Scott, age 60, faced a choice between a $524,388 lump sum and $2,847 per month with joint-and-survivor benefits. The monthly option implies an annual pension of $34,164, which divided by the lump sum produces a payout rate of about 7%. A benchmark approach treats offers above a 6% threshold as strong because matching that yield with safe investments is difficult. Current guaranteed rates include roughly 5% from 10-year and 30-year Treasuries and about 4% from the federal funds upper bound. To replicate the pension payout using Treasuries alone would require a rate about 140 basis points higher than the 30-year bond. With retirement timing, the pension begins immediately and combines with Social Security at 67 for Scott and his wife, supporting a budget without drawing down principal.
"“How do you feel about having that extra pension? How do you feel about having that dependable check? It's like part of this is about your feeling. It's less math.”"
"“Run the simple test that Wes Moss uses on The Clark Howard Podcast. Multiply the monthly pension by 12, then divide by the lump sum. $2,847 times 12 is $34,164 a year. Divide that by $524,388 and you get a payout rate of roughly 7%. Moss calls anything above his 6% threshold a strong pension offer, because replicating that yield from a safe portfolio is genuinely difficult.”"
"“Look at what guaranteed money pays today. The 10-year Treasury yields about 5%. The 30-year sits near 5%. The federal funds upper bound is about 4% and has been falling, with the Fed already 75 basis points lower than a year ago. To match the pension's payout from Treasuries alone, Scott would need to lock in a rate roughly 140 basis points above the 30-year bond. That gap is the value the pension is handing him.”"
"“Schlesinger walked Scott through the picture if he retires at year-end: the $2,847 pension starts immediately, his Social Security at 67 lands around $3,500, and his wife's lands around $2,500. Stack those three streams and you reach roughly $8,847 a month before any 401(k) withdrawal. Scott told her he spends about $8,000 a month. The pension is the piece that makes the household budget work without touching principal in his $763,100 traditional 4”"
Read at 24/7 Wall St.
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