Source
r/personalfinance•
KeyLo36

Early pension offered by my old company - Should I take or wait?

Retirement

I'm 36 years old and a former employer that I worked at for 8 years sent me a letter stating they are allowing former employees to take a lump sum of their pension. The lump sum I would receive is around $8,000. Part of me wants to take it so I could put it towards my student loan (I still have $12,000 to pay off and this would allow me to pay it off within a year). I'm also afraid that if I accept the lump sum that I would get hit hard when tax season arrives.

They offered me 3 options: 1. Take the lump sum of $8,000. 2. Receive monthly payments (not sure how much or for how many months). 3. Leave it alone and wait until retirement age (at least another 30 years for me).

Does anyone have any recommendations on if it would be smart to take it now or wait? Would this affect me as far as taxes go?

Posted Oct 9, 2019, 2:20 PM UTC · edited

220
Werewolfdad​•

You'd probably be better off just rolling it over into an IRA

5
cobolNoFun​•

This is what we did with my wife's old pension. We figured it wasn't a large enough amount to maintain in a separate account, so we rolled it into an existing ira. I am fairly certain we would have forgotten about it by retirement age.

1
Werewolfdad​•

I am fairly certain we would have forgotten about it by retirement age.

You've just described my current attempts at helping my parents consolidate all of their holdings. Its making me nuts. Money there and there and everywhere!

1
thatonecoolkid99​•

It's almost always better to take pension money in lump sum, especially since you still have your best investing years ahead of you.

I could put it towards my student loan

What is the interest rate on this loan? This could be a very smart move.

afraid that if I accept the lump sum that I would get hit hard when tax season arrives

You can voluntarily withhold some of the money at your effective tax bracket so that you don't get sticker shock when taxes come. 30% is a safe number, but you should try to get as close to your true amount owed as possible. Anything you get refunded is effectively loaning the government your money at 0%.

3
GaylrdFocker​•

You'd only get hit hard on taxes if you took a cash payoff. You should be able to roll it into an IRA. Do this if you have the option. I have coworker that was offered this years ago and regrets leaving it in the pension.

3
KeyLo36OP•

I'll have to see if that is an option. I've heard from other people that would be the way to go.

1
well_hung_stable_boy​•

Is the company strong and viable? How far till your personal retirement? What are the tax consequences of taking this money now?

2
KeyLo36OP•

It is a well-known company that is strong and viable. I'm 36 so I have about another 30 years or so if I decide to retire around 65.

1
well_hung_stable_boy​•

Will it be viable in 30 years? A lot of compaines that were strong become history. GE was strong back in the 1980s, no so much today.

1
cyndessa​•

GE was strong back in the 1980s, no so much today.

Funny you say that- got a pension lump sum offer today from GE actually.

1
well_hung_stable_boy​•

Ouch. Have you heard the phrase, take the money and run.

1
RaptorCatcher•

I got the same offer in the mail today from GE and was wondering what to do

1
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1
tver1979​•

What are you entitled to if you don’t take the lump sum?

1
KeyLo36OP•

I don't have the letter in front of me but it basically gave three options. 1. Take the lump sum. 2. Take monthly payments. 3. Leave it alone until I'm at retirement age.

I'm not really sure what the purpose of it is and it wasn't really on my radar until I received their letter.

3
stefand2010​•

i think you need to include option 2 or 3 and you/people here can do some math to provide some insight

2
KeyLo36OP•

Good call. I just went ahead and made an edit to my post.

1
042424Ruby​•

Why are they doing this?

1
Beethoven_the_Third​•

Taking a lump sum def will have a tax bracket hit. Better option is wait till retirement, pensions are for retirements anyways.

0