this another reason to sell my pension?
I won't go here into discussion on whether or not a Defined Benefit Pension Plan is still a good option to rely on, and whether the Pension Benefit Guaranty Corporation (PBGC) is losing its strength as a pension protection agency. For a great, detailed treatment of this topic, I recommend you checking out this excellent article on the subject:
Bottom line: when asking yourself, "should I sell my pension," you should carefully take into consideration all the above points and weigh the costs and benefits of each option. Remember, once you sell your pension, it will be too late to reconsider.
Please express your opinion here and let other folks know what you thing about this question that many other find themselves asking when offered to sell their retirement plan to their employer: is it wise to sell my pension, or is it advised to go on with my regular pension plan and not sell my pension payments?
Have you sold your pension, are you considering selling your pension, or do you personally think it's a good idea? Share your experience (you are also allowed to attach your photo!)
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