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Intel gave me a surprise farewell gift!

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surprise pension unexpectedWow, I have a pension! I never expected anything to come out of Intel’s pension plan so it’s nice surprise. It’s a small pension, but it’s better than nothing.  The way it works is if Intel’s 401(k) contribution and social security isn’t enough to support your retirement (based on your final pay), then they would kick in the difference. You also have to work there long enough for the pension to be vested. I’m not exactly sure how long this is. I guess it is 7 years, the same as the profit sharing plan (Intel’s contribution to 401k.)

Here is the excerpt taken from the Intel’s retirement plan.

The Pension Plan in SERP is a so-called “floor offset” pension plan, which provides pension benefits in the event that an employee’s Profit Sharing Plan account balance does not offer a minimum level of retirement income as determined by a pension formula based on final average pay, Social Security covered compensation, and length of service upon separation not to exceed 35 years. If the Profit Sharing Plan account balance does not provide a minimum level of retirement income, the Pension Plan makes up the difference. The Profit Sharing Plan balance for each of Intel’s executive officers is above this minimum, so none of those individuals would receive any payments from the Pension Plan if they retired today.

Pension Jujitsu

I’m sure there are some complicated projections going on at Fidelity (the trustee.) The employer contribution portion of my 401(k) came out to about $145,000 after 16 years. I’ll share all the details of my 401(k) rollover in my next post. $145,000 is a lot of money, but there is no way it would support a retirement. I guess the key phrase above is “determined by a pension formula based on final average pay.” My final pay is in the low six figures and the formula probably calculated that I would need more money to live on than social security + $145,000 can provide.

Anyway, I’m sure you’re curious about exactly how much pension I would get.

Here are the numbers.

My pension benefit is $355.99. It is payable as a monthly Single Life Annuity in 2039 when I turn 66.

If I changed the benefit commencement date to 12/01/2012, then the benefit is reduced to one of these options.

1) Lump Sum payment: $9672

2) Single Life Annuity: $47

3) 50% Joint & Survivor Annuity

  • To me: $44
  • To Mrs. RB40: $22

4) 100% Joint & Survivor Annuity

  • To me: $41
  • To Mrs. RB40: $41

As you can see it’s not much if I take the benefit right now. Here are my choices.

  1. Take the lump sum and roll it over to an IRA. I like this option because I will gain total control of the pension. An IRA would be much easier to keep track of and factor into my portfolio balancing. Who knows what will happen to this pension plan if Intel doesn’t do well in the next 20 years. The Fidelity rep. told me even if Intel goes out of business, I would still get 40% of the benefit. I guess this is insured somehow.
  2. Cash out and buy the awesome SONY 84” LED TV or go on a nice beach vacation! OK, the 84” TV cost $25,000 so I would have to kick in quite a bit more.  That’s not going to sit well with Mrs. RB40. It probably doesn’t fit on our living room wall anyway. Also, I would have to pay a 10% penalty to the IRS similar to cashing out an IRA.
  3. Take the $41/month. This is peanuts, but anything helps. I guess we can go out one extra time a month or maybe I can invest this in the stock market. It’s hard to get excited about $41 though.
  4. Wait 26 years until I’m 66. The benefit will be $356/month then. This is a long time to wait and in 26 years, $356 can probably only pay for a nice dinner out. I ordered a projection for 5 years and 20 years out and the results will come back in a month or so. I’ll be able to make a better decision once I see the actual numbers.

From what I see so far, I’m heavily leaning toward taking the lump sum and rolling it over to an IRA. I guess I’m a bit of a control freak and I want to be responsible for this pension rather than trusting Intel and Fidelity. The other options are not really attractive to me. $41 is too small and I don’t want to wait 26 years for the full annuity especially with the uncertainty of how Intel will do over the long run.

What would you do in my place?

what would you do with a small pension?

Photo credit: flickr Benson Kua

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{ 43 comments… add one }

  • Lance@MoneyLife&More November 26, 2012, 5:16 am

    Without doing calculations I would roll it into an IRA but if the calculations say the $356 in 26 years is better I would leave it there.

  • Mike November 26, 2012, 5:54 am

    I would divide it as follows: $100 towards an IRA (so you can prepare for higher interest earnings), $100 towards savings (you never know when you might need it), $100 towards another income stream (can be a blog, mobile apps, ebooks, whatever suits your fancy), then whatever is left you can use towards having a little fun. But that’s just my two cents. I think that divides it out towards preparing you for the future and it can help you feel like you are also getting to use it towards enjoying yourself a little bit.

  • Glen Craig November 26, 2012, 6:08 am

    I had a cash plan from my previous employer. It required a half lump-sum plus an annuity (there were a few options but all were similar).

    The lump sum made for a nice backup when we bought our home. And my monthly payment helps keep me in riches (it’s about $40/month).

    Sounds like rolling over the money into an IRA would be the best bet for you. Then you have time to let it grow into something more substantial.

    • retirebyforty November 26, 2012, 11:57 pm

      A lump sum plus a small monthly payment would be nice.
      $40 is better than nothing. :)

  • Financial Samurai November 26, 2012, 6:19 am

    That is kick butt AWESOME!!!!! Don’t you just love upside surprises? Free money baby!

    Just goes to show that sticking with things for long enough does have its upside. Congrats!


    • retirebyforty November 26, 2012, 11:58 pm

      Thanks! The upside surprise seems so rare.

  • SavvyFinancialLatina November 26, 2012, 6:59 am

    Nice! Unexpected money! Love it!

  • 20's Finances November 26, 2012, 8:40 am

    That’s awesome. I’m glad you didn’t retire before the cutoff. Could you imagine quitting a month too early? How heart breaking would that be. After some basic calculations, 10k invested for the next 26 years would mean that you’d have to receive an 8% to get approx. 73,000, which would produce approximately 3600 a year at 5% dividends…. So, I’d probably take the money too just to have control of it. (especially with the returns you are getting with P2P)

    • retirebyforty November 26, 2012, 11:59 pm

      8% per year seems like such a stretch because the last 10 years had been pretty dismal. I’ll try my best though.
      P2P might be a good way to go for this money. Thanks for the idea.

  • Kurt @ Money Counselor November 26, 2012, 8:57 am

    I agree with your tendency Joe–take the lump sum now and roll it into an IRA. You don’t want to pay any 10% penalty, and I’d be really uneasy about counting on the pension being there when you turn age 66 and beyond, regardless of what some flunkie at Fidelity with a stake in your decision says. The ‘bird in the hand’ adage definitely applies!

    • retirebyforty November 27, 2012, 12:01 am

      I’ll have to keep the ‘bird in hand’ adage in mind. Thanks. :)

  • Retired Syd November 26, 2012, 9:29 am

    I’m with you. I’d roll it into my own IRA so it is under my control. You have a wider range of investment options and your access to it is a little more flexible.

  • Michelle November 26, 2012, 10:21 am

    I would probably take the lump sum and roll it over into the IRA

  • Edward Antrobus November 26, 2012, 11:13 am

    I’d go for the IRA. I know I wouldn’t trust 1)my ability to remember it in 25+ years and 2)their ability to find me then. I have yet to have a job that offered a pension or 401(k), but if I did and later left, I’d be sure to roll it over to make it easier to keep track of.

    • retirebyforty November 27, 2012, 12:02 am

      I’m sure I would forget the whole thing as well. Good point.

  • jim November 26, 2012, 12:34 pm

    Are you only given the choices of cashing out now, drawing pension now or waiting till age 66? Can you cash it out later or take a pension at a different age like 50 or 60 years? Personally I’d keep it where it is for now. Its a guaranteed defined benefit so you don’t have to worry about how well the pension is managed. But I like pensions. I am not sure why people have so little trust in pensions. I don’t think most people are better off with 401ks & IRAs compared to traditional pensions.

    • retirebyforty November 26, 2012, 1:52 pm

      I can cash it out later at different age. I ordered an estimate for a few ages so I can make a better decision.
      The monthly payment just seems so small comparing to the lump sum. I think that’s why most people would rather go for the lump sum.

  • krantcents November 26, 2012, 2:50 pm

    Nice surprise! You have to consider a few things such as how long yu will live. If the odds are against you take the lump sum and put it in an IRA. I had a similar opportunity for significantly lower amount about 35 years ago. I took the lump sum!

  • Kim@Eyesonthedollar November 26, 2012, 3:14 pm

    What a nice little windfall. I’d put in in the IRA. If you had some sort of high interest debt, that might be a reason to cash it out, but then you probably woundn’t be retired, would you?

  • Squirrelers November 26, 2012, 9:07 pm

    Fantastic! You have to like such surprises, this is a great one.

    If I was in that situation, I would take the lump sum. I actually of a very similar situation where somebody crossed a threshold and didn’t qualify for a lump sum and instead gets a tiny annuity. Not sure of the exact amounts they’re getting, but my first reaction was “that’s nice, but the lump sum would have been REALLY nice”.

    Now, how you have that choice to get the lump sum. Congrats!

    • retirebyforty November 27, 2012, 12:03 am

      Thanks! I always like a lump sum better. The small monthly payment is just too small to make any difference.

  • Jeremiah November 26, 2012, 10:10 pm

    I don’t do a lot about inflation projections; what is the purchasing power of $356 projected to be in 26 years?

    If it’s more than about $150, I’d keep it as-is. I don’t expect that having $10K more in your IRA now makes any real difference in your lifestyle, options or short-term security – so the question for me would default to “what will keep my above water in 70 years? At that point, it’s a mathematical projection only IMO.

  • papadad November 27, 2012, 5:42 am

    a postage stamp is liable to cost $40 bucks by the time you hit 65 (or is it 66). Anyway, I’m with the majority that you should take the lump sum, invest it in a good growth/dividend stock or an ETF, dont touch it for the next 20 years, and be surprised as heck with more free money when its rate of return exceeds the 8% assumed in the annuity calculations.

    that said, i got a lump sum pension years ago…think it was around $5K. Parlayed that money into about 50K within 10 years, then a really greedy and really bad stock investment saw it go all the way back to zero….damn dot com bubble… ah well…easy come…easy go.

    Just depends how disciplined you can be and how well you trust INTC to be there 20 30 or 40 years from now. Other side of coin is that if you live for a long long long time, then you will far exceed the pension statistical calculation and could be handy to have steady, dependable income….even if it is just $40 bucks/mth.

    It is a nice surprise.

    Just checked mine too on Fidelity and was surprised to see something in there as well.

    • retirebyforty November 28, 2012, 8:48 am

      Wow, that’s quite a ride. I had a big set back during the dot com bubble too, but I was just starting out so it didn’t hurt that badly. I would hate to retire right at the down turn. Surprise money is great!

  • Darwin's Money November 27, 2012, 7:23 am

    Wow, that’s like finding a lot of 20s in your back pocket! Good stuff. I like the idea of taking the money now, rolling into IRA. You never know what’s going to happen down the road and if the pension is reduced and ends up with the federal pension guarantee system where the payments would be lower. Also, $300 bucks out then is like $100 a month in today’s dollars. Take it now, invest, and watch it grow!

  • Little House November 27, 2012, 10:06 am

    Since official “retirement age” before you can take the monthly pension amount is so far away, I think I’d roll it over. I also have a pension, but I plan to work in my profession for many years to come. As much as I’m not sure how my pension plan will hold up in 26 years from now, I really don’t have any other options than to just keep contributing. Hopefully, CALSTRS will restructure in the next 5-10 years and get it figured out! Or I’m screwed. 😉

    • retirebyforty November 28, 2012, 8:50 am

      Your pension is a portion of the salary right? Mrs. RB40’s mom was a teacher and she has a nice pension to help pay the bill. I think that’s great for our educators.

  • Brick by Brick Investing November 27, 2012, 10:31 am

    Unfortunately $356 is going to be pennies 26 years from now when you factor in inflation and government money printing. By taking the lump sum payment yourself you can manage that money much better and invest it properly.

  • jim November 27, 2012, 12:25 pm

    BTW, looking up the annuity rates on immediateannuities.com if you bought an annuity for $9272 on the open market as a 40 year old male you’d only get $35 for life. You’re getting $47 for life so thats pretty good.

    • retirebyforty November 28, 2012, 8:51 am

      That’s good info. Thanks! I guess it depends on how long you live, but $47 will be pennies in 20 years. :)

      • jim November 28, 2012, 1:25 pm

        Well inflation isn’t *that* bad. If we average 4% annual inflation then in 20 years the $47 would be more like $21 today. And inflation will erode the value of your lump sum the same way.

        And yes the annuity value certainly does depend on how long you’ll live. If you die soon then it ends up worth less and if you live a long time its worth more. Basically the opposite risks if you manage your own money. If you live a long time you risk running out of money and if you die young you have more left to spend from beyond the grave.

        • retirebyforty November 29, 2012, 3:39 pm

          You made me realize I should have sat down and crunch the numbers more. I’ll do it next week and write a post. Thanks.

  • Justin@TheFrugalPath November 27, 2012, 3:19 pm

    Congrats on finding this money.
    It all depends on the time value of money. If you were to roll it over into an IRA you could earn all that interest. But you don’t know what interest rate you would earn. With inflation being very likely the $356 a month wouldn’t be very much.

  • RichUncle EL November 29, 2012, 10:00 am

    If I were you I would wait till i’m 45 or 50 to take the lump sum, I do not see Intel going bankrupt soon and by then the lump sum will be more substantial. You can then roll it over for the little guy’s education. Good Luck.

    • retirebyforty November 29, 2012, 3:49 pm

      I ordered an estimate and will see how much the lump sum will be. I’ll write a follow up sometime next month. Good advice.

  • Evan December 11, 2012, 1:59 pm

    Any update on waiting a few years? If you can figure out the amount of internal return that they are assuming may be worth it to wait.

    • retirebyforty December 11, 2012, 10:59 pm

      Yes, I got the estimates and will write an update on Friday. I have to sit down and compute which is the best options, but I’m still leaning toward rolling over to an IRA next year.

  • Harry December 17, 2012, 8:08 pm

    Funny. I would actually advise you against doing anything. Basically, this is guaranteed money, why touch it? And yes, I worked for Intel as well. And have a decent chunk of change as well. Their compounded returns are @4.2%, after you quit. Can you do better? You can always take it away some other time.

    • retirebyforty December 18, 2012, 10:35 pm

      Thanks for your input. I think the $360 per month in 2039 isn’t a huge deal. I’m willing to invest that sum myself and see how it does. I’m sure most investors think they can do better than 4.2%. :)

  • Chris June 5, 2014, 12:20 pm

    Hi, one question. Did you actually “retire” from Intel, get redeployed, or just quit? I quit and am wondering if I’m eligible for the pension….

    • retirebyforty June 5, 2014, 1:55 pm

      I quit. You should be eligible for a pension. Probably very small. You should give Fidelity a call.

  • Steve April 28, 2015, 1:47 pm

    Maybe I don’t understand how “100% Joint & Survivor Annuity” works, but if it means you are getting $41 each for you and your spouse monthly starting now for the rest of your life, I would go that option because it means a return of (41+41)*12/9672 =~10%. It will be hard for you to get that kind of return with certainty without a lot of effort.

  • Steve April 28, 2015, 1:57 pm

    Sorry I just googled “100% Joint & Survivor Annuity” and understand you are only getting $41 monthly at any point of time. In this case, you probably have a very good chance to beat the 5% return by taking the lump sum and rolling over to an IRA. Please disregard my previous comment. Good luck.

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