Pension Question

[Kevin]

So I have a pension question. I know I ask a lot about money for retirement, but it’s pretty confusing.

So my wife is starting a new job, next week actually. Yippie! Without going into a lot of details, she was high up in her last job, and when they elected a new president for the company, she was asked to leave. Yes she was friends with the outgoing president. And yes, many of his other supporters have also left. She did not vote for the new guy either…

Just as an aside, she worked there for 20 years and definitely wasn’t the same culture as when she started. What a shame.

Anyway, she did find a much better job so it all works out in the end.

Her last day was December 31 and she just found out today she has a pension.

So here’s my question: Should she take the payout all at once? Or should she take the monthly payments forever. If she dies, I would get half.

Now if she waits for 12 years which is when she would have retired had she stayed…and let the company manage the money both amounts would approximately double.

She’s 49 years old. The monthly amount today would be right at $2,000 per month. Or $4,000 in 12 years.

For me to be eligible for the half if she buys the farm is $20 less per month. Or $40 less per month and I would get 75%.

Let’s just say she’s worth keeping.

I hope this makes sense, I tried to make it as short as possible.

Any thoughts? We don’t need the money for rent and she won’t let me buy a new Ruger each month, so it will just go into an IRA account.

 

[Yaworski]

If you leave the money in the pension, what happens if the company goes Tango Uniform? What happens if the C-Suite decides to raid the pension fund?

A good friend had two pensions disappear.

She worked there for 20 years and just found out that she has a pension?

 

[roylt]

You said she was friends with others that left. Can she reach out to then and see what they did?

I don't know what "pension" means really. Does sit have any type of number associated with it? Like a 401K etc?

Hopefully other that have pension experience will chime in.

 

[frustrated middle child]

Get thee to a financial consultant. Your bank has Personal Bankers. If you have IRA's or 401ks from prior places, where are they now? Talk to the folks managing them. Put the word out locally to see who in your circle of friends is a money manager. Any one of the aforementioned can help.

I agree with the above about concerns of leaving it with the current company - on general principal. Had 60k go up in smoke with a company that rolled over and played dead after i left and while they still had my money.

 

[Kevin]

She worked there for 20 years and just found out that she has a pension?

Yep, right after she started her company merged. She was with the original company and this pension is under that name. So this money is just for the old timers from one side of the merger.

But asking what the others have done is a good idea.

It’s also a good idea about taking the one lump sum payout. Good point that the company might change its policies.

 

[Kevin]

Get thee to a financial consultant. Your bank has Personal Bankers. If you have IRA's or 401ks from prior places, where are they now? Talk to the folks managing them. Put the word out locally to see who in your circle of friends is a money manager. Any one of the aforementioned can help.

Thanks, that’s actually good advice.

 

[Jeepnik]

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.

 

[hittman]

Kevin let me be the first ( ) to say. …. You need professional help!

…. on the financial stuff of course ….. too much at risk to “wing it”.
We Missourians gotta stick together.

 

[Dan in MI]

Clarification on the financial help -- get a FIDUCIARY -- They are obliged by law to work for you. They cannot SELL you anything. (no special investments, no annuities, etc... They only make money if you make money. A small percentage.

Pension versus lump sum. I am a HUGE lump sum guy. As stated, the business can go belly up and you have zero money in the pension.

Pension pro's - lifetime fixed payment, someone else controlling your money if you can't control yourself. (also a con)
Pension cons - Company dies so does money (quite often) Wife passes soon, you get 50% for a long time, you both pass the company keeps it all

Lump sum con's - you can't control your spending and blow it, you get a regular "financial guy" and he rips you off.
lump sum pro's, - you get it all now, with good advice, or skills, you can make it grow better than the company can, no fear of the company going under, your wife passes soon you still get 100%, you both pass your estate gets 100%. As long as you can control yourself and don't get taken by an investment scheme (that where the fiduciary comes in) it's all positive.

My lump sum pension is now 1.5x of what it was when I collected it 6yrs ago. This is the portion of my retirement controlled by the fiduciary. The portion I control is up just shy of double (1.95) if you include what I spent to live on. (it comes from that account) You don't need to be stock picker. Minimal research on mutual funds is all I do. Then I set it and forget it. Well, not really I look at it a lot, but don't mess with the plan.

NOTE - I have a high risk tolerance. On a scale of 0 (hide it under your bed) too 100 (Vegas baby!) I rate an 85 My wife about 45. So the Fiduciary account is balanced for a 51 rating. What I control is running about 82. I've watched and manipulated my money for over 30 years so I am fairly immune to freaking out over the market bumps.

 

[pisgah]

Here's my figuring, worth nothing. Take the money now, the total she'll receive in 18 years (12 years to qualify for the 4k, plus 6 years to equal what she's already gotten) is $432k. Wait for the 4k per month, she'll get 288k over the same 18 years.

If she dies, you can do the math for yourself...

 

[Mobuck]

$2000 per month X 12 months X 12 years calculates out to $288000. Take it starting NOW and invest it if you don't need it to live(which apparently you don't).
One never knows what things may happen in 12 years. I certainly wouldn't risk having that much payout sitting around.

 

[roylt]

Good points here. I want to add when investing you need to really look at true cost of the investment. What I mean is the fees charged. I used to use Edward Jones and seemed to make money but really was loosing out on part of my investment via fees. I now use Vanguard (self run) and depending on where your money is you pay almost no fee at all.

Good luck,

 

[Gator89]

Take the lump sum and roll it into a retirement account of your choosing.

 

[Lt92]

So I have a pension question. I know I ask a lot about money for retirement, but it's pretty confusing.

So my wife is starting a new job, next week actually. Yippie! Without going into a lot of details, she was high up in her last job, and when they elected a new president for the company, she was asked to leave. Yes she was friends with the outgoing president. And yes, many of his other supporters have also left. She did not vote for the new guy either…

Just as an aside, she worked there for 20 years and definitely wasn't the same culture as when she started. What a shame.

Exactly what Yaworski replied; and the reason I did not enter the DROP program at work and why I took SS @ 62...fate is unknowable...all (we) have is today

 

[JackBull]

Take the pension and roll it into an IRA. If you do not you will be taxed on it. If the pension does not have a COLA, your payments will lose their buying power with inflation.
In an IRA you can invest in etfs, mutual funds and bonds that should continue to go up.

Ask the same question at https://www.bogleheads.org/. Its 100% free but the information is worth millions!

 

[JackBull]

Get thee to a financial consultant. Your bank has Personal Bankers. If you have IRA's or 401ks from prior places, where are they now? Talk to the folks managing them. Put the word out locally to see who in your circle of friends is a money manager. Any one of the aforementioned can help.

I agree with the above about concerns of leaving it with the current company - on general principal. Had 60k go up in smoke with a company that rolled over and played dead after i left and while they still had my money.

You need to be very careful in selecting a FA. Best to invest on your own since you can know as much as they do. Many FA are salesmen.

 

[JackBull]

Good points here. I want to add when investing you need to really look at true cost of the investment. What I mean is the fees charged. I used to use Edward Jones and seemed to make money but really was loosing out on part of my investment via fees. I now use Vanguard (self run) and depending on where your money is you pay almost no fee at all.

Good luck,

RUN FAST from Edward Jones.


Vanguard, Fidelity and Schwab are all good.

 

[gjgalligan]

GET AN EXPERT TO ADVISE YOU.
Taking a lump sum COULD cost a big bite in taxes if not done correctly. Taking monthly $2000.00 payments and reinvesting could also mean tax bite.
It may be possible to roll her pension over to a new account without a major loss.

Again, GET AN EXPERT!

 

[JackBull]

Rolling over a pension to an IRA should cost nothing. If it does, find another broker.

As far as finding an expert, not so easy. My BIL dealt with an "expert" at a fairly large brokerage until the guy got his license pulled by the SEC. The guy was as expert salesman, my BIL still deals with this less than honest brokerage.

You can do it yourself, you should do it yourself. See an accountant for tax questions not a FA.

 

[Johnnu2]

Kevin, I gotta ask; since your wife is an accountant, and probably VERY knowledgeable about things financial, why are you even asking this question? Would she not be the person to go to????
p.s. I've never trusted the advice of anyone, especially professional "financial advisors". I always felt that if they were so damn smart,
WHY ARE THEY STILL WORKING FOR A LIVING....
p.p.s. When you check on the LUMP SUM amount she will be getting TODAY, you might find that it is NOT what you've calculated (mathematically). Regardless, I'd take the money and roll it over into a 401-K (because it IS eligible for that transaction at this point in time)..... but SHE already knows that..!!!
J.

 

[Klondike Mike]

I'd cash out the pension and set up your own annuity. When either of you die the other gets 100%. That's what I did when I retired 4 years ago. My financial advisor recommended an Athene product and it's working out well.

 

[DGW1949]

Is your house paid for? If not, and if a lump sum withdrawal will pay it off, you'll be way ahead of the game to eliminate your mortgage....If she's got a 401K, most often there's a penalty to pay if she withdraws under the age of 59-1/2. That may or may not apply to other types of "pensions"....Lot's of folks won't pull out retirement money because they don't want to pay the tax. Well guess what, they'll have to pay it sooner or later anyway, so better now that after the tax rate goes up and/or more inflation sets in....As a matter of fact, myself, I'd pay off any kind of loan I had which involves compounded interest. Odds are that the interest you owe is outrunning whatever interest is accumulating on her retirement....Plus, there's always a chance that her old retirement can simply disappear into thin air. That's the thing about paper instruments. Any of them are little more than a "promise to pay" which in turn means that that all have some sort of counter-party risk attached......

......Lot's of stuff to consider, so put a pencil to it and measure twice before you cut it once...Good luck to ya.

DGW

 

[JackBull]

I'd cash out the pension and set up your own annuity. When either of you die the other gets 100%. That's what I did when I retired 4 years ago. My financial advisor recommended an Athene product and it's working out well.

Be very careful when buying annuities. "There are no free rides sonny boy" Being risk adverse can put you in a worse situation then believing you are safe.
Remember most "Financial Advisors" are salespeople. You are the only one with a 100% interest in you.

https://www.bogleheads.org/wiki/Equity-indexed_annuity
https://www.bogleheads.org/forum/viewtopic.php?t=418466https://www.bogleheads.org/forum/viewtopic.php?t=225068https://www.bogleheads.org/forum/viewtopic.php?t=251667https://www.bogleheads.org/forum/viewtopic.php?t=272988

 

[JackBull]

Kevin, I gotta ask; since your wife is an accountant, and probably VERY knowledgeable about things financial, why are you even asking this question? Would she not be the person to go to????
p.s. I've never trusted the advice of anyone, especially professional "financial advisors". I always felt that if they were so damn smart,
WHY ARE THEY STILL WORKING FOR A LIVING....
p.p.s. When you check on the LUMP SUM amount she will be getting TODAY, you might find that it is NOT what you've calculated (mathematically). Regardless, I'd take the money and roll it over into a 401-K (because it IS eligible for that transaction at this point in time)..... but SHE already knows that..!!!
J.

Accountants know numbers and laws but not necessarily investments. Depends on their specialty. But yes I would trust her over a FA.

 

[JackBull]

I'd cash out the pension and set up your own annuity. When either of you die the other gets 100%. That's what I did when I retired 4 years ago. My financial advisor recommended an Athene product and it's working out well.

FYI most annuities are guaranteed only until they are not. Read the fine print.

 

[Jack Ryan]

Don't ever buy any annuities. Stay far away from any insurance sales people or bankers.

 

[Dan in MI]

Personally not a fan of annuities either. Lots of loopholes not in your favor.

I let my guy talk me into one for a short term. Amazingly professionals can get them with short term no fee early exits (5 or 6 yrs, that was the only reason I did get it) It was only a small portion dedicated to 5 years down the road. At the time it was a very good rate for money not deemed long term. A year and half later the mere 2.2% was getting eclipsed by 5% almost anywhere. Very frustrating watch it sit at near idle while everything else was going 100 mph.

 

[GypsmJim]

Been there, done that. As a matter of fact, it was 12 years for me as well. I'll tell you what I did, but I won't tell you what you should do, except to get an advisor.

My goal has always been preservation of principal. I realize that by being conservative I lost out on potential gains, but on the other hand I didn't lose a dime.

My first thought was also about company survival. We had just come out of bankruptcy and the market was improving. Truthfully, the CEO was masterful and the judge screwed the creditors. Anyway, good for us. My Grandpa completely lost his pension when the company got sold, but that was 70 years ago. I believe that pensions now have to be guaranteed with a pension account, so that companies cannot default. But, that's where an employment lawyer comes in.

I personally did not like the idea of taking the money while I'm still working. As long as there is cash flow (a good job) extra money isn't really needed. Save it for when you are retired.

Rolling it over is a crap shoot. In an account earning interest, will the amount double in 12 years? How will the interest rates vary over that time? Will the monthly payout still be $4K/month. Nobody knows.

I also have 2 financial advisors. I only told each one about half of my investable assets. I listened to them both, but did what "I" wanted I gave each of them a single account to manage.

Lots of naysayers about annuities. IMHO, the best thing since sliced bread. I have 2 of them. Both have a guaranteed 7% interest - for life. One came from an IRA, and the other a 401K. After they had been in effect for a couple of years, I took the "income for life" provision. They grow by 7% each year, and I take out 7% on a monthly basis. Both are with one of the largest financial institutions in the nation. I suppose they can go belly up - that's a chance I am willing to take.

Retirement is about cash flow. If you have to take money out of the bank for monthly expenses your planning didn't work out. MY plan was made at age 59. I calculated when I could afford to retire. Actually, my numbers turned out to be wrong. I was very successful in my later years and thus my Social Security was higher than I expected. Now, with SS, 2 annuities and a pension, I have a surplus every month.

 

[Kevin]

Kevin, I gotta ask; since your wife is an accountant, and probably VERY knowledgeable about things financial, why are you even asking this question? Would she not be the person to go to????
p.s. I've never trusted the advice of anyone, especially professional "financial advisors". I always felt that if they were so damn smart,
WHY ARE THEY STILL WORKING FOR A LIVING....
p.p.s. When you check on the LUMP SUM amount she will be getting TODAY, you might find that it is NOT what you've calculated (mathematically). Regardless, I'd take the money and roll it over into a 401-K (because it IS eligible for that transaction at this point in time)..... but SHE already knows that..!!!
J.

Good point, yes she is actually a financial genius. BUT! She isn’t retired, I asked here because you guys have “been there done that.” Ya know? I am most curious about what you guys have done that worked and what hasn’t worked. It’s one thing to understand how different financial tools work and another thing to have actually lived with them and retired using the different methods of how to save money etc. ya know?

Her old job, she was a senior partner at PriceWaterhouseCoopers. The pension was from back in the day when PriceWaterhouse merged with Coopers Lybrant (spelling?) She started with Coopers.

And when I say the culture changed, it really did use to be family where everyone helped each other. Today it’s more of a corporation. And the old, now retired, partners she worked with were extremely mad that she was asked to leave. Nothing like that happened back then.

Our house and cars are paid for. Which is mostly why we don’t need the extra $2,000 per month.

And to everyone! Thank you. Believe me, all of the input is being read and considered. It’s all very good!

@roylt We use Schwab and Fidelity. I know what you means about Edward Jones. I used them back in the day and my experience was exactly the same. But the rules have changed since then too. Like being able to invest on your own, or fractional shares, like at Robinhood (which I don’t use at all!) But you’re right, it’s easier now to take charge of your own money.

 

[uvarmint]

I skimmed through this pretty quickly, but the one input I never saw was the payout. If the 2000 and 4000 are known, the lump sum is the most important input.