120% rate Fouling my Plans!

L1: 120% rate Fouling my Plans!The 120% interest rate is getting too low, and now I can’t do the SEPP plan this year if I want to, because I can’t get enough money. Can anyone see into the future this year, and predict when it will bottom out and go back up?2009-01-01 14:52, By: mikex, IP: [71.90.162.26]
L2: 120% rate Fouling my Plans!There is no crystal ball for interest rates and our estimated rate for Februaryis currently at about 1.95% (http://72t.net/InterestRates/Estimated72tRates.aspx)- even lower than the January rate.The current objectiveis to bring mortgage and consumer rates even lower. In the short term, there is only one real hope for rising interest rates – inflation – and that would bring a series of other problems.Consider doing a plan with recalculation and gettinga part time job to make up the difference until interest rates rise.2009-01-01 15:51, By: Gfw, IP: [216.80.125.206]

L3: 120% rate Fouling my Plans!Yes I was going to get a part-time job anyway. Is recalculation discussed on this site anywhere? I must have missed that.2009-01-01 15:59, By: mikex, IP: [71.90.162.26]

L4: 120% rate Fouling my Plans!Recalculation involves resetting age, interest rate and account balance on an annual basis. With interest rates this low, maybe by next year they will be higher.Start here… http://72t.net/Articles/ArticleShow.aspx?WA=42Also check out some of the previous discussion on the forum… http://72t.net/Forum/ForumViewDetails.aspx?R=d379ab6d-950b-462c-910a-14cec6c77502And finally, the bestpaper reference on SEPP plans ia book by Bill Stecker a summary of which you can fine here… http://72t.net/Sponsors/Stecker.aspx2009-01-01 16:15, By: Gfw, IP: [216.80.125.206]

L2: 120% rate Fouling my Plans!Hello, Mike:Sorry to hear that low interest rates are fouling up your retirement plans.As to interest rates, the general opinion on this site it likely to be for interest rates to remain low during most, if not all, of 2009 and perhaps well into 2010 as well. The government and Fed are trying to stimulate the economy out of recession now and raising interest rates will not help in that effort. I doubt that the Fed will raise the short term interest rate until they see signs of inflation and perhaps not for a bit when they do. If they can inflate us out of recession, it is likely that they will try to do so. I don’t believe that will work but that may not prevent them from trying it. Anyway, look to increasing interest rates sometime in 2010 but probably not before that. My crystal ball is pretty murky these days. Two vicious bear markets within the same decade tends to do that. :-(Ed2009-01-01 16:53, By: Ed_B, IP: [24.20.24.188]

L3: 120% rate Fouling my Plans!Nothing is ever easy…I’ll probably work into the summer, then pull the plug and live on some savings and part time job until 2010. Then I’ll start up the 72t. I have a good quote on health insurance ready and I have no bills at all, and quite a bit of cash savings. I guess the good side is if the rate is low it forces me to take out less money, so at 59 1/2 I’ll have even more than I started with. Then I’ll take out whatever I want and buy a Corvette or something :-)2009-01-01 17:14, By: mikx, IP: [71.90.162.26]

L4: 120% rate Fouling my Plans!No, nothing worthwhile comes easily, for sure.Cash is good. I have come to appreciate it much more now that I am retired. When I was still working, cash was seen as a drag on the performance of my portfolio. Now that the market has dropped 35% or so in 2008, the 25% that I kept in cash is looking pretty good. The market seems to have bottomed in November but it could be a while before it resumes any meaningful growth. Still, now is not a bad time to be nibbling at good stocks that are on sale.Hopefully, you will have more later than now. That was my plan too and it worked well from 2004-2007. Oh, well. Been here, seen this. Invested money is a bit like the tide… it rolls in and it rolls back out. Ed2009-01-01 17:46, By: Ed_B, IP: [24.20.24.188]

L5: 120% rate Fouling my Plans!You may also be able to withdraw some IRA funds penalty free under the other exceptions to penalty. The most likely of those other exceptions are those relating to medicalcosts (including dependents)and/or healthcare premiums in conjunction with an unemployment claim. These exceptions are covered on p 53 of Pub 590, but using them requires some planning and timing of the payments and distributions. This could buy you some more time before starting the SEPP. You are correct in delaying starting a plan that appears to generate less than you will need, particularly toward the end of the plan.2009-01-01 23:22, By: Alan S., IP: [24.116.165.60]

L4: 120% rate Fouling my Plans!You should also consider setting up your SEPP 72-T with only part of your available IRA balances. Use the other part to supplement your monthly/annual needs, even with a 10% penalty, but only on these supplemental funds. Hopefully this can keep you from busting a larger plan even in the 4th or 5th year, which gets expensive RETROACTIVELY from the beginning.2009-01-02 23:30, By: dlzallestaxes, IP: [96.245.168.66]

L5: 120% rate Fouling my Plans!That’s an interesting idea. I thought paying a 10% penalty was to be avoided at all costs, but I see there are other opinions on that.I am 51 and if I start the sepp this year it will run until I am 59 1/2 (really, if I am understanding this stuff right, the year I am 58 is really the last year I have to take out the sepp payment, since in the year when I turn 59 1/2 it terminates so nothing has to be taken out in that year). At 55 I can start receiving a monthly pension check for life, so I am the lowest on available monies for only about 4 years (51 – 55). I can supplement with a part-time job, which I was going to do anyway (I want to see what the “real-world” is like after working for this large corporation for 24 years anyway). So I think I’ll be OK.Oh one more thing – what is the lowest rate the 120% thing can go to? It can’t go to Zero can it?2009-01-03 15:51, By: mikex, IP: [71.90.162.26]

L6: 120% rate Fouling my Plans!If you tell us your total IRA balances, and 401-K balances, and projected annual cash flow needs from them until 55, and pension after 55, we might be able to give you some ideas to consider. Otherwise it is very difficult for us to work with limited info.2009-01-03 18:16, By: dlzallestaxes, IP: [96.245.168.66]

L7: 120% rate Fouling my Plans!Keep in mind that I am single, have a paid-off house, 2 paid-off vehicles both very new, no ex-wives or kidz … I will be 51 Jan 19th. I have a very detailed spreadsheet with all the expenses I will have in there (a health plan, dental plan, utilities, car insurance… everything including cat food). My yearly expenses are only $19,500 in today’s dollarsYou can say, perhaps by the summer, that my IRA and the 401k I would roll into it will be about $310,000 depending on the economy/stock market.I also have a substantial amount of liquid monies to back me up (cash, bonds, external mutual fund). I will also get a part-time job after a short vacation of a few months.So, if I quit in the summer, I’d be 51.5 . At 55 (in 3.5 years) I can get a lifetime monthly pension check of about $750 ($9000/year) which is the earliest I can start getting the money. I could get more than that using their level income plans before 62 (or 65) but I choose to get the lower amount for life, rather than having the checks stop at 62 or 65. However, when I get to 55 I can re-evaluate that. If my IRA grew more than I thought it would, and Social Security doesn’t bust, I might take the larger amounts.Using the calculator on this site, and 2.48% interest and $310k, I get an answer of $13,785/year from the SEPP. Even if I didn’t work at all (which I don’t plan on doing) I could supplement this with my cash to make all my bills, plus buy beer :-). No I won’t be buying new plasma TVs and eating steak dinners out every night, but that’s fine, I can do that after I get to 59 1/2.So even though I thought I wouldn’t want to do it this year, I still might anyway. I am just a little disappointed that the interest rate is going down, but I can make it work. The good part is that even after the SEPP ends, I’ll have more in the IRA than what I started with. Yay.2009-01-04 15:10, By: mikex, IP: [71.90.162.26]

L8: 120% rate Fouling my Plans!Since you have “substantial liquid monies in cash, bonds, and external mutual fund”, you might consider using those for a year or 2. By then the interest rates may go up, and your 401-K/IRA value hopefully will also. So, then you will be able to get more from a SEPP 72-T than if you lock it in now at the present low rates and low values. Since you are now 51, you will be 54 1/2 in 3 1/2 years. At that time a SEPP 72-T will be perfect timing for the 5-year period as well. Any job(s) during the next 3 1/2 years will reduce how much you take from your liquid monies.Further, 6 months after that you will be able to start getting $ 9,000/year from your pension, and therefore need to commit less to the SEPP 72-T plan.You need to develop a PLAN for the next 8 1/2 years. Right now you have thoughts, but no plan !!!!2009-01-04 18:49, By: dlzallestaxes, IP: [96.245.168.66]