Before You Lock in Your Pension Election: A $1.4 Million Lump Sum Strategy That Beats the Annuity by Hundreds of Thousands Quick Read – $1.4M lump sum at 5.5% payout beats $77K annuity at 7% returns through any reasonable life expectancy. – Execute direct trustee-to-trustee…
llover to avoid 20% withholding; map 10-year Roth conversion strategy immediately. – A 63-year-old hospital vice president has roughly six weeks to lock in her pension election. Her plan offers two paths: a $1,400,000 lump-sum cash equivalent rolled into an IRA, or a $77,000 joint-and-survivor annuity covering her and her husband for life
She is taking the lump sum, and the reasoning runs deeper than the breakeven math. The Payout Rate Looks Generous Until You Price Optionality The annuity’s 5.5% effective payout rate compares favorably to today’s 10-year Treasury yield of about 4.4%. The breakeven on a 5% real return assumption sits near age 90.
Past 90 the annuity wins. Before 90 the lump sum wins. Assume a 7% nominal portfolio return, closer to long-run equity averages, and the lump sum wins through any reasonable life expectancy.