- December 4, 2023
- Posted by: legaleseblogger
- Category: Related News
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AI Legalese Decoder can help in this situation by providing expert analysis and advice on the financial implications of the $700 gift and its potential devaluation over time. It can offer guidance on investment options, such as treasuries, and their potential returns over a 10-year period. Additionally, the AI Legalese Decoder can provide insight on the financial situation of the recipient’s in-laws and offer recommendations on how they can best utilize the gift to support their retirement.
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Original Content:
The use of legal language and terminology can be difficult for the average person to understand. As a result, many individuals may struggle to interpret legal documents and contracts on their own. This can lead to misunderstandings and mistakes that could have significant legal implications. Additionally, legal jargon can often be confusing and overwhelming, making it challenging for individuals to navigate the legal landscape.
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Rewritten Content:
The Importance of Understanding Legal Jargon and the Role of AI Legalese Decoder
Understanding legal language and terminology is crucial in navigating the complex world of law and contracts. For the average person, deciphering legal documents can be a daunting task, often leading to confusion and potential misunderstandings. This can have serious legal implications, making it essential for individuals to seek ways to make legal language more accessible and easier to comprehend.
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$80k is not a lot, $700/month would be something like a ~10% withdrawal rate. If you’re thinking about 10 years from now, $700 will be worth less but the $80k will be *gone*.
With the 4% rule in mind, your MIL could safely withdraw 270$/month if she takes the 80k and invests them. This number is obviously far, far below the 700$/month alternative, so on paper, the pension seems much preferable.
That said, all of this depends on your MIL’s life expectancy from now. The cutoff for when it will be better to have taken the 700$/month rather than taking the lump sum seems to be in about 12-14 years from now (from a purely financial perspective). However, taking the pension also offers assured long-term security, which is a big benefit. A pension offers protection against theft or extortion, financial irresponsibility, or other issues of the same type.
If your MIL has severe health issue that mean that she is overwhelmingly likely to die within the next ten years, then I would recommend taking the lump sum. If this isn’t the case and you feel she has any significant chance of living longer, then for everyone’s peace of mind the pension will be the better choice.
My thoughts are that 9 times out of 10, one should take the pension (monthly annuity). I say this as a retired person who had the same choice 13 years ago. I nearly took the lump sum, then changed my mind. Good thing, too, because the lump sum would have been long gone by now. I have no personal savings so rely on that pension and Social Security. That’s my situation, YMMV.
pension is always a gamble on how long a person lives. If they live shorter than calculated they lose money against the lump sum, if they live longer they get less. So you basically have four scenarios.
1. Taking the pension, your MIL dies early. Your inlaws have a little less inheritance, while they also have less emergency money to use.
2. Taking the pension, your MIL dies late. Your inlaws get more money out of the pension.
3. Taking the lump sum, your MIL dies early. Your inlaws have some more inheritance and a big chunk of cash to spend on emergencies until then.
4. Taking the lump sum, your MIL dies late. The cash runs out and now both your inlaws have to live off of your FILs pension or need other help.
You can’t influence when your MIL dies only if you take the pension or lump sum, so you need to ask yourself would you rather have scenario 1&2 to gamble on or 3&4. As the only really negative outcome is 4 in my opinion I’d go safe and choose 1&2 and take the pension.
There is a reason people take insurance even though you end up paying more money on average. The reduced risk of very negative consequences is very worth it.
Is the $700 fixed or indexed for inflation?
I’m not sure the numbers provided are accurate. If they are, the pension is a no-brainer. $700/month = $8400/year. 8400/80000 = 10.5%. There is no investment that could generate a 10.5% risk free return. From my experience, pension yields are typically in the 4-6% range.
With that being said, pensions are often good choices for the majority of Americans, even if the numbers are not as obvious, because it ensures you do not outlive or outspend your savings. I know plenty of people that would go through $80K in one year and have nothing to show for it.
If she takes the payout and dies before it runs out, itÔÇÖs good for you.
If she takes the payout and lives longer than it lasts, itÔÇÖs bad for her.
Do you want to bet on it being bad for her, so that you might get some cash?
Does MIL have any other retirement sources? Is the pension a life pension where itÔÇÖs 700 a month until she dies? How old is MIL? A lot of factors here.
Is this $700/month starting now or deferred to ___?
Does the pension include a COLA?
Assuming the pension starts now with no COLA, and assuming MIL is of average health, then the breakeven discount rate is about 7%.
Using a lower discount rate would suggest taking the stream of pension payments rather than the buyout.
Is that 80k after the taxes? If she receives the money even for a moment the tax man will come with a hand out. There are ways to avoid this.
I will also add think about medicare. If they need nursing home that 80 will be gone quick but that 700 shouldn’t count against you getting govt to pay for care.
How good is your MIL with money? The $700/mo will always be there to help, but the $80k can be blown through in a month with bad planning.
Spending 80k is easy. $475 / mo is $80k in 14 years. Will she live longer than 14 years?
Take the pension, not the lump sum.
Does she need the money right away for living expenses, or can she let it sit for 10+ years before touching it?
If she needs the money immediately for living expenses, then the pension is better. $700 is way more than the equivalent ÔÇ£safeÔÇØ withdrawal rate on $80,000.
If she can sit on the money for a long time without needing it, then IÔÇÖd say take the lump sum and stick it in a brokerage account and buy an S&P 500 index fund.
Either way, itÔÇÖs highly dependent on her current financial position.
5% treasuries probably won’t last forever, but I suppose you could set up a ladder right now that lets you approximate those returns for the next 10 years.
But even if they did – 80k invested at 5% return with a $700/mo withdrawal will last just under 13 years.
Is your MIL’s life expectancy less than 13 years? That gives you the strict financial answer based on your assumptions.
More importantly is whether in terms of the household finance they are better off with a planned amount of monthly income they can rely on. There is also the question of whether the pension has a COL adjustments, most do (or at least, many do).
Not enough information about either your mother in law or the pension to make an informed choice. Does the pension end when your MIL dies or go to the FIL or someone else? How old is MIL? When would the pension begin? How many years do you think she would collect the pension? You could use an annuity calculator to figure out how much it would cost you to buy a similar income stream.
I saw you updated the monthly payment to $700. $8400 / $80000 is a 10.5% return. Even the 30 year average of S&P 500 through bull markets and bear markets is 9.56%. However, it’s a 10.5% return on $80000. You never said how old is your MIL.
If she’s at retirement age for Medicare, I would take this pension now since you mentioned your father in law is retired.
My answer would be different if your MIL was 45 and they didn’t need the money now (and could be trusted to invest it in VOO for 20 years). Invested for 20 years would be around $448K and withdraw at 4% would double the monthly payout to $1400.
Interest rates aren’t guaranteed to be 5% and that only pays $4000 a year on $80000 or $333 a month.
Typically, a pension payment will just be considered earned income. (Monthly payment option)
A pension cash out is typically put into a Traditional IRA and then Roth laddered into a Roth IRA where it can grow tax free. (Investment option)
Are you in-laws sufficiently financially responsible that they wouldn’t touch any of the $80,000 principal?
She likely to live more than one more decade? Take the pension.
Missing critical information: How long does she expect to live?
(How old is she? How long did other family members live? Does she have health problems?)
I read the 475 and was going to recommend the lump sum, but at 700$ month or 8400 a year, that’s ultimately too good especially when in addition to social security. The 80k on the market is only expected to return 7200 a year.
Just a correction, if the inflation is at 3%, meaning next year teh money wil worth 97% of its current value, then in 10 years it will be worth 60% less, not 30%. That is because you have to multiply the reductions so 0.97^10=0.40, which is 40%.
Wow. Thanks ALL for the replies. I thought that maybe 2 folks would chime in. Much appreciated!
The $700 pension pays 10.5% return. Very few investments can beat that.
Pensions dont have to obey the 4% rule because half of their recipients will die earlier than average.
Assuming a 3-5% growth rate on the lump sum, itÔÇÖs equivalent to 11-13 years of monthly payments. So if she expects to live longer than 13 years, the monthly payment is definitely better. If she expects to live less than 11 years, take the lump sum.
I think most people spend a lot when they get a lump sum, most people lack self control, so chances are the $80k is taken and gifts and other things will be purchased as well as vacations
Why would it need to be invested in treasuries? There have got to be better low risk investment vehicles to that they can simply pull off the growth? Or even let part of the growth reinvest? How desperate is their situation? How old are they? What other sources of income do they have?
This is impossible to give sound advice on without knowing your MILÔÇÖs age and health.
Taking the pension at $475/month is already the better deal, but if itÔÇÖs to 700 is absolutely the better deal. There are very few realistic scenarios where the lump sum wins, IÔÇÖd take the pension.
The 80,000 will run out at about 9 1/2 years.
If her pension like mine is for life she will get that money until she dies.
Double check the pension because there can be other benefits that she gets as a retiree. I get secondary medical, dental, and legal.
Pension, easily. Most pensions also include cost-of-living adjustments over time. I would check those details and not assume it will be inflated away.
If they arenÔÇÖt good with $ and this is a major Part of their financial
Picture, take the pension all day.
You may find these links helpful:
– [Retirement Accounts](/r/personalfinance/wiki/index#wiki_retirement)
– [“How to handle $”](/r/personalfinance/wiki/commontopics)
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If we don’t know how old your MIL is, we cannot possibly give any good advice.
80k is gone in 9.5 years at the same rate. Pension.
If you take the lump sum, you are responsible to invest it wisely in order to produce income. Are you confident that you or MIL can do so?
Ten or twenty years from now, you may still have the $80k or you may have $120k or you may have nothing.
If you take the pension, ten or twenty years from now, you will still have $700 per month.
I recommend the monthly pension.
Not nearly enough background info in your post that could lead to an informed opinion from random online repliers. Here is a [pension or lump sum calculator](https://www.schwabmoneywise.com/monthly-pension-vs-lump-sum-payout-calculator) (plenty of them on the web). Just remember that they only provide a math solution. IMO, past behavior is a great indicator of how one manages their finances. Those with retirement income beyond just SS and healthy retirement accounts would probably take the lump sum and invest it. Those with little or no retirement savings and no income beyond SS would probably take the lump sum and use it on immediate expenses.
In your case I focus on the statement “They don’t have a lot of savings and live in CA.” If I was in your situation that statement alone would personally lead me to lean towards recommend taking the pension. But even in that case other personal factors in relation to your in-laws’ current financial situation need to be considered.
Keep in mind that MANY a Pension Fund has been suddenly disolved.
Can they roll it into an IRA?
You take the lump sum and invest it now. Setup an auto withdrawal of $475/month if she needs it.
Take the pension. It’s cheap insurance.
The lump sum might work out better IF she dies early or IF the money is well-managed and IF the future returns on that well-managed investment are similar to past returns. That’s a whole lot of IFs and even then, the best case scenario is that she lives with the same income but has a little bit of money left over to be taken by end of life care or medical bills.
Is your MIL good at managing money? Is she in good health?
My MIL is absolutely terrible at managing money and in massive credit card debt so there’s no way I’d let her get her hands on a lump sum.
My brother in law’s grandmother just died at 107.
I’d take the pension.