Small pension: Take the lump sum payoff offered or the annuity

[elocs]

I am 63 and have been retired for a year now, living on SS but well under the Federal Poverty Level. I live frugally, having no car and Medicaid provides my health care and Foodshare helps keep me fed. I had expected to receive a small pension of $230/month from a job I worked years ago and I just received notification from the company of an offer of a lump sum payment or wait and receive the monthly payouts at age 65. The payout would be $32,000 and I could roll it over into an IRA or take the money.

Here's the rub: that money would be too much for me to be eligible for Medicaid and I would lose the Foodshare as well.
However if I wait and take the $230/month that amount would likely be just enough to put me over the FPL but not enough to really make a difference for me. In fact, I might actually be worse off than I am now.

If I were to take the money it would bump me from Medicaid and other help I get for a few months, but it would allow me to make repairs on the mobile home where I live that I likely couldn't afford otherwise and pay off some other bills that would result in my actually having more income available to me with what I receive now from SS. The rich and corporations have no problems or qualms about looking out for their own best economic interests, so I don't know why the poor should not do the same. I just need some advice on this because I wasn't expecting it to come up at all for another couple of years and maybe the payoff is a blessing in disguise.

[PoliticAverse]

1. If you rolled it into an IRA why would it affect your Medicaid?

What state are you in?

[elocs]

6. The asset level for Medicaid (BadgerCare) is $2000.

Walker refused to raise the eligibility level here in Wisconsin to above 100% of the Federal Poverty Level.

[elocs]

7. Rolled over to an IRA would be above the asset level of $2000.

Wisconsin, or "Walkerstan", 'nuff said.

[A HERETIC I AM]

11. Sorry. Didn't notice this thread was 3 years old.

Text deleted

[No Vested Interest]

2. Would you have to pay income tax on the one-time payout?

I think that's likely, unless it's rolled over into a IRA.

If at all possible, having it in an IRA in which you can control which investment you choose, and letting it sit there until you have to take some out at age 71 (RMD), is desirable.

[dixiegrrrrl]

3. Are you on Soc. Sec. ?????

or SSI?

That makes a difference.

If you are on early Soc. Sec. ( NOT disability) you will be eligible for Medicare at age 65 , and get the card 6 months after your 65th birthday.
So if you think you can make it between now and then without any serious medical expenses, you don't have to sweat losing Medicaid.

You also might be able to STOP your Soc. Sec. payments until you reach 65, and live off the 35,000 lump sum.
Then apply at age 65 for reg. Soc. Sec, ( unless they have raised the "full" retirement age to 67 for your age group".

If you do take the lump sum, you might have to pay back any Medicaid you got for that month.?

So get paper and pencil and figure out the different choices, and get the facts you need.

Also.....find out
do you have to pay tax on the money? If 1/2 of your annual Soc. Sec. PLUS any other income adds up to a certain amount, you may have to pay tax, both Fed and state ( if your are in a income tax state)
There are worksheets online that will allow you to figure that out.

Plus.....is that company likely to be around to pay you a monthly retirement in the years to come?
If they are trying to lump sum their retirees, I would be thinking they are trying to get rid of their pension obligations now, given the economy.
Might be that a bird in the hand is worth more, etc.

I had to make the same choices back in 2008, so I know it takes a bit to pencil things out.
But is worth the effort.

Good luck.

[elocs]

5. I am on early Social Security retirement.

I am on early retirement at 62 Social Security. Being on BadgerCare (Medicaid in Wisconsin) my out of pocket health care cost is $12/year.
No cost for an annual physical and labs and 3 prescriptions, 4 times a year. If I were at where I am now when I am eligible for Medicare I would be a Qualified Medicare Beneficiary and what Medicare doesn't cover, BadgerCare will. The bottom line is that rolling over the pension will blow the asset level for Badgercare now and for QMB when I get Medicare. Taking the pension puts me above the income level.

With a lump sum payoff I would pay taxes, there's no way around that but I could use the money immediately for much needed things now and then be back to only having my SS as monthly income and with an asset level of under $2000. The company is Bimbo (queue the laugh) Bakeries which is the largest bakery in the U.S. (they bought Sara Lee which is who I worked for) so I reckon they would be around for the pension--they just would like to get rid of as many of us who are liabilities for them as they can.

[elocs]

4. Rolling over puts me above the asset level.

Here in Wisconsin the income level for BadgerCare (Medicaid) is $980/month which is 100% of the Federal Poverty Level (Walker won't go higher than 100% FPL) and you are allowed $2000 in assets. So the $230/month would bump me over the income level to $1010 and rolling it over to an IRA would either be above the asset level or if I received a payout it would put me over the income level. The food stamp asset level is $2000.

When I become eligible for Medicare in 2 years if I am at or under 100% of the Federal Poverty Level I would be a Qualified Medicare Beneficiary and between Medicaid and Medicare my health care costs would be covered.
The asset limit for that is $7280 as it is for the other levels that allow a higher monthly income but provide less benefits.

So rolling over the pension would bump me above the current asset levels for BadgerCare and for food stamps as well as in the future when I am eligible for Medicare. The $230/month from just doing nothing and taking the pension would bump me above the monthly income levels--just enough where I might actually be better off now than with that $230.

Yes, if I took the lump sum I would pay taxes and lose the BadgerCare and food stamps for a few months until that money was gone and all there would be is my monthly Social Security check but I could pay off bills that would give me over an extra $100/month (significant when you are only getting $780) and make repairs to my mobile home that will allow me to stay here. When the money is spent I can reapply for BadgerCare and food stamps again at my current income level.

The irony seems to be that since the monthly amount I would get would be small but just big enough to disqualify me from the programs that now, but not large enough to make any real difference or make me worse off. Rolling it over puts my asset level too high. Well, I've got about a month to make up my mind.

[SheilaT]

8. $230/month

is $2760/year. If you were to annuitize the $32,000 lump sum, and take out 4% a year, which is the recommend amount that has a fairly high chance of making the money last forever, you could take out$1,280/year, less than half the annuity. Meanwhile, that lump sum amount isn't likely to last all that long, and then you'll have less money coming in every month.

So based on absolutely nothing else, I'd say go with the annuity. However, others have addressed other things you need to consider.

Oh. You go on Medicare at age 65, and it takes remarkably little time to get into the system. Less than a month, in my experience. So file six weeks before that birthday, and the card will arrive in the mail rather quickly.

I hope it all works out well for you.

[elocs]

9. I think I will take the annuity.

It will pay me $187/month starting in November rather than waiting for the $230/month pension two years from now. The best thing is that it keeps me Medicaid eligible. There was another annuity plan that offered $202/month but that put me $2 over the income limit for BadgerCare and over is over. Here in Wisconsin Walker did not take the federal money to expand Medicare so it's the 100% FPL or try and get ObamaCare except the problem is that your income is too small. So I get extra money each month 2 years sooner and otherwise leave well enough alone and leaving well enough alone is a valuable lesson I have learned.