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Private works pension lump sum
Comments
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I was referring to the lump sum, not the entire pension. No more mortgage no more monthly repayments.
I think you meant: No more mortgage, no more monthly income from the capital used to repay the mortgage.
Warmest regards,
FAThus the old Gentleman ended his Harangue. The People heard it, and approved the Doctrine, and immediately practised the Contrary, just as if it had been a common Sermon; for the Vendue opened ...THE WAY TO WEALTH, Benjamin Franklin, 1758 AD0 -
Umm yes, makes sense only if the mortgage interest rate is higher than the income you get by investing you capital. I think (just).That gum you like is coming back in style.0
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It's a bit of a no brainer. The best answer is almost always to take the higher income and lower lump sum. The main exception is people who have medical conditions that substantially shorten their life expectancy, so they might be better off taking the lump sum and spending it in the say five years they have left to live.is it a bit of a "no brainer".
About half of all 65 year olds live to age 88 or older. That means that you probably have a good deal longer than just 20 years. The work pension probably increase with inflation and has no inflation risk for you, assuming it's a final salary or other type of defined benefit pension.
The commutation rate of lump sum takeable to income that can be given up here is about 16.7:1 which is neither exceptionally bad nor exceptionally good. Or looking at it as bigadj did, it's 6% investment gain and you get inflation growth on top. Without investment risk.
You can make taking the lump sum a worse deal by using it for paying off a mortgage. The cost of a mortgage is significantly less than the gain to be made from a balanced mixture of investments, so doing the mortgage paying makes you worse off compared to investing. You probably don't pay 6% mortgage interest so it should be clear that getting the 6% higher income and using that to pay the mortgage payments and more beats paying off the mortgage directly - you get to spend or keep the difference between mortgage cost and the 6% plus inflation.
Why are you considering taking the pension income now? Is there any reduction for taking it now instead of waiting until some later date?0
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