FOH Bros, I need some help. Didn't see a better thread for it than this. It mostly relates to retirement planning, but I figure it's basically investing, to which I know next to nothing about.
I have a pension with a company that's probably never going to go under, so I think it's a pretty safe bet it will be there when I retire. They offered me a buyout on it, cash now, or annuity for the rest of my life. The sum total of this pension would be $953/mo at age 65, for the rest of my life. The annuity option i can take today is $312/mo for the rest of my life. That one I can figure out myself - that sounds like garbage. I'm 44, so 20ish years until retirement. My grandfather is 94, and I have no reason to believe I won't live at least as long, based on my excellent health and the general longevity of my family tree. So I'm looking at probably 30 years in retirement. Based upon that, it's pretty simple to exclude the annuity, as I'd receive ~187k from that over my expected life, or almost double that from just taking the pension at 65 and living another 30 years.
The part I'm having trouble with is the lump sum payment - they're offering me $64k to buy me out completely. On the face of it - it seems ridiculous, that's like 5 years of retirement, and I'd collect way more money over my life than that. But, i'm no longer with that company, and I have a 401k now (which is pretty small, only had it for just over a year). Rate of return on it was 8% last year.
When I start trying to figure out the math on this, I'm not sure which direction to go. If we use a simple investment calculator and I assume 6% return (is that fair? I don't know), that means that I'm going to have 217.5k by 65 just off that money alone, not to mention what I put in there between now and then. But, if I'm reading this table right, that means I'm going to be getting $12k/year in interest by that point - which is more than the pension is worth (marginally, but it still is). Now, if I can just take the interest and leave the principal, this means I should be in theory way better off, no? I mean, I'd get the same "pension" out of it, but I'd have 200k to pass down to the kids or draw down as I need.
But then I start to wonder about what the actual rate of return is as you get closer to retirement - maybe it's not enough to get the same benefit as the pension is.
Basically what I'm saying is I'm not sure what the fuck I should do here. Safe money is always going to be good. Guaranteed money is always going to be good. But if I can do better than that safe money by a substantial margin, shouldn't I be exploring this option? Should I just fucking leave it? I mean, if I die, it just goes away, so there's always that threat. But on the flip side - i'm dead, what the fuck do I care?
You guys have any thoughts on what you'd do in this situation?