How to Think About a 'Buyout' Offer

4 Pages Posted: 6 Dec 2014

Date Written: December 4, 2014


I was recently asked this question by a close friend: “Brooks, which is the “smarter” retirement income benefit choice now offered to me by my employer? 1. An immediate cash lump-sum buyout benefit equal to $74,391 rolled over into my IRA, when I’m 50 or 2. A deferred lifetime retirement income benefit equal to $1,095 paid monthly, beginning when I’m 65."

Having been blessed at birth (or cursed) with a “numbers person” mentality, I decided to conduct a little research to become better acquainted with the core issues inherent in what initially seemed an uncomplicated query. Imagine my surprise when a Google search of the phrase “pension plan buyout” returned 84,400 hits! Fortunately, Internet research enabled me to refine the question as follows:

Can an average 50 year old employee currently choose an IRA rollover buyout of $74,391 and thereafter reasonably expect to earn an average annual net investment return for the next 15 years equal to more than an estimated 6.74%, in order to make sure that the IRA rollover buyout turns out to be better than the default pension benefit; i.e., the $1,095 monthly pension?

My second surprise was that a reasonable answer entailed much more that I had expected!

JEL Classification: C53, D31, D63, E21, G18, G23, G28, J26, K00

Suggested Citation

Hamilton, Brooks, How to Think About a 'Buyout' Offer (December 4, 2014). Available at SSRN:

Brooks Hamilton (Contact Author)

Brooks Hamilton & Partners ( email )

5353 Keller Springs Road
Dallas, TX 75248-2763
United States
972-839-5260 (Phone)


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