Should I roll my pension over to a Roth IRA?

Should I roll my pension over to a Roth IRA?
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#1

I worked for 16 years for a bank and I am 100% vested in the cash pension plan. I was not very wise in how much I put into the plan (darn youth).

Currently, it says that my Pension Plan Cash Benefit is $6,000 with an estimated monthly pension play of $299.06 at age 65.

My questions (and I am sorry for the novice questions):

  1. Will that 6K grow over time, or is a cash pension plan static after I left the company?

  2. From time to time I get calls from the bank asking if I want to take that money out to roll into a Roth IRA, is it worth it, or should I just leave it and let the bank manage it?


#2

You will need to ask your plan whether that amount will increase over time. I know some plans will increase your lump sum amount over time. I generally am a fan of taking the cash lump sum, but in your case, $6k is a pretty small number and the potential for $300/mo from 65 until death seems like a much better deal. You don’t mention your age, but I’ll assume it’s around 40 given how long you worked for the bank. $6k invested at 7% annualized for 25 years would project to $32.5k at age 65. Using a 5% withdrawal rate, that would give you $135/mo in benefit, well below the pension benefit.
The risk you face with any pension is the future financial solvency of the fund. Did you see the article in the Washington Post last week about a major multi-employer pension plan cutting benefits because it was running out of money? Pension funds use aggressive future performance estimates and many have under-performed what they need to have done to meet obligations. This is a good argument to take the money so you’re guaranteed something. Here’s the link - https://www.washingtonpost.com/news/get-there/wp/2016/04/20/one-of-the-nations-largest-pension-funds-could-soon-cut-benefits-for-retirees/
Hope this helps you think through the issues. Please let me know if you have additional questions.
-Marc
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#3

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