Pension Question

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I would take the lump sum and roll it over into an IRA at Fidelity, That gives you the ability to control where the money goes into what investments. The experts say that a self directed IRA will do better than one directed by some so called experts or company. Every year for the past 10 years I take 10% out for my RMD but somehow the balance remains the same.
 
MEA CULPA
I mentioned Dave Ramsey in the below post. I had a brain lock. Everything I attributed to Ramsey should, in fact, have been attributed to Scott Burns. So my below post has been edited by deleting all references to Ramsey.

Thanks to txramfan for "gently" pointing out my error.


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Scott Burns has made a career out of educating people on the "common sense" concepts underlying the building of financial plans for individuals' retirements. Over the years, he has authored numerous articles on the topic. Knowing the what/why/how of retirement planning is the foundation - the prerequisite - to actually doing something. Scott Burns is basically retired now, but his retirement investing theories remain relevant.

Burns introduced the "bucket theory" of investing retirement assets:

Bucket 1 - cash in an amount sufficient to last 6 to 12 months, depending on one's current employment status, availability of fixed income cash streams, etc.

Bucket 2 - invested in fixed rate debt assets (e.g. treasury bills/bonds, corporate bonds, etc.) in an amount equal to three years of annual cash requirements (again, net of fixed income cash streams).

Bucket 3 - everything else in equities.

The investment mix among those three buckets should become more conservative - less equity, more debt, larger cash balance - as the investor approaches and enters retirement.

Bucket 4 - other types of assets, as the investor has appetite/stomach for. Real estate, commodities, etc. Burns' personal preference was to avoid any investments in this 4th bucket, but he acknowledged that this category was up to the individual's risk appetite.

Overall, buckets 1 and 2 are calculated amounts (based on the investor's cash needs) and the remaining buckets are for "what is left over after 1 and 2 are satisfied." To me, that rationale is the real magic to the bucket theory.

Burns coined the "couch potato" theory of equity investing - pick your investments, then sit on the couch and watch TV. Day traders and market timers are indistinguishable from casino gamblers.

Burns' personal preference (for investing in equities) is to use exchange traded funds (ETFs) or mutual funds (MFs). He cites innumerable studies which demonstrate, over time, that ETFs/MFs ALWAYS outperform individual stock pickers' choices. He also concludes that the best ETF/MF equity investments are stock index funds, and particularly no-load funds which have the absolute lowest expense ratios. [A fund's expense ratio is an indicator of how much the fund is paying its fund manager for administering its fund. An expense ratio is the fund's administration costs expressed as a % of fund assets. The lower a fund's expense ratio, the more of that fund's earnings go to the investor. With a little research, it is fairly simple to produce a listing of ETFs arrayed in order from lowest to highest expense ratio.]

Burns shies away from recommending specific investments. But he does publish lists of specific ETFs/MFs that historically have been the best performers and explains why that is so.

During the last part of the 20th century Burns published articles on personal investing in the Dallas Morning News. It was during that period of his career that his articles began discussing the bucket theory, couch potato investing, etc. Then he went "national" with his news articles, and the rest is history.

By way of background, Scott Burns obtained a journalism degree from MIT. But MIT being MIT, even the journalism majors apparently had to be math whizzes. Burns certainly enjoyed crunching the numbers.
 
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Some interesting info has been posted , some incorrect some incomplete. My wife has a Pension from her time working at Target, $160 + each month. She also had a 401k from working at Target which was rolled into her IRA.

Scott Burns developed Couch Potato Investing back in the 90s. He wrote about it in the Dallas Morning News. A very cheap way and easy way to invest.I know he has a website and lives in the Hill Country.

A S&P 500 index fund is either Market weight or Equal weight. ( Mag 7 stocks drive the market weight version ) They perform differently .
I don't own bonds, lost a bunch 20+ years ago and frankly I view Social Security as the bond portion of our investments.

With a minor child I suggest you and your wife set up a Trust. Mainly to keep your financial information out of Probate when you or your wife passes. They can be revised as needed as life changes. I'm dealing with the 4 th revision of my parents and now my mom wants to revise it again. If you set up a Trust find a lawyer younger than you by decades. Nothing worse than going to the attorney to deal with the Trust and being told to seek new legal representation.
 
Some interesting info has been posted , some incorrect some incomplete....
txramfan,

Thank you for being "gentle" in pointing out my screwup - erroneously attributing to Ramsey all of Scott Burns' retirement finance information in my post. I've now corrected my post.

I used to read every one of Burns' weekly articles in the DMN, and in fact was, for many years, a subscriber to his investment advice website. So I should know better.

Old age brings with it certain disadvantages.
 
The pension IS NOT taxable at the time if you roll it into an IRA. Taxes will be due when you remove the money from the IRA, hopefully in retirement. Of course you can always do a Mega Roth Conversion of your IRA at some point so the money grows and you never have to pay taxes on that growth.
I re-read the OP's original comments on his spouse's situation and found that due to age and time of separation there are many factors and they really need to talk to their tax person.... https://rodgers-associates.com/blog/follow-rules-when-rolling-over-pension-to-ira/
 
With a minor child I suggest you and your wife set up a Trust. Mainly to keep your financial information out of Probate when you or your wife passes. They can be revised as needed as life changes. I'm dealing with the 4 th revision of my parents and now my mom wants to revise it again. If you set up a Trust find a lawyer younger than you by decades. Nothing worse than going to the attorney to deal with the Trust and being told to seek new legal representation.
DON'T ever use a lawyer as your kid's trustee. Pick a trustworthy family member.

A friend's grandpa left a sum of money to his grandson. Why he didn't use the mother or father I simply don't know. Anyway, by the time the kid turned 18 and was eligible to collect it, there was almost nothing left. The lawyer took out a "fee" every so often, and the fee exceeded the interest that the account was making.
 
One more thing I thought of. If this is a company pension, what happens if the company goes belly up in 10 years or so? Is it guaranteed somehow? If you want 20 years and the company folds in 19 years will you get anything? Might be another reason to take it now.
I believe that today if a company has a pension benefit, they must retain sufficient funds in an escro account so that does not happen. But that maybe is state specific, so that's where an advisor is needed.

In my case, after bankruptcy and reorganization, my company decided that they didn't want to have to deal with it any more. So, they bought an annuity with Fidelity that would carry on until all of the retirees finally passed. I still get the same amount, but it comes from a different source.
 
I believe that today if a company has a pension benefit, they must retain sufficient funds in an escro account so that does not happen. But that maybe is state specific, so that's where an advisor is needed.

In my case, after bankruptcy and reorganization, my company decided that they didn't want to have to deal with it any more. So, they bought an annuity with Fidelity that would carry on until all of the retirees finally passed. I still get the same amount, but it comes from a different source.

The company I retired from puts aside $1000 per year in a interest bearing account for every employee once they reach 50. When you retire they money does to another company that disperses funds per IRS rules for an HRA.

I was not seeing the interest accumulate in my account so I called the company managing my money. I asked how much and when interest was paid. They did not know. I called a few times of 6 months and also got the same answer. They told me my former employer is in charge.

Called my former employer, they tell me they pay interest per IRS rules and will get back to me. Well apparently the managing company had a glitch, year right and they are looking into the issue and employer will get back to me.

So no one in a 21 billion dollar value doesnt know the management company they chose is incompetent? BS They former employer has been seeing their stock drop so they are holding in as much as possible.

I would never trust a company pension.
 
Of course, you have to analyze what is best for you. None of us knows your position and finances exactly, so this is just an opinion, but given inflation and the fact that you'll collect $288,000 ($2,000 x 144 months) in that time to use and enjoy while you're still young enough to use it and enjoy it, I'd opt to take the $2,000 a month now. I'm not going to do the math for you, but you'd have to figure out how old you'd be when you hit the break-even point where you'd start making money over the $288,000 you could have already collected. Also, if you don't really need it now, that's $2,000 you could invest and possibly grow, so you could maybe move the break-even point out a few more years. Maybe consider family history too, and if your people live long, maybe wait, if they die fairly young, take it now. Lots to consider here.
This a thousand percent. And the what everyone else has said. Get a tax accountant to point out any tax implications . And a good financial adviser ( you said if you take it now you would just invest it in a 401 ) .
Also check and seen what the current laws are on if the company that provides the pension goes broke. I think there are safe guards in place now . But I'm no expert . And remember get professional help.
This ranks up there with choosing a doctor or lawyer not a time to do it on the cheap . There is too much at stake
 
Get yourself a good Certified financial planner. They work for you not a financial institution.

I had one for decades and he did very well for me. When he retired I searched for another and finally found one I like. He's young so I should not need to look for another.
Financial planers are rip offs Bend over and take it like a man Think about how they get paid!!
You are paying them for what?? I can baby sit my own pension Thank you very much!
It's nothing more than Common sense! not rocket science!
 
txramfan,

Thank you for being "gentle" in pointing out my screwup - erroneously attributing to Ramsey all of Scott Burns' retirement finance information in my post. I've now corrected my post.

I used to read every one of Burns' weekly articles in the DMN, and in fact was, for many years, a subscriber to his investment advice website. So I should know better.

Old age brings with it certain disadvantages.
I always enjoyed his column. Plainly written and full of information by a really smart guy.
 
Financial planers are rip offs Bend over and take it like a man Think about how they get paid!!
You are paying them for what?? I can baby sit my own pension Thank you very much!
It's nothing more than Common sense! not rocket science!
^^^^100%. But a lot of people will disagree with us on that.
 
The company I retired from puts aside $1000 per year in a interest bearing account for every employee once they reach 50. When you retire they money does to another company that disperses funds per IRS rules for an HRA.

I was not seeing the interest accumulate in my account so I called the company managing my money. I asked how much and when interest was paid. They did not know. I called a few times of 6 months and also got the same answer. They told me my former employer is in charge.

Called my former employer, they tell me they pay interest per IRS rules and will get back to me. Well apparently the managing company had a glitch, year right and they are looking into the issue and employer will get back to me.

So no one in a 21 billion dollar value doesnt know the management company they chose is incompetent? BS They former employer has been seeing their stock drop so they are holding in as much as possible.

I would never trust a company pension.
I worked as a Plant Engineer for a local company for only 5 months. I was supervising the build of a new plant process, and quit after finding out they were crooks. (didn't pay contractors, payed certain people double what others got, etc....but that's another story)

As it turned out the first month I was there was also the first time they offered a 401K. I sat in the meeting with their chosen Financial Advisor, who I knew very well from local advertisements. Anyway, I put in the max amount and got a 50% contribution. (my next company gave me 150%, but that's also another story).

My paychecks clearly showed that my money was taken out for the 401K. Finally fed up I gave 2 weeks notice and the day after my departure I went to roll over the money into an existing IRA. I found out I HAD NO MONEY in my account.

I called the "Advisor" and he said very matter-of-factly "Oh no, you don't get the money until 9 months. I sad You have to be kidding - you mean they are keeping my money for 9 months without giving me any interest? "Well, You will get 50%".

Seems there is (was) a loophole in the law that they don't have to deposit it for 9 months.

I DID get my money in 9 months, but I was ready to "make all hell break loose" (I quoted Donald there)
 
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