Expert: Allen - 4/8/2008

Question
I am 46 years old. My company stopped their pension plan a few years ago and switched to 401K. Now they want to close their pension and we have three choices- roll over a lump sum to a 401K $48,500. Immediate annuity contract 233/month or Annuity contract 886/month. People say well take the rollover lump sum and you have control- well I haven't found that my 401K has done the greatest. I also think I may live to be about 90 based on a good gene pool. So I just thought I would see what you think. Thank-you, Linda

Answer
I can't give you a simple answer to your question. However here are some of my thoughts:

1. If you intend on working, it probably doesn't make sense to elect the immediate annuity. Better to have a large income when you retire.

2. If the $886 per month will be paid in the form of an annuity for your life only (nothing to your husband if you are married and he outlives you), it probably makes sense to roll the lump sum to either your 401k plan or an IRA. If you earn more than 6% per year it should increase to a value which will provide an annuity of more than $886 per month (if you purchased an annuity at age 65 from an insurance company). If you go this route I suggest transferring to an S & P index fund in at IRA at either Vanguard at Fidelity. The fees are very low and you are not picking which funds to invest in. In addition, if you die before you reach age 65, there may be no payment under the annuity option to your husband or other beneficiary.

3. If the $886 is paid before age 65 or in a different form, then the math may be very different.