Job related OT
Clubber
Florida
ranukam recently had a job topic. During the discussions, I thought what better place to ask for financial advice then on a strip club site. At least we all have one thing in common.
Anyway, I just received a packet from my former employer who pays me retirement monthly. They want to opt out of the monthly payment. I've heard other firms (many also large ones) have done this. My first thought was, "Well, if it's good for them (or they wouldn't offer), then likely not good for me." They are offering a lump sum payout.
I have 4 options:
1. Roll over to an IRA/another qualified plan.
2. Take a lump sum payout. I've pretty much ruled this option out because of the tax consequences.
3. Choose a new form of my monthly benefit. Not sure what the options are there.
4. Take no action.
I have a couple of meetings set with advisers, but for now, I am leaning toward 3 and 4. Nice to have that deposit in my account every month till I die. I am hoping the the "Choose a new form" option may include continuing the payout after I die for my wife. We'll see.
That's it.
Anyway, I just received a packet from my former employer who pays me retirement monthly. They want to opt out of the monthly payment. I've heard other firms (many also large ones) have done this. My first thought was, "Well, if it's good for them (or they wouldn't offer), then likely not good for me." They are offering a lump sum payout.
I have 4 options:
1. Roll over to an IRA/another qualified plan.
2. Take a lump sum payout. I've pretty much ruled this option out because of the tax consequences.
3. Choose a new form of my monthly benefit. Not sure what the options are there.
4. Take no action.
I have a couple of meetings set with advisers, but for now, I am leaning toward 3 and 4. Nice to have that deposit in my account every month till I die. I am hoping the the "Choose a new form" option may include continuing the payout after I die for my wife. We'll see.
That's it.
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19 comments
The specific numbers are needed to decide what is a good deal for you. An honest and competent financial adviser should be able to explain the advantages and disadvantages of each alternative.
Companies have a horrible lifetime right now. Remember Netscape? Palm? Lehman Brothers? Enron? Countrywide? GM? And those are the big ones that were riding high and then... just weren't. Everybody involved took a haircut.
I tend to look at taking my money while I can. (And while Obama and pals talk the rich don't pay their taxes, the middle class sure does - thanks gov for making sure poor people have cable, internet, phones - ya know, all the shit I have to pay for while they get it free. But I digress.)
And jackslash is definitely right if you can roll the full lump sum amount into an IRA that is free money right. (I forget the name of the calculation but the lump sum amount is less than the amount you would receive over time to account for the fact that you will now invest it on your own).
http://www.businessinsider.com/a-singapo…
Generally speaking, you can get more return from your retirement money if you control the money. If you can cut out your former employer, you can also cut out the risk that the companies future results will hurt your income stream. Also, if you control the risk/reward balance, you can give yourself a raise - or dedicate money to your survivors. All of this can get complicated.
You are right to get advice from pros. (I suggest at least three.) Make sure they know your total income stream, estimated living expenses, long term and short term financial goals. Also, watch out for "advisers" who only offer "in house" investment options. And do not forget to include in your financial calculations sufficient "misc. personal expense" money to buy lots of lappers well into your 70s!
It's no secret that Corporate America is eager to shed employee pensions. Funny, my company is doing the same thing as yours, but only offering to those within 5 years of normal full retirement, not those already retired.
Others are right about seeing some qualified pros on this. One fundamental question is how much would your lump sum/rollover $$ amount be ? Another would be, do you desire the same income stream as your pension in question ? If so, how long can lump sum be expected to last ?
One angle not mentioned by prior posters: Is your annual pension payments greater than what the PBGC benefits would be for a terminated pension plan ? I don't know the financial stability or corporate structure of your company (are they a holding company with several subsidiaries), but if your pension is > than ~ $35-40K, then option 1 may well be seen in a more favorable light, particularly if you wish to pass on "something" to your spouse.
I'll pm you later on some hard #'s on my recent retirement exercise, scaled to a hypothetical $30K pension.
1. The rate they use to calculate the lump sum. I think they are legally required to tell you what this is, if you ask
2. The rate you expect to earn in the stock market with this money, once it is in the IRA. Historically, this is around 8%-10% per year over a long period of time, but can bounce around (lately, it's been pretty good)
If 1 is lower than 2, this could turn out to be a good deal for you.
Rule of thumb is that you can take 5% of your lump sum out each year. If you invest well, that amount should grow over time. Compare the 5% of the lump sum to monthly/annual payments you were getting to see how this works out for you.
And, finally, I'd suggest you not put everything into stock right away. You might consider 20%-40% in stock initially (the rest in a money market or short term bonds), then maybe another 20% per year until you reach where you want to be. That way, if stocks drop over the next few years, you won't take a hit before your assets have a chance to grow.
It seems to me they calculated the lump amount by taking what I get now, times 12 for a year, then times the actuarial tables for the final amount. No interest whatsoever. And their actualial years were a LOT lower then what I researched.