John Bett

Comments:

• Mike, Thanks for sharing your assessment. The followup comments/postings are also very illuminating; valid perspectives across the board. I don't think there is a perfect right answer, strict economic analysis may drive one preference but as you and other posters have already articulated, there are intangible peace of mind/factors. Some observations if I were in your shoes for your/the community's consideration:

  1. My biggest angst would be the effect of inflation on the future annuity option. 9 years down the road by my rough calculations is not insignificant. Order of magnitude for 3% inflation; purchasing value of a dollar today is about $0.77 in yr 9. I estimate that your case has a double whammy, "sequence of inflation" risk w/ currently high infl rates foreseeable for the next year or 2 become the compounded foundation when inflation returns if ever to a nominal 2%.
  2. I could not see any inflation erosion factor in the Baldwin "blackbox" in order to assess its effect on the PV value of the annuity. I attempted to put in a real return value for the discount rate, e.g. Real rate = (Nominal Rate - Inflation Rate)/ (1 + Inflation Rate) but using a 3 % inflation rate w/ your 10yr UST rate results in a small decimal which says the future annuity is worth a huge PV so the math is not correct by inspection. I think a more realistic discount rate if using the black box calc would be to add an average inflation estimate to the UST rate, e.g. say 3 for a net discount factor of 5.89%. The result PV fair value looks reasonable in reflecting the loss of purchasing power.
  3. The last hard economic parameter would be pay back time of the annuity vs. the LS. For the case where the annuity option is immediate, payback of the LS choice not taken is about 9 years ignoring TVM (time val of $). I believe it only gets longer if the UST rate is used as the LS investment risk free return (12.5 yrs?).
  Full disclosure, I was very fortunate to have had a 34 yr career w/ Shell E & P. Shell had one more RIF (red in force; about 15 total over my 34 yrs) in '19 and I was eligible at age 60 in '19. My yrs of serv + age made me immediately pension eligible and Shell covered 100% of the corp share of my family's med insurance until I go on MediCare. In absence of age/yrs of service (pts), Shell's and XOM's plan look very similar, have to have "80 pts" or in absence, age 65, exactly your situation. Shell spared me the angst of your assessment as it didn't offer a LS option on the base pension. In absence of knowledge, I elected the annuuity option for a non-qualified sister plan back in '96 so ended up w/ two annuities. The non-qual plan would have been immediately disbursed and taxed and coupled w/ severance, colleagues who elected it saw a 50% marginal tax rate on it. Still, it will take about 11 years to recover the LS choice not taken even after taxes. Very fortunate/appreciative for my situation. Shell's pension has no built in COLA but the corp has increased it per older colleagues. Haven't seen anything yet but I'm a newby. I whole heartedly agree w/ one of the fellow posters on peace of mind not having to manage/create an income stream from a LS. Much easier to spend the monthly pension income than assess a "safe withdrawal rate" and all the clap trap (buckets, etc) w/ asset allocations in support of it. PS. Your comment on the career effect of "hey, wait a minute" comment (aka "The 10th Man") on career dissipation effects unfortunately has been mirrored by other XOM employees over a few beers. I'm sure it happened at Shell, I just didn't notice/experience it directly... Once again, very lucky/blessed....

  Post: Taking It Slow

  Link to comment from October 17, 2022