Page 52 - Ready Set Retire

Stephen J. Kelley

in the market and wish to receive income from it, at the start
of your retirement you should limit your income to no more
than 4% per year plus a small inflation adjustment each year.

That’s handy, because it provides a really nifty test for how
much a permanent annuity or payment pension is worth in
invested dollars. For example, assume you have a $20,000
pension, and your company is offering a $250,000 buyout.
Sounds pretty good, huh? Should you take it?

It depends on if you need income. If you do, you can find out
if it’s a good deal by dividing the payout by 4%. In this case:

$20,000 ÷ .04 = $500,000

So now you have a frame of reference. If you don’t need the
income, it might be nice to have an extra $250,000. But
remember, you are going to pay taxes on that.

This is a great way to test the value of your Social Security as
well. Referring back to Tom and L inda, they are scheduled to
receive a PIA of $51,600. Divide that by .04 and you get
$1,290,000! Knowing that, do you think you might be a little
more careful in figuring out how to allocate it?

Now, having decided to keep your very valuable pension, it’s
important to determine how you will take it. Most plans offer
some form of survivorship benefits. These can take the form

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