Episode summary
Roth Conversions, Pension Lump Sums & Annuities: Is Bigger Always Better?
Your Money Your Wealth
· · 38 min · Hosts: Joe Anderson, Big Al Clopine · Guests: Big Al Clopine
Summary
The episode centers on three retirement tradeoffs: whether to take a pension lump sum or a lifelong monthly check, how aggressively to do Roth conversions, and when an income annuity or MYGA is actually worth it. For June in Washington state, the hosts lean toward the pension check in retirement math terms, but the other host argues the lump sum can work just as well, especially if the couple can invest the money, keep some bond ballast, and use the pension and Social Security to cover much of their spending.
For the Homer-and-Marge case, the hosts say Roth conversions can make sense in the 12% to 22% range, with the exact choice depending on current income, future RMDs, and how much room exists before Social Security starts. They also say using inherited IRA distributions to help pay the conversion tax is fine in practice, because the source of the tax payment does not really change the economics.
On the final question, Big Al and the host treat immediate annuities as longevity insurance rather than a high-return investment. They argue that the quoted payout is partly a return of principal, so the product only looks attractive if the retiree values guaranteed income more than flexibility or expects to live a long time.
Key takeaways
- Big Al says June’s pension decision can be modeled as about a 6.4% lump-sum comparison, but the key question is how long she and her spouse expect to live.
- The hosts say Homer and Marge could plausibly do Roth conversions in the 12% bracket, with a case for pushing toward 22% because their future pension and Social Security should cover more spending.
- The host argues that paying Roth conversion taxes from inherited IRA RMDs is effectively the same as paying them from brokerage cash or checking.
- Big Al says an immediate annuity is best understood as longevity insurance, not a high-return investment, because part of the payout is your own principal coming back to you.
- The hosts suggest a MYGA can be useful as a higher-yield fixed-income alternative, but it is not the same as a CD because liquidity and principal access are different.
Notable quotes
“I would probably take the lump sum, um which is how I did the calculation”
“I think I would want to get more out of the retirement accounts given that he has a pension and social security that's going to cover most of his needs in 7 years”
“if you want to hedge against longevity, then then go for it. Because all it's insurance”
“you're looking at the principal plus income is going to equal that 75,000 and you're going to You don't make a dime on the product until you outlive that 15 years”
How the episode opens
June in Washington state is 62 with two and a half million dollars saved and a $350,000 pension on the table. Should she take the lump sum or the monthly check for life? Spoiler alert, there's a three to one vote in the studio.
Big Al is the one. Today on Your Money Your Wealth podcast number 581. Plus, how aggressive should Homer and Marge get with Roth conversions?
And is it smart to pay the conversion tax from an inherited IRA RMD? Pop's assets drops his big fat wallet on the YMYW table next with millions in tax deferred and taxable accounts. Why is his financial advisor fighting him on a Roth conversion?
Of course, Joe and Big Al have some thoughts on the subject. Finally, Johnny Mercer in Georgia is eyeing an immediate income annuity and a MYGA. The fellas break down why that 7 and a half percent rate of return might not be what he thinks.
If you like what you hear today on YMYW, do us a favor and tell one friend about us. Word of mouth is how we grow. I'm executive producer Andy Last and here are the hosts of Your Money Your Wealth, Joe Anderson CFP and Big Al Clopine CPA.
Uh let's go to June. Okay. Washington state.
Hello Andy, Joe, Big Al. I've been tuning in just since I discovered you guys a couple years ago. Still listening, June.
That's That's wonderful to hear. Yeah. We get a lot of subscribers and a lot of disubscribers every single day.
Disubscribers. Good word. I like that.
Do we Do we stay even or It's just it's a revolving door. It's a It's It's
Two steps forward, one step back. Two steps forward, one step back. Yeah. Yeah. It's a It's a wonderful merry-go-round, Alan.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- roth conversions
- pension lump sum vs monthly
- pension annuities
- inherited ira rmd tax
- myga immediate income annuity
Companies and tickers mentioned
- Pure Financial Advisors
Watch the episode
Watch “Roth Conversions, Pension Lump Sums & Annuities: Is Bigger Always Better?” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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Is a $400K Roth Conversion at Peak Income a Mistake? -
Should You Do Roth Conversions in a Down Market?
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