Why not leave it in Viac as long as possible? So we can avoid taxes on that amount.
I know, I had a feeling there is something wrong in this model. First of all it does not take volatility into account. And secondly, the opportunity cost should probably be relative to the conversion rate. Finally, if you plan to spend the whole annuity (and you should, you’re old now, clock is ticking 
), then in case of investing privately, it would eat big chunks of the capital each year.
But to simplify: if your option was either 6.8% annuity or lump sum with 6.8% return, and you planned to spend that 6.8% each year, then you would be much better off with lump sum, because after 20/30/40 years, you would still have the initial amount, which your heirs could inherit. Is this conclusion right, at least for these assumptions?
At 6.8% withdrawal rate there is a 43% chance that you will run out of money in 30 years. (assuming 75% stock allocation based on historic S&P Earnings).
That’s why the FIRE safe withdrawal rate is around 3.5 - 4%. The higher the withdrawal rate, there is a statistical risk of running out of money. Imagine retiring just before a market crash, your portfolio never recovers. I would not take the risk at that age and opt in any annuity > 5%, as you are highly dependent on that funds to live and there is low chance to go back to workforce.
If you’re 60, the goal IS to run out of money in 30 years 
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Yeah but we should really consider the possibility that 4% won’t work out in those 30 years. The past might not repeat itself.
So 6.8% sounds pretty good even with no inflation-adjustment. 4% with 1.5% inflation would need 36 years to go up to 6.8%.
Don’t you want a bit of a safety margin? (I have relatives who lived over 100 years…)
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If you look at Bogleheads, they are even postponing their SS to 70 to increase their fixed income! Just to have a safety margin if you end up living longer than expected.
Note that this calculation is NOT saying that you will run out of money in the 30th year. 43% of combinations will get you to 0 somewhere within 30 year option. it’s ~30% if you reduce the span to 20 years.
With average life expectancy at 84 now, it’s no brainer to take the annuity. Exactly why pension funds are at risk as they promise more than it generates. I would also consider your potential mental and physical capacity at 80 to manage portfolio in IBKR 
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That is a very bold statement. We have been discussing this for a while now, so clearly it’s NOT a no-brainer!
In my opinion, when you’re old and retired, you should set yourself a threshold like: I will spend as much as allowed, as long as the probability of me running out of money before I die is under 1%. Then, using historical stock market returns and Monte Carlo simulations, you can see at which point you’re still safe. And each year, if that risk exceeds 1%, you can reduce your spending. And I think if you follow this plan, then it’s a no-brainer to take the lump sum
Sure, it’s a very good point about mental health. Both my grandparents were in bad mental state already in their 70s. But for that case maybe I will devise a contingency plan like in the movie Still Alice. She was a professor who got Alzheimers at a very young age and she recorded a video for herself with instructions to overdose on pills when she can no longer remember the names of her children. Of course (spoiler alert), she spilled the pills and failed to euthanize herself.
Fair comment. But again, having significant asset allocation to stocks for your living expenses at age 70-80 is too much risk. Even now we say do not invest funds you might likely need in next 2-5 years. If things go wrong then what? You cannot dramatically cut cost with likely health expenses - or get a job.
Having a guaranteed steady income with all the potential health expenses over weighs the risk. Of course each case is individual, perhaps some have expectancy to live until 70-75 for whatever reason then lump-sum wins. But if you expect to benefit +20 years only from this income I would take the guaranteed 6.8% withdrawal rate.
All of this old age thinking at 30s is interesting. I guess we all have time to figure this out in the next 20 years
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Easy to say that you’ll take the lump sum when you are in your 20/30s. I think your risk tolerance will decrease dramatically over the decades.
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There is still the 1. pillar. Plus, yeah, 100% into stocks at age 60+ might be too risky. But you could buy a house/flat using 2. pillar money, which would save you a huge fixed cost (rent), but allowing you to keep the principal, which then you could pass on to your kids.
So what are you saying, should our crucial life decisions be made out of fear, by our monkey brain? Or should we try to take all risks into account while we’re young and come up with a sound advice?
Btw if you plan to leave inheritance to your kids, it never makes sense to ease the 100% allocation in stocks, because if you have a big family, then the kids will take care of you, should the things go VERY wrong, and if they go very right, they will inherit a large sum. That’s the advantage of having a family instead of staying single.
Correct. But you get bread from the rents.
I want to revive this thread.
I’m tracking my pension fund too because I’m able to download a monthly statement. But how (and if at all) would you track the return of the pension fund? Right now I’m totally ignoring my employers contribution and the interest I get, I’m just tracking the total amount.
If you’re speaking of 2. pillar, then you don’t care about the fund’s return. They decide what your return will be: 1% or maybe 1.5%. If they have a good year, then their coverage of their future obligations goes up.
So you would just track the total amount including interest? And only track the performance of what you really invested in the market?
I made some calculations. If I look at my total net worth, 80% of it is invested in stocks. And this won’t change due to 2nd pillar contributions (I treat my pension fund as bonds). So I’ll stay roughly at 80/20. Nobody is truely invested 100% in stocks.
I track it in beancount. I track not only my own private account, but also my “account” at my employer and at my pension fund. I book the transfer from the employer to the 2nd pillar basically as a transfer between two of my accounts. Then at the end of each year, I get a summary from the 2nd pillar: how much did I pay in, how big did the capital grow, what were other costs, and I book them all as expenses. I don’t really track performance as a percentage return, but I keep track of the balance and of the income/expenses that arise from having a 2nd pillar.
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I’m doing it like Bojack (except in a spreadsheet). I’m getting the following data from my pension fund:
Employer:
Savings contributions
Additional savings contributions (due to our specific plan)
Risk coverage premium
Administrative fees
Same for the employee side of things.
I’m counting both my and my employer’s savings contribution as income (classified as savings on the expense side of things), I count the rest as mandatory deductions between my gross and net salary.
If I wanted to estimate the returns on my pension fund, I’d take the saved amount at two different dates, deduct my employer’s and my contributions (because I consider my employer’s contributions as part of my salary), allocate administrative fees in a prorata way between the savings and risk coverage categories and count the savings’ administrative fees against the returns.
I’m counting that as bonds but part of it is actually real estate and a really tiny portion is stocks.
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I use PortfolioPerformance, it’s an open source tool.
I created different views, based on the “availability” of money. So I can have the tool include or exclude the 2nd and 3rd pillars.
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I count 3a to Networth as I will be able to easily withdraw it to pay back the 2nd mortgage (which will just reduce the liabilities of the same amount of assets). But I do not account/count on the 2nd pillar as I don’t expect to have access to it at the time of retirement (somewhere between 45-50).