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L1: Correct Use of This ForumI am struggling with a financial decision related to early retirement, 401k’s, 72t’s, lump sum pension calculators, etc. I have used this forum as I have had questions related to 72t’s, but I am about to make a big career/financial decision and I was thinking about laying out the details here to get any feedback that folks might have. I have greatly appreciated the advice provided on this forum. I should also note that I have been to see three financial planners. Two thoughts: I am a bit uncomfortable laying out much personal detail on the web but this site includes the capability to delete old messages, and secondly, is is appropriate to even get into broader issues of advice outside of 72t’s? I want to follow forum etiquette. If not, maybe someone knows of a site that provideds general retirement advice.2011-04-14 13:22, By: Dean, IP: [68.53.255.177]
L2: Correct Use of This ForumYou can always ask the question, just don’t ask for very specific investment advice.
I’m sure that if you make your inquiry ‘somewhat’ general that you will probably get a few responses.
Also remember, that we don’t display any personal information or email addresses.2011-04-14 13:42, By: Gfw, IP: [24.148.10.164]

L3: Correct Use of This Forumok, thanks Gfw.
My company has a pension that can be paid out as a lump sum benefit. The calculated total of that benefit was based on the GAAT rate until a decision was made to change to a another rate (PPA) which is not as favorable to the employee (produces a lower lump sum payments). This rate is being phased in over 4 years; 25% PPA/75% GAAT first year, 50% PPA/50% GAAT second year, 75% PPA/25% GAAT third year, etc. In addition to the influence of the new rate as this yearly blending occurs, there is impact to each quarterly calculation because of the presence of the new rate. The net effect is that I am losing significant amounts of money in my lump sum payout with each passing quarter. I cannot get the lump sum unless I quit my job and retire of course.
I just became 55 years old earlier this year and stumbled on this issue as I was doing some planning with the lump sum calculator. I did not plan to retire at this point, so I looked at replacing the loss by maxing out my 401k ($22,000) and an IRA ($6,000). However, even by doing that I am still significantly in a loss position after just two quarters of this year. And the third quarter rate will likely follow the same trend, and the 4th quarter change will get an extra bump by also including the next yearly step in the PPA blending preocess. The bottom line here is that I am seeing significant erosion in the calculated result of my lump sum benefit with no effective way to replace it.
I am a long term employee with a good paying job. I have also been very conservative in my financial siuation. I owe no one for anything including my home. However, once I take this fund and convert it into a 72t and take my other retirement funds and roll them mostly over, leaving some additional income to help support the 72t, I still find myself with a budget that I would call very limiting not anywhere near the reitirement I had envisioned.
So, do I keep the nice income/job/other benefits and ride this out to see where it goes, while “re-funding” as much of the loss as I can, or do I leave a job with long term benefits in a tough job market just to lock in on my pension benefit? By the way, as of several years ago, the pension benefit is not invested on my behalf. There are no investment gains that are shared with me so taking it out gives me benefit of investment gain.
It is hard to leave the income produced by my job, especially after being there many years, but I really don’t see a practical way around it.
Any thoughts are appreciated.
2011-04-14 14:45, By: Dean, IP: [68.53.255.177]

L2: Correct Use of This ForumVanguard, Fidelity, etc. have excellent retirement planning information.
There are 3 primary aspects to retirement planning at retirement – Cash Flow, Tax and Investments. In addition, there are estate planning considerations.
Many CPAs are experienced in the first 2 areas, and the “framework” for the third. Only Registerd Investment Advisors, Brokers, CFP type people are supposed to give specific investment selections.
This site gives you a wealth of information about the regulations concerning 401-Ks, especially at age 55 if “separated from service”, NUA criteria, as well as SEPP 72-T planning. Do not “roll over” your 401-K to an IRA until you have researched these areas, because once you roll it over to an IRA you will lose all related tax benefits forever.
Find an advisor who understands all of these areas.
Investment balancing often changes as you enter/approach retirement, such as stocks/mutual funds vs fixed-interest investments. Also, in certain situations consideration of ROTH IRA Conversions.2011-04-14 15:22, By: dlzallestaxes, IP: [96.227.217.194]

L3: Correct Use of This Forumdlzallestaxes, thanks for taking the time to make those suggestions. I have been to the Fidelity site and used their retirement planning tools. It is nice to know they are well regarded. I will think about the rest of your advice.2011-04-14 23:03, By: Dean, IP: [68.53.255.177]

L4: Correct Use of This ForumDean:
I sympathize with you and all the decisions that need to be made when one is approaching a critical moment in one’s financial life. Dlz has offered some excellent suggestions and I hope that you take advantage of his advice.
That said, another issue of GREAT importance to potential early retirees is, “What are your plans for funding health care?”. Privately obtained insurance can be very expensive and, depending on your health situation, you may or may not qualify for a privately obtained policy. Make sure that you give this issue some serious thought, as it can often be a real deal breaker in terms of early retirement. It may be, for example, that you save enough on health care costs that the reduction in your lump sum pay-out is actually less than it 1st appears to be.
Another issue concerns your particular employment situation. Do you enjoy doing your job? Is your position relatively secure? Do you have good benefits? Do you have a good relationship with your boss? From the way that things have gone in the US economy lately, it is becoming more and more difficult for potential early retirees to give up the financial advantages of being employed.
As you can see, there are a lot of questions to be asked and answered in all this. Fortunately, you are on the right track by seeking advice from those who have “been there and done that”. By combining that info with your knowledge of your personal situation, you should be able to work out a best case scenario for your possible retirement. Best of luck with that.
2011-04-16 23:54, By: Ed_B, IP: [71.236.183.224]

L5: Correct Use of This ForumEd_B,
Thanks for taking the time to add your thoughts and for your thoughtful response. Yes, the healthcare component is a huge part of the equation. I have taken that into consideration, and I do have that covered.
The questions you raise about my employment situation are exactly why this is such a difficult issue for me. My job appears secure. I like my boss. I have great benefits. I just cannot fund the losses in my pension fast enough to compensate for those losses. I would end up working mostly to replace lost retirement funds, and then only being marginally successful at that because rising interest rates will continue to deplete my pension at a rate that is faster than I can replace it by increasing my funding. So to stay means that I will likely give up a better retirement later, but have a higher standard of living now. To leave means I enter an uncertain job market, but keep my pension intact and allow it to grow. I have enough in my pension now so that I can take a lump sum 72t and take my time finding another position. If I opt to stay, then my losses in the pension will likely take away that option down the road.
I feel like I am standing at the edge with two ways to jump and neither look very attractive. Part of that is that I am a long term employee and that makes leaving more difficult.
Oh, and I have been to see three financial advisors and they all say, “Wow, you are in a tough position”, but generally think I should go ahead and retire.2011-04-17 12:42, By: Dean, IP: [68.53.255.177]

L6: Correct Use of This ForumDean, What are the effects of these lump sum changes to the life time annuity payout option on your pension if there is one? If that option is available, and it won’t be reduced by more years of service, (maybe it will increase your payment, or will at least increase it for not taking it until a few years later when you retire) it may be worth considering that choice for your retirement, rather than pulling it out in a lump sum, and then just stay there and continue to fund your life with your earnings for a few more years. If you are married, consider taking a 100% spousal option that may reduce your benefit a bit, but cover both of you in case you are outlived by your spouse. That is what I did in 2006, and I know that money will come until both of us are gone, and is not put in danger based on market fluctuations. KEN2011-04-17 14:26, By: Ken, IP: [24.63.124.59]

L7: Correct Use of This ForumWhever I have looked at the situations for married couples, it is usuaaly worthy of consideration for the worker to look at taking the 100% option, with -0- for the surviving spouse, AND buy a 10, 15, or 20 year term life insurance policy in case he dies before that date, especially sooner rather than later.2011-04-17 19:22, By: dlzallestaxes, IP: [96.227.217.194]

L8: Correct Use of This ForumSorry, but 100% disagree. I was in the insurance business for over 35 years (CLU,ChFC,CPC, etc)and performed various functions from selling todesigning products to writing software that illustrates the concept that you are talking about.
In my humble opinion, the concept has several faults – especially when using term insurance as the funding vehicle. It can sometimes make sense at younger ages when there is lots of planning time and you are willing to pay the price of a guaranteed product, but seldom does it make long term sense at retirement – looks good on paper, but who made the paper look good?
Bottom line – if you know when you will die, use term and take the life only option. If you don’t know when you are going to die, take the Joint & 100% option.
Btw… when I retired I took the joint and 100% option and I’m happy that I did.?2011-04-17 19:38, By: Gfw, IP: [24.148.10.164]

L9: Correct Use of This ForumI can see both sides of the issues presented by Dlz and by Gfw. A large portion of what makes either choice the right decision depends on what your complete financial picture looks like. For my wife and myself, we chose the 100% payout for her alone on her pension plan. The payout was significantly higher that way and I have more than enough assets of my own to fund a comfortable retirement, so it made sense to max out her payout. Also, since women tend to live 5-10 years longer than men, it made sense from that viewpoint as well. Had I been making this choice for myself, I would no doubt have opted for a pension payout that included the spouse because of my family health history and the fact that women tend to live longer than men. I tell my wife that this is because women do not have to put up with wives all their lives and she pantomimes bouncing the nearest heavy object off my head! 2011-04-17 22:09, By: Ed_B, IP: [71.236.183.224]

L10: Correct Use of This ForumActually, we took my pension joint & 100% and my wife’s pension as life only to her. Her family lives to a ripe old age – parents are 90 and 88 and at 90 her father drove himself to dinner on his 90th birthday.
What I was objecting towas taking a life only and funding the spouses future withterm insurance.
I retired at 62 from a great job where I didn’t have to go to the office or report to much of anyone – actually worked out of my home which is easy when playing with computers. And,no regrets, except that maybe we could have done it earlier.2011-04-17 22:17, By: Gfw, IP: [24.148.10.164]

L11: Correct Use of This ForumDid not mean to imply any criticism whatever to your decision, Gfw. As an insurance insider, I am sure that you know FAR more about the subject than I do. I just wanted to make the point that there might not be a clear cut answer to this question and that a customized approach would be best for most people.
Specifically, whatwas your objection tofunding the wife’s future with term insurance? I know that insurance companies can go out of business, but then, so can private company pensions. I suppose that the government pension guarantee system could be helpful in those situations, if it survives much longer. It may or it may not, considering all the funding battles that are in our nation’s future.
2011-04-17 22:56, By: Ed_B, IP: [71.236.183.224]

L12: Correct Use of This ForumLife expectancy of someone age 65 is about 21 years – some more and some less – most level term policies available at age 65 are for 20 years or less and you really have to look at the ultimate rates – what you would have to pay if youdon’t use the insurance for those first20 years, but still need to keep it.
Just my thoughts, but insurance company actuaries aren’t dumb. On average people buying term insurance never collect.It would be interesting to see the percentage of people who purchase term insurance receive a death benefit.
Don’t get me wrong, I’m not against insurance and I still have some – a 25 year old UL policy where the annual expenses (including the cost of the coverage) are still less than the annual interest earnings.Based on today’s tax laws, my insurance is paid for with dollars that have never been, and never will be, subject to income tax. One of the real benefits of permanent life insurance. But, I still took the joint & 100% option when I retired.
Spouse says “there is life after death… when he dies, I get all the money and I will have one hell of a life.” (or something to that effect).
2011-04-17 23:57, By: Gfw, IP: [24.148.10.164]

L6: Correct Use of This ForumYou’re welcome, Dean, and congrats on the great job you’ve done with this so far.
I’m glad to see that you have considered and managed the health care situation BEFORE retiring. So many people overlook this part of retirement planning and then get a very rude awakening once they do retire and are confronted by either very large health care bills or their inability to qualify for health insurance.
Another aspect of all this that has not come out is the line of business that you are in and how healthy the job market is for people in that area of endeavor. For example: I was an industrial R&D chemist with a good job and great co-workers but a continuously shifting job description that slowly made it less and less possible for me to focus on my main challenge of developing new products. Also, this is a job that is concentrated in only a few parts of the US, so to get another job would have required not only relocation but a great deal of effort on my part to find a new position. Fortunately, I was well prepared for retirement and did not need another job when I retired in 2004 at age 55.
Please do not think that anyone on this web site is discouraging you from retiring. Far from it, actually. I strongly encourage people to retire from the workforce, if they have planned carefully and have the financial assets in place to do it. It’s just that this is a HUGE decision for most of us and I am sure that everyone here wants to make sure that you have answered as many of the pre-retirement questions as you can before taking the plunge. In general, the fewer surprises one gets in retirement, the better because many of them are not particularly helpful.
I found retirement and the freedom that came with it… intoxicating. Before retiring, I never realized just how important it was to me to be free to live my life on my terms instead of living for the benefit of my employer. Even the simplest things, such as my daily schedule are now completely in my hands and subject to my slightest desire. An afternoon nap, movie, or a glass of wine and a couple of hours spent reading a good book are quite enjoyable alternatives compared to my previous activities of preparing for and attending meetings or spending time withcomputerized safety training programs. My 82 year old mother believes that boredom isthe classicsign of a non-creative mind, so I was raised to always have interesting activities in mind. I have no sympathy whatever for those who retire and then return to work out of boredom. Work should be a large part of ones’ activities in life but it should not be all of it, IMHO anyway.

2011-04-17 21:59, By: Ed_B, IP: [71.236.183.224]

L7: Correct Use of This ForumGfw, diz, Ed_B, and Ken,
I feel very fortunate to have found this web site. Your comments are most appreciated, and make me rethink some options earlier discarded.
Ken, the monthy annuity option is there in many forms; 0 survivor, 50% survivor, 100% survivor, 10 YR guaranteed, 20 YR guaranteed, and I think there is even a 66 2/3rd% survivor. I haven’t seriously considered these because I was thinking about managing the lump sum to my benefit while leaving the principle intact (mostly intact?) for our sons. My family health history is not good. Dad and grandfather on his side didn’t make it to 65. My wife will likely live well into her 80’s, so I want the 100% spouse if I go with a monthly annuity. I am not enough of a risk taker to take a life policy on me with the thought that I could correctly predict the general point of my, um, “departure”. The monthly annuity doesn’t seem to be impacted much by the lump sum changes. I ran the numbers for now vs 2 years from now and the numbers were essentially the same which a marginal increase after two years.
Ed_B, don’t be too impressed that I thought of the health insurance option. I have worked in the health insurance field for many years now. My field is technology so I can likely find a job but it may require travel and I am not fond of the idea of being away from home all week at this point in my life. I found your comments about the joys of retirement fascinating. My objective is to be where you are…retired without the “have to do it” part of my life. My first paper route was at 9 years old, and I have never taken vacation beyond 1 week at a time in spite of having 30 days of vacation each year. I have many interests outside of work and am very certain that I won’t sit idle unless it is for lack of money!2011-04-18 01:19, By: Dean, IP: [68.53.255.177]