Pension Payout: Take it now or wait it out?


#1

Hi! Looking for some input as I am semi-new to this FIRE lifestyle and never been in this particular position.

My company offers a pension, but we are being sold and the new company does not. We will be vested in what we have in our account and will be given the option for an immediate distribution, or postpone to a later date. The pension benefit will continue to receive interest credits at a rate of 4% per year.

I have been with the company for 3 years, so there is only about $8k in my account. Should I take the money and put it into something I will track more often or leave it to grow for many more years? I am 30 years old.

It seems like leaving it to grow could be great, but my concern is if I change jobs several times before I get to the retirement age, will I lose track of this money? Any suggestions out there?


#2

With such a small amount I would probably find out about the tax implications and withdraw it and put it in a Roth IRA. I had a similar situation but my amount was around $3000 so I withdrew it and rolled it into my IRA. Historically if you are only going to earn 4% the investments in the stock market in an IRA will out earn that.


#3

Can you roll it over into an IRA? I would roll it over into a retirement account to avoid taxes and continue to track it with the rest of my investments. Usually with a pension there are rollover options.


#4

I just heard a similar question on the Dave Ramsey show yesterday. The biggest point to consider is that a pension either disappears when you pass, or it goes to beneficiaries and disappears when they pass. Mutual funds in an IRA do not have the same limitation. Personally, I’d open a traditional IRA with Vanguard, then let Vanguard walk you through the rollover.


#5

Good one, Mrs. G! @JVG - This is the point I was going to make - does the pension pass on or die with you?

Personally, I would take the lump sum and invest it myself. If they allow a roll over even better!


#6

Great idea! I have been wanting to get in with Vanguard anyways! Thanks!


#7

I guess I will have to check in with HR to ask about that. I didn’t think about those details! Thanks


#8

I would roll it over. If you ever plan to be above the income limit for Roth contributions in the future you may want to look into rolling into a solo 401k instead of an IRA because of pro rata implications. You are young and 4% is pretty low return at this point in your life.