April 20, 1998

Q. I am currently an employee of the US Postal Service and will probably be quitting my job this year. My contributions to the Civil Service Retirement System amount to $33,239, and if I leave it there I will be eligible for a pension of $967 a month when I am 62. Would I be better off leaving the money there or taking a lump sum and putting it into an IRA? I am now 47 years old.

D.L., Fort Worth, Texas

A. I'll do the math, and I'll bet you come to the same conclusion I do.

Suppose you took the IRA route. If the investment you chose managed average annual returns of 10 percent, it would grow to $138,847 after 15 years. Suppose at that point you moved it from a stock-dominated portfolio (which is the only way you could reasonably hope for 10 percent returns) into fixed-income securities, with a portfolio average return of 7 percent. At that point you also begin a sequence of withdrawals of $967 a month. The pool would thus last 24 years and eight months, or until you're age 86. And if you don't reach that age, some portion of the money would remain in your estate for your heirs.

But let's also take a dimmer view. Suppose returns were lower -- suppose that Wall Street's bull finally runs down and you begin that 15 years of accumulation on a sour note. It's far from unthinkable to consider the possibility that your average returns until age 62 might be only 8 percent. Then the pool would be only $105,439, and if this were again invested to yield 7 percent, a sequence of $967 monthly withdrawals would drain the pool in 169 months, or a little more than 14 years. Not so pretty, is it? When I work out such calculations, the answers usually point the other way, but it seems to me that Uncle Sam is offering you a pretty good deal.