Thread regarding Chevron Corp. layoffs

Of course if you want to maximize security and are not concerned about inflation, then the annuity is the way to go, no one is disputing that. If you don't think you can get over 4% return on your investments, then the annuity is the way to go. If you don't feel comfortable investing any money in the stock market during your retirement, then get the annuity.

Of course if you take the lump sum, you should get some advice before you allocate your funds, but you don't have to pay for it for example https://personal.vanguard.com/us/funds/tools/recommendation is a good place to start. You certainly don't want to put it all in stocks, but even Vanguard Total Bond Market Index Admiral Fund has a 10 year average of over 5%, so you can do well enough with no stocks as all, though I wouldn't recommend it. Most advisors would recommend between 40 to 60% in stocks and the rest in bonds, which can easily produce 6% over time.

Regarding the recent bull market, actually I compute the annual return of the S&P 500 from 7/19/2014 to 7/19/2016 at more like 4.7%. But, you are cherry picking your time frame to try to prove a point. For instance, if you change your time frame to 3 years (7/19/2013 to 7/19/2016) you get 13%.

Do you know of any investment vehicle today that can return 4.3% and have the same level of security as what the PGBC offers? I'll answer that one for you. No, there is none.

I've been investing (risking my ass in the stock market for over 30 years. That's not where you want the bulk of your nest egg when you retire, IMHO.

BTW , during this legendary "Bull Market" we've been having, the S&P 500 has been averaging below 3% growth for the last couple of years. And that's with your money at significant risk.

@7qhv - If you lose 2% to fees you're doing it all wrong. You're letting someone take somewhere around 1/3 of your earnings off the top just for the service of managing your money, that's insane. This is why low-cost mutual funds are so important. Vanguard's fee for the Total Stock Institutional Fund that's available in CVX's 401K is .02%. That's two orders of magnitude less than what you are assuming. Vanguard has dozens funds of various types with less than .2% expense ratios and many with less than .1%. You are just making a straw man argument, as no one is suggesting that you invest in a way that loses 2% in fees. Using the correct figure means getting a 4.3% return, which is much more doable.

The annuity pays an equivalent rate of about 4.1%. It's a guaranteed income source. The lump sum invested in the market will require about a 6.1% consistent earnings rate without much room for monthly fluctuation. You need to factor in there's approximately 2% in annual costs than gets taken away. You are left with 4.1%. While inflation is the concern with annuities, outliving your mortality age is the concern with the lump sum. If you outlive your mortality age with an annuity, it continues to pay out.

@6wir - That's more or less correct, and that's why they are calculated to be actuarilly equivalent. One wrinkle is that a period of moderate to high inflation can reek havoc on the annuity, but investments may be able to keep pace. As has been said many times before the choice is largely a matter of what you feel comfortable, along with some individual factors (annuity better deal for women, for example).

My issue is with those who claim that you need a 6% return on your investments in order to match the annuity. That's only true if you plan on living forever. Even an optimistic estimate of your life expectancy lowers that interest rate substantially. A realistic estimate puts the percentage around 4% (at current lump sum conversion rates). 4% is a much easier target to hit than 6%.

Small rule of thumb: If you are able to outlive your designated mortality age, the annuity works out in most cases to be the best choice.

Right you are, @6wth. I'm not saying which of the annuity or lump is better. In fact, they are both actuarialy equivalent. The difference is solely based on the retiree's needs and wants. I chose the annuity for needs (diversity with a guaranteed income stream), because my 401k is over $1MM and I plan to invest it conservatively within the 401k (mutual funds). Just keep in mind that if you put all of your retirement portfolio into stock investing, you run the risk of outliving your investments. Annuities go on forever (until you die).

@6qva - Thanks for responding. It is true that if you plan on spending 2% for advice and expenses, then you will have a hard time matching the annuity. However, there is no reason for anyone to spend that amount. For example, the Vanguard Total Stock Market and Total Bond Market Admiral Funds have expense ratios of .05% and .06% respectively. If you want even lower expenses, roll your lump sum into your Vanguard 401K where the Vanguard Total Stock Market and Total Bond Market Institutional Funds have expense ratios of .02% and .05% respectively. Thus you only need the underlying assets to get 4.15% rather than 6.1% in order for the lump sum to match the annuity.

@6mcz - "You're not optimistic that I'll give the honest numbers? Then why did you waste you're time asking? Get lost." Looks like you're looking for a convenient excuse because you know you're wrong. If you're worried about identifying info must give my the ratio of your annual annuity to your lump sum (i.e. the payout rate) and your age. That's all that really matters. And, by the way, hurling insults just shows that you don't have anything constructive to add and are trying to change the subject.

So much for this thread. It's Beavis. Pretty soon the pitiful loser who tells everyone that they have "no woman, no prospects, and no job" will join in. Doesn't matter who the person is, man, woman, ga*y, straight, married, single, PSG 40, $2.5MM 401k, getting ready to celebrate their 25 wedding anniversary, etc, makes no difference, He will tell the person that they have "no woman, no prospects, and no job" at random. I really feel bad for the guy, you know that he is describing himself and wants to just get it out, you know, like at an AA meeting. So sad.

Yes, why don't you give this douche your SS number and bank routing # while you're at it!! LMAO! I guess it's understandable, this is the laid-off butthurt loser desparation forum. You need every penny that you can get, like the thief on that other thread who gets 2 pension checks and won't report it, and keeps stealing from his fellow pensioners and thinks it's OK to be a lying, dishonest thief.

You're not optimistic that I'll give the honest numbers? Then why did you waste you're time asking? Get lost.

@6usl - The numbers I used are rounded-off and scaled as examples. I'd be more than happy to make the calculation with your numbers. Why don't you tell me your numbers and I can plug them into a calculator to check your 6% claim. Also, your age would be helpful so that I know your not just making things up (though I'm not optimistic that you'll give the honest numbers).

@ImAaevd-6var, I have plugged my numbers into several calculators including bankrate.com and consistently get better than that, -approx. 5.9% or so. Maybe it's that you are butthurt because of the $hitty numbers that you have been dealt? You are using round numbers, those can't be real. Are you a piece of deadwood anticipating being cut from the fruit tree? I bet that you are just sore because of that. If you end up not getting cut, what's to worry about? Try concentrating on keeping your job, because obviously your pension annuity at this point is lower than most.

@6var, you have correctly calculated the Chevron pension annuity equivalent earnings rate of 4.1%. My apologies for responding this late. I read your previous post and checked my spreadsheet. I was reminded that I added 2% to the earnings rate to account for investment costs when investing the lump sum. Typically 2% is a real cost of investing when factoring in expense ratios, trading commissions, advisor & wealth management cost. That's how I came up with 6.1% for myself. I hope this helps you make a decision that best suits your needs.

@4ihk - Since I got no response to my questions, I filled in the holes in your description and tested it on some data. Doing that I get an interest rate of 4.16% using $1000000 lump sum taking out $5000/month for 30 years. So I still have no idea where you're getting your 6% from. Unless I hear from you I'll assume that you've realized that your spreadsheet was wrong and that the correct interest rate is closer to 4%.

@4gdo, your comment is accurate. It's interesting the calculator you found produced a result showing that females would require 6% more of a lump sum pension than males. I had no idea the difference was that much. I'm sure Chevron uses a weighed average for the unisex table, and not a flat 50/50 ratio. Your reasoning makes company sense that the ladies may benefit more from taking the annuity over the lump sum. However, other things need to be taken into consideration, mainly whether the woman (or man) feel confident enough to invest their money well enough for it to last.

@4ihk - I'm trying to reproduce you work. First you say column 4 is column 2 plus column 3. I think you mean column 2 time column 3 as you need to multiply the amount invested by the rate of return. Also, it's not clear how you propagate the subsequent rows of the second column. It looks like it should be the second column of the previous row plus the 6th column of the previous row (the way you've described it the 6th row is generally negative).

@4ihk - Yes, I know that Chevron uses one unisex table, that's the point. Because they use one table which is some kind of average between male and female (I don't know whether it's a 50-50 average or something weighted by the number of employees of each gender or something else), the life expectancy rates they use to convert the annuity to a lump sum are on average too low for a female. A lower life expectancy translates to a smaller lump sum (you need more money if you're going to life longer). Thus the underestimate of the female's life expectancy produces a lump sum that is too small for her, if her gender were considered. Another way to put it is that an average female, since she is likely to live longer, would need a larger lump sum in order not to outlive it than an average male. But the way CVX calculates the lump sum, they both get the same amount. Thus the lump sum is not as good a deal for a female as it is for a male, which was exactly my point. i.e. that the annuity is a better deal for females than it is for males. Also, the difference is not as insignificant as you might think. Using a commercial annuity calculator that does take gender into account, a 65 year old female would need about a 6% larger lump sum than a male to produce the same income.

@4vet, Chevron doesn't use separate actuarial mortality tables for male and female employees in its pension plan. It uses a "unisex" table, which is allowable by the IRS for large defined pension plans. It doesn't askew the results that much, although the female population is taking the small hit for this. But, back to the point I want to make. The annuity has an equivalent rate of return closer to 6%.

To solve for this, take the results from your Retirement Estimator calculation. Multiple the annuity amount by 12 to get the annual payout. Divide that amount into the lump sum amount. This will tell you how many years the lump sum will last, if not invested, and you make monthly withdrawals equal to the annuity amount.

Next, you will need to make an assumption on how long you will live. No one can know this for certain, unless you currently have health issues. The best assumption is use is the IRS / SSA mortality tables. These tables are updated each year, so find the latest on and determine what your mortality age is.

Now for the earnings percentage your lump sum must earn consistently each month of each year, while you make those monthly withdrawals equal to the annuity amount. Figure in a spreadsheet, your starting principal balance (the lump sum amount). The first row of your spreadsheet will have several columns.

The first column is the 1st day of the month your lump sum is paid.

The second column is your starting principal amount (the lump sum).

The third column is the monthly earnings rate percentage (experiment with the percentage), but I advise you to start with 0.50%. This is equivalent to 6% annually divided by 12 months.

The fourth column equals column 2 plus column 3.

The fifth column is your monthly withdrawal amount (enter the annuity amount).

The sixth column equals column 4 minus column 5.

Now skip to the second row and populate each column like the one above it. Each subsequent row will be starting off with a slightly smaller starting balance and through the months and years, will be depleted to zero.

You want to make sure the months extend into the future with a positive starting balance to last you as long as your mortality age. Whatever that age is for you, play with the monthly earnings rate and see how long your lump sum needs to last. (Just do not change the withdrawal amount).

I found that my lump sum had to be invested at a rather consistent annual rate of 6.1% for it to last as long as my mortality age, if I was taking monthly withdrawals equal to the annuity amount.

That 6.1% rate (in my case) is translated to be the equivalent rate of return. This calculation is comparing the annuity and lump sum pensions equally. It doesn't factor in for inflation. Since both the annuity and lump sum payouts are actuarialy the same, your mortality age should be used. Each person can experiment with different earnings rates and determine for them self if the annuity or the lump sum works best for their particular needs.

Not a cvx employee, but 6% does sound a little too farfetched to me.

@ImAaevd-4vet, You don't don't have to be sorry for me, be sorry for yourself, I am not affected by your measly payout! LMAO. It is curious that you are the only one who claims that they are only getting 4%. That sounds more like you just got a $hitty deal. All the pensions are unique to the employee so you probably just got screwed LOL!

@3uyt - Sorry, it's more like 4%. People who claim 6% don't know how to calculate a rate of return and confuse it with the payout rate. This is confirmed by the fact that the highest segment interest rates currently used in the CVX conversion calculation is around 4%. Still a good deal for many retirees though, especially if you have a longer life expectancy than the actuarial assumptions (e.g. you are female).

Allright you butthurt losers who don't have as big of a portfolio as the OP, too bad. That's life, most of us don't. In fact the average retiree in the US has only 6 figures saved for retirement. That's not the point. The discussion is about lump sums vs annuity. I really don't think that the details of the exact CVX interest rate equivalent was established & finalized but we did get pretty close. I think we have a relative consensus that it is roughly 6% which seems dam good to me for guaranteed return. I do not have any figures myself to plug into the formula so there's n way for me to verify.

@ImAaevd-3qcg, Sorry dear, it's all true. There will always be doubters of anyone more successful than them. BTDT, never fails. No smartass comeback required, either, which discounts your credibility as well. Why would you want to "anonymously" play the envious one anyway? Yes - of course, we know your answer. You would be better off keeping it to yourself.

OP here for a final post.

Glad to see everyone is in full agreement! It's unfortunate that the dialog between a few of you gotten "personal".

I think I will just go back to work somewhere that has a good medical plan because it is a lot easier than trying to management retirement money and change my retirement strategy to tossing my last $ up in the air "on my way to the eternal dirt nap" and let heirs and the government fight for it. LOL

Best of Luck to all of you!

Actually, if you invest in the stock market, you have a very good chance of getting over 6%. According to Warren Buffet for instance “The economy, as measured by gross domestic product, can be expected to grow at an annual rate of about 3 percent over the long term, and inflation of 2 percent would push nominal GDP growth to 5 percent. Stocks will probably rise at about that rate and dividend payments will boost total returns to 6 percent to 7 percent.” Historically, returns have been even higher than that, more like 8%, but that might or might not be unrealistic going forward, especially if we remain in a low inflation environment. The 4% rule assumes that you want your payouts to rise with moderate inflation and that you want an extremely low chance of running out of money. Since the CVX annuity if fixed, to make a fair comparison with the 4% rule would require you have to set aside some of the 6% payout from the CVX annuity each year so that you can use it later to increase your payout. Don't know how much that would be, but if you talking about 30 years of even low inflation, it can add up.

We can go around in circles forever on this, but the fact is that the payouts are actuarilly equivalent. If you want the security of a fixed payout each year, the CVX annuity is a great deal. If you're willing to take some risk so that you can leave money to heirs or a charity, and you have enough resources that running out of money in 30 years isn't a big concern, you might want to consider the lump sum. The security of the guaranteed fixed payout from the annuity comes at the price of a lower expected return. For many people that's a good tradeoff, for others financial security is not a big concern because they figure their expenses with decrease with age and they have plenty of resources available.. There's no free lunch, not even at Chevron, unless you crash lunchtime meetings.

Good post @3xnv. I agree with you.

It doesn't matter what rate of return is required to allow you to withdraw 6% per year because you do not have a high chance of getting it. The withdrawal rate you have a 90% chance of lasting 30 years is 4%, inflation adjusted, based on historic market returns. So, if you want to take the lump sum and not run out of money, you may withdraw 4%, inflation increased annually, for 30 years and have a high chance of not only avoiding the poor house but keeping a substantial leftover amount.

If you want a larger annual payout, get the annuity. It will give you 6% but is not inflation indexed and will give nothing leftover for your heirs. If you predict high inflation, take the lump sum. If you expect to only live a short time (e.g. Already seriously ill) take the lump sum and spend as much as you want.

The actuarial tables count for nothing for any particular person. You might die far sooner or much later than they predict.

If you have a large 401k and/or other assets, take the annuity to diversify.

If you worry about frivolous lawsuits (maybe your spouse is a plastic surgeon), take the annuity as the lump sum could be awarded to other in a suit.

If you worry about Chevron bankruptcy and your annuity amount would greatly exceed $60k per year, take the lump sum. People laugh at this but look at how close BP came to bankruptcy. And Texaco actually declared bankruptcy after the Getty fiasco.

No one takes anyone seriously who refers to another as "Sweetheart" when they don't know the person. I don't think for a second you are a person with the wealthy portfolio you claim to have. I'm not that gullible. Next time you address a person you don't know, and want to establish credibility, drop the smartass remark.

To the person(@ImAaevd-3hiq) who posted: "@3wzn, it's apparent you have nothing to contribute to the thread's topic. That's okay. Not everyone laid off at Chevron had enough years on the job to have earned a pension large enough where the annuity would be a consideration. In your case, the lump sum had to be your only choice. There's no need to ridicule others who earned a sufficiently large pension to now be weighing the annuity option. Simply put, you didn't make it and others did."

My $1.7MM pension, ~$2.9MM 401k, approx. $1MM after tax investments and roughly $0.87MM in real estate besides my debt-free primary residence is not considered "making it" to you? To each his, own, I still feel I have much to achieve with my life, so maybe you have a point!!!!

Also you posted "To @3efj -Your math example is correct in determining the rate of return." That may be why you are envious of other's success. Stay on this thread and learn a little economics. The posts below may help you.

@3hiq - Please let us know the lump sum and annuity amounts that you used in your Excel spreadsheet for the calculation that gave you a 6.1% annual rate. Feel free to multiply each number by the same random factor if you don't want to disclose the actual amount, since that won't affect the results. I'm also curious about your age, as using the SS life expectancy calculator, to have a life expectancy of 30 years, which you seem to be using in your calculation, that would make you around 52 years if you are male or 56 if you are female.

@3efj - Your calculation determines what's called the payout rate, which is not the same as the rate of return and not particularly useful in deciding whether the the annuity is a good deal or not, since it doesn't take into account how long the money needs to last. Simply put, the problem is that getting 6% on $1 mil is a lot better than getting $5000 a month because when you die your estate still has the original $ 1 mil. Before you say that you don't care about any money after you die, that's not the point, that future money still has value. This is obvious if you think of it as a life insurance policy that pays $1 mil when you die. Maybe you don't need life insurance, but that's not the same as saying that it has no monetary value, otherwise life insurance companies would not be able to stay in business. The rate of return that's more useful is the annual return that you would need to get so that, when you take out 6% of the original sum each year, the money is likely to last your whole life. This rate is considerably lower than 6%. To compute this rate requires estimating how likely someone is to live various numbers of years, which is why the lump sum is actuarially equivalent to the annuity and depends on the your age (and the age of your spouse, for joint options). The CVX annuity is certainly a good deal for many people, but it's misleading to claim that someone has to get 6% return on their investments to do as well as with the lump sum.

@3wzn, it's apparent you have nothing to contribute to the thread's topic. That's okay. Not everyone laid off at Chevron had enough years on the job to have earned a pension large enough where the annuity would be a consideration. In your case, the lump sum had to be your only choice. There's no need to ridicule others who earned a sufficiently large pension to now be weighing the annuity option. Simply put, you didn't make it and others did.

To @3efj - Your math example is correct in determining the rate of return. The lump sum and the annuity amounts calculated by Chevron are actuarially equivalent. That means they have the same value under the statistical assumptions made by actuaries that provide mortality data to the IRS and SSA. For example, take the annuity amount calculated by Chevron's Retirement Estimator. Multiply it by 12 to get an annual amount Divide the annual annuity amount into the lump sum calculated in the same Retirement Estimator calculation. You will see the number of years the lump sum would be depleted is around 17.5 years if it wasn't invested. Now, ascertain your mortality age from Social Security or the IRS. Their data comes from the same source. Let's assume it says you will live another 30 years. That means you'll to make the lump sum last an extra 12.5 years if it's withdrawn at the same monthly amount as the guaranteed annuity. That means, you must invest the lump sum at a certain annual rate for it to grow consistently while you take month distributions equivalent to the annuity amount. A simple Excel spreadsheet calculation will figure the rate of return for you. In my case, it required a 6.1% annual rate of return, earned consistently at 0.5083% each month, to make my lump sum last as long as my actuarial mortality. This rate of return calculation is not inflation-adjusted to remain consistent with the annuity, which is also fixed.

@ImAaevd-3efj, Sweetheart are you asking others if they have questions about your knowledge of economics? If you are, then the answer is you are doing it incorrectly. Rate of return and compounded interest is not arithmetic, it is simple algebra. And it is simple algebra that you have not mastered. No offense intended, dear. Your method will result in a "rough estimate" of rate of return. That's a back-of-the-napkin calc. And with a cellphone calculator(which should be with you, even at the world of beer barstool) you can do leaps and strides better than that without even thinking. There are many online tools which are a simple plug-in. But you need to use a real mortality table to be able to use the tool properly. For instance, if you knew that you had a max. of 10 years left - because you have a disease of some sort, and the mortality table calculates you to have 25 years, then you take the lump sum and run with it. It's not a cut and dried calc. for all people/cases and the annuity that you will end up receiving in actuality will be less than they predicted. If you or your spouse are really healthy and have a history of living 'til 100 and you take the 100% Joint & survivor, and either one of you cruises 'til 100 by some stroke of luck, then you win. Of course, most of you are ignoring the obvious. The game is not how much you ultimately "Get" from Social security, your pension, etc. like it's some prize that you get at your deathbed. Think about it. If you saved properly you wouldn't be worried about me, me ,me and trying to milk every system out of every penny. You would just be enjoying life, your family, and forgetting about all that BS. There's no prize for the one who milked the system the most. In fact, it's just the opposite. The prize is always for how much you GAVE BACK to society. Sorry fellas. The truth hurts.

The annuity payout calc definitely takes a couple advanced engineering degrees. It goes like this:

Lump sum - $1,000,000

Monthly annuity - $5,000

Annual annuity = 5000x12= $60,000

Annual payout rate = payout / principle = 60,000/1,000,000 = .06 = 6%

Any questions?

By my calc it would take 30 years at 3% inflation for an inflation adjusted 4% starting withdrawal rate on the invested lump sum to overtake the total annuity payments. I will take the annuity payments as I don't expect high inflation and won't care so much about money in 30 years.

A $2.5MM is not out of the realm of pissibilities for the higher PSG managers or even other lesser paid employees with 25+ years of service. I for one retired after 25.5 years with a PSG 20 for my last 5 years. My 401k balance upon retiring last year was $1.16MM. It has grown to $1.36MM now (investments very conservative with 40% in the Vanguard Money Market). When I was working, my investment risk was moderately aggressive and I reallocated in and out of funds as needed, usually 4 times a year. I traded in and out of CVX at least 2 times a year.

$2.5mm Is an impressive 401K. Not trolling. Can you comment on the investment mix you used in the 401K to get that and how many years service? I knew guys who didn't know beans about diversification and did very well by unknowingly taking big risks. Probably just as many lost their a**es and never admitted it. Anyway what was your formula for success?

Look @2ilo. I've taken the annuity pension and I know exactly what deal I got. I advise everyone interested in getting verifiable information on their retirement options to consult a Certified Financial Advisor. An initial consultation is free at most institutions. Call Fidelity, Charles Schwab, Vanguard, Edward Jones, TD Ameritrade or any other of your choice. Even Bank of America has a retirement department at your local bank office. Run your Retirement Estimator on the Chevron Benefits Connection Center and take the printout with you.

@2vqh - Don't need to, I already know how to do the calculation, and I've explained how it's done. You're the one who doesn't know how to do it.