whats left after 5 years?

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L1: whats left after 5 years?Here”s my scenario,I”m 55 andwant to retire(I would still work but only on a part time basis)between now and 2008.I would have about 340,000 from my pension and have around 65,000 in my 401k.What I would like to do is keep my 401k separate from my pension money and take 275,000 into a variable annuity and use that to calculate my 72t income and I would put the balance of my pension(65,000) into a separate mutual funds account. My question is if my distribution from the 72t is around 5 1/2-6% and the market stays at least around there for 5 years would I still have my 275,000 after the 5 year distribution is up?Also does separating my money like this make sense.This is a huge decision and I want to make sure I”m doing the right thing.2007-04-20 20:45, By: obewan, IP: [69.221.15.195]
L2: whats left after 5 years?With CD”s paying over 5%, why even consider a variable annuity. I told me wife to shoot me when I start talking about getting an annuity. Try the 72(t) calculator on this site, and plug in the value that you think the investments will yield over the next 5 years as “actual investment rate”, and choose Amortization to see the effect on your funds over the next five years in the results below after pressing calculate. (the 5.84% withdrawal rate from March 2007 is onlygood for April or May SEPPfirst payments, so that could change when you are ready to start.. It affect the amount you can withdraw each year.Also, plug in your age as it will be on 12/31/2007, not today –to compute your2007 first year SEPP value.A conservative mutual fund portfolio should give you a 6%-7%yield, and if you just move the $275K of that pension lump sum to an IRA, you can set up a 72t on it that pays you (from the $275K IRA) about $10k per year if RMD is method, up to about $20k per year, if you choose amortization. Using 5.84% for both withdrawal interest rate (reasonable rate)and for growth factor (actual investment rate)it grows with Minimum method, and goes down about $30K after 5 years if you use Amortization method. If you raise the “actual investment rate” (what you think you will be earning on the funds each year) to a value of 6%, the fund balancegoes down by $25k in five years using Amort. With a rate of 7% (actual investment rate) it is only 11K less after 5 years using Amort. Try it out to see the results. KEN2007-04-21 10:54, By: Ken, IP: [151.199.18.84]

L2: whats left after 5 years?Obewan:
We”ve all asked ourselves this question or ones like it during our retirement planning process. While it is a good exercise to do so, no one can really know what the future holds when investing in the stock market. We just have to make the best decision we can based upon the most and best info we have at the time that the decision is made. With some luck, it will work out OK but there is no guarantee of this.
In most cases, an annuity is probably the last “investment” that people facing retirement should consider. There are lots of ways to simulate what an annuity does without all of the fees and conditions that most annuity plans carry. Sure, some annuities are better than others, have lower fees, or more options but they really cannot do a lot that we cannot do for ourselves.
A well diversified portfolio of low cost mutual funds, for example, will generate a substantial income for a long time. There will be some volatility due to the stock market ups and downs but the bottom line will be the cash flow that results. Taking out less than the portfolio generates will grow the account while taking more than the account generates will decrease the account. The trick here is to be reasonable in your expectations and to invest relatively conservatively.
Asset allocation is a big deal in any investing plan. You need to be comfortable with the amount of risk that your chosen investments carry. I have always been a bit more aggressive as an investor than was generally recommended. These days, however, more financial advisors are recommending a more aggressive investing posture for most retirees so that the danger of running out of money at an advanced age is reduced. My own asset allocation is in the area of 72% in stocks, 12% in cash, and 16% in bonds. Of the stocks, I favor the value style of investing and small to mid cap sizes. I also have some large cap, some growth or blend funds, some REITs, and some foreign stocksto help leven the mix a bit.
This is working well, with an average return for 2005-2006 of about 12%. Since I am taking about 5.8% of my portfolio via SEPP payments, the account is giving me the $33k annual distribution that I need for retirement and is also growing quite nicely. I know that I cannot depend upon a 12% annual return forever but it is nice while it lasts. I expect my return to decline somewhat but withmy SEPP only lasting for 5 years and half of that now gone, things are looking pretty good. WhenI did the planning, I assumed a 5% withdrawal rate and a 9% market growth rate. My projection here was a bit on the low side but that”s OK. I never wanted to calculate this to the last dollar so there was plenty of room for deviation between my financialplan and reality.
Ed2007-04-21 14:29, By: Ed_B, IP: [67.170.159.37]

L2: whats left after 5 years?

With only $405,000 in pre tax assets at 55, retirement is not a good idea unless there is no choice due to health or other reasons. Withthis asset shortfall, the option of being aggressive with investment choices is essentially eliminated,and thatputs a cap on potential returns.
My advice would be to forget both the annuity and the 72t and try to hang in there for at least 6 more years with full time employment. That would also cover 60% of the remaining years until Medicare eligibility, and the lack of employer health coverage and/orexcessive premiumspre age 65 is probably the largest hurdle to financing an early retirement.2007-04-21 17:44, By: Alan S., IP: [24.116.66.98]

L2: whats left after 5 years?I”m also totally opposed to Defined Benefit pension plans that mandate annuitization as the sole distribution method. In other words if annuitizing is a bad deal under a section 72(t) SEPP is it not a universally bad deal regardless of the form it takes?2007-04-22 06:47, By: Joel, IP: [24.187.32.203]

L2: whats left after 5 years?Joel,
I look at my current Defined Benefit pension plan that I started collecting at age 55 as the fulfillment of thepromise that my employer made to me (25 years ago) that they would use a known formula to compute the lifetime (paid monthly) retirement benefit that I would receive after working for their company. The Plan SPD outlined the formulas that they would use to determine the benefit, based on years of service, date or retirement, average salary over last 60 months, and date I wanted to start collecting. I chose to retire ten years early, and to start taking my pension 10 years early, and also chose the 100% spousal option, and ended up, after all of those reductions getting $21.9K per year, from a plan thatI never had to contribute any money to for the 25 years that I worked at this company. The company also had ESOP stock (the reason I was able to retire), and in later years a 401k with 50% match. I did not view my DB pension plan as anything other than their promise to pay me a fixed sum in retirement each month to supplement my Social Security until I died.I did not see it asa way to accumulate wealth I could pass on, like my IRA”s can do after I die. It is the only annuity that I have no problem with.. KEN2007-04-22 11:41, By: Ken, IP: [129.44.189.117]

L2: whats left after 5 years?Good morning Obewan. Pretty cool screen name, by the way.
No one can say for sure how long your money will last during retirement, but from the amounts you have listed and your desire to retire at 55, and assuming you are in good health, my guess is you will not make it. So I agree with Alan that you should keep working to accumulate more funds. Plan on needingyour current expense rate in retirement and for that expense rate to increase with age when your medical expenses will rise.
I do not agree that a fixed income investment plan (CD”s or bonds) will work forthe long-term income stream that will be needed for a normal retirement. If you are healthy, plan on a normal life expectance of 74 years or longer. If you are married and both in good health, then odds are either you or your wife or both will live into your 90”s. So you will have to create a good, well diversified asset allocation plan of investments, including some fixed income instruments, for a successful retirement income stream. But the most importantquestion for success is, “What is the market doing when you retire?”
If you retired and began taking distributionsin the mid 90”s when the market was going up, then you would have more success. You would have to liquidate fewer shares or units of your investments to generate a given amount of money. However, if you retired in 2000 2002 when the market was going down, followed by several years of market recovery, then just the opposite is true. You would have to liquidate more shares or units to generate the same dollars, and your total asset base would deplete quickly. So it”s the timing of the start of distributions that will have the greatest effect on how long your assets will last when you do retire. With this in mind, I will make the case for using systematic distributions form aDeferred Variable Annuity (not annuitized) to fund retirement income.
Given the same investments in a mutual fund platform and a VA platform, you should have the same investment returns. OK, the VA will generally have between 0.5% and 1.5% greater expense ratio than the mutual fund platform. However, with the “living benefits” that have been developed over the last few years for VA”s, you can eliminate the danger of withdrawals in a down market. I”m talking about the Guaranteed Withdrawal Benefit that just about all of the VA providers offer. They are not the same and some have more flexibility than others so check out more than one provider. Most provide the ability to “step-up and lock-in” the protected value of the account value in a rising market. Then when you begin withdrawals the amount of your withdrawal is based on the protected value which may be the same or lower … maybe significantly lower … than the actual market value of the investment account. This is the protected۝ feature in action.
My point to this discussion is that before flatly rejecting one investment product because of preconceived ideas, mostly espoused by the popular press that really has no idea what they are really talking about (because if they promoted it they would lose their audience and then their advertisers which is their mission in life), investigate all options and make a truly informed decision.
One last point. I have not found any fixed annuities, which includes Equity Index (EIA) or Fixed Index (FIA) annuities that will work. They have too large of a surrender charge and too long of a surrender period, and they do not give you the potential for earning full increase in the stock market. They do NOT invest directly in the market and they have caps and limits to the market upside which cost you in the long run.
Hope this helps.
Jim2007-04-23 09:19, By: Jim, IP: [24.252.195.14]

L2: whats left after 5 years?If their is company stock in your Pension Plan or 401-k (especially the company match), then you should check into the fantastic tax saving benefits under the NUA (“NET UNREALIZED APPRECIATION”) provisions of the federal tax code. (See various prior postings on the subject by using the “search engine” of this forum, and at www.irs.gov )2007-04-23 13:14, By: dlzalles, IP: [141.151.84.29]