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Personal Finance Advice and Education! (1 Viewer)

Random

Footballguy
I own 15-20 properties free and clear, absolutely 0 debt, wife and I have IRAs, HSAs, 403b, 401K, and iBonds, as well as college savings.  Should I cash out refi all my properties just to possibly eek out a few more points?  No, once you cross the finish line, you dont restart the rat race.

 

-OZ-

Footballguy
I own 15-20 properties free and clear, absolutely 0 debt, wife and I have IRAs, HSAs, 403b, 401K, and iBonds, as well as college savings.  Should I cash out refi all my properties just to possibly eek out a few more points?  No, once you cross the finish line, you dont restart the rat race.
You already won. Most of us are still playing the game. 

 

Sand

Footballguy
I own 15-20 properties free and clear, absolutely 0 debt, wife and I have IRAs, HSAs, 403b, 401K, and iBonds, as well as college savings.  Should I cash out refi all my properties just to possibly eek out a few more points?  No, once you cross the finish line, you dont restart the rat race.
Absolutely positively don't #### this up.  Unless you can clearly say what you have isn't enough.  Once enough is achieved the utility of debt goes way way down.  Like negative.

 

The Z Machine

Footballguy
I own 15-20 properties free and clear, absolutely 0 debt, wife and I have IRAs, HSAs, 403b, 401K, and iBonds, as well as college savings.  Should I cash out refi all my properties just to possibly eek out a few more points?  No, once you cross the finish line, you dont restart the rat race.
Can you start a hedge fund so I can invest?

 

Chadstroma

Footballguy
I own 15-20 properties free and clear, absolutely 0 debt, wife and I have IRAs, HSAs, 403b, 401K, and iBonds, as well as college savings.  Should I cash out refi all my properties just to possibly eek out a few more points?  No, once you cross the finish line, you dont restart the rat race.
Did you lose track?

 

Random

Footballguy
Chadstroma said:
Did you lose track?
Rentals - 10sfh 5 doubles.

1 Personal Residence

Not a look at me post, this was in regards to the post that asked about paying off a mortgage.  It highly depends on the circumstances and goals, as much as the mortgage rate.

 
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-OZ-

Footballguy
Last year our total portfolio was positive every month until august. This year might be the opposite. 
Really not liking the looks of our accounts right now.  
so I’ll stop looking. 🙈

I think we can safely add April to this list.
Definitely. Looks like VTI is down like 20% since November. Brutal, but not totally unexpected. 

 

jm192

Footballguy
-OZ- said:
Really not liking the looks of our accounts right now.  
so I’ll stop looking. 🙈

Definitely. Looks like VTI is down like 20% since November. Brutal, but not totally unexpected. 
This is my rule.  If it starts bothering me, I stop looking.  It'll be better at some point.  

 

Random

Footballguy
Absolutely positively don't #### this up.  Unless you can clearly say what you have isn't enough.  Once enough is achieved the utility of debt goes way way down.  Like negative.
Would buying a vacation home be considered  ####### up?  Semi serious question.  This is the only thing I could seriously see us going into debt for.

 

Sand

Footballguy
Would buying a vacation home be considered  ####### up?  Semi serious question.  This is the only thing I could seriously see us going into debt for.
Probably not.  The point was that you've largely won the game so why dive back in?  If you're buying a 2M property on 75k rental income, that's a problem.  If it's a 300k property on 200k rental income then sure, no big deal.  You're a RE guy, so you know this stuff way better than I do.  Keep debt load down and stay within the "FU, I won" zone and all is well.

 

thecatch

Footballguy
Took the plunge and bought I Bonds with some of my cash reserve fund, which are paying 9.62% right now for the first six months.  I'd prefer to be more liquid with that money, but there's very little chance I'll need it and my bank is paying virtually 0% in interest right now.  Making nearly nothing from the bank is irritating.

 

Sand

Footballguy
Took the plunge and bought I Bonds with some of my cash reserve fund, which are paying 9.62% right now for the first six months.  I'd prefer to be more liquid with that money, but there's very little chance I'll need it and my bank is paying virtually 0% in interest right now.  Making nearly nothing from the bank is irritating.
Even if you cash in early and lose 3 months interest you're way ahead of a bank or CD.  I've stuffed the box and bought through 2025.  If that ends up being 4-5% 5 years down the line that's a great investment on a risk adjusted basis.

 

thecatch

Footballguy
Even if you cash in early and lose 3 months interest you're way ahead of a bank or CD.  I've stuffed the box and bought through 2025.  If that ends up being 4-5% 5 years down the line that's a great investment on a risk adjusted basis.
Right, with the additional limitation that you can't sell within 1 year, so it's got some drawbacks as a way to invest one's rainy day fund.

 

-OZ-

Footballguy
Even if you cash in early and lose 3 months interest you're way ahead of a bank or CD.  I've stuffed the box and bought through 2025.  If that ends up being 4-5% 5 years down the line that's a great investment on a risk adjusted basis.
Thinking I might buy and gift to each of us, and sell next June if the rate is low, as we look to buy a vehicle next year. That’s just $20k extra, with $50k already in hand. But I’m not willing to sell stock to do it and any loan will be at 2.25%. So I’m not completely sold on the plan. 

 

-OZ-

Footballguy
:kicksrock:

We’re reaching out to let you know that due to the recent Federal Fund rate increase, your M1 Borrow interest rate has changed from 2.25% to 2.75% effective today, May 5, 2022.  

Any changes to your M1 Borrow interest rate will only apply to interest charged on your borrow balance after the rate change. You only pay interest on your M1 Borrow margin loan for the days you are borrowing. Interest accrues for each day that you use your line of credit and is billed monthly.

not completely unexpected but still, I liked having the same rate on the margin as my mortgage. 

 

Chadstroma

Footballguy
Posted this in a FB group for consumers but something many even within the financial services industry get confused. It is written for a customers to understand. 

:::Fed, Interest Rates and Mortgages:::

The news came out yesterday that the Federal Reserve increased the Fed Funds rate by .5%. This actually does not impact mortgage rates directly but what it does impact is the Prime Rate. The Prime Rate is the most commonly used index for consumer debt such as credit cards, equity lines of credit, etc. It also impacts car loan rates. 

Whatdoes affect mortgage rates is that the Fed announced that it will reduce its balance sheet. What this will do is have the impact of raising the 10-year treasury bonds and that 10-year treasury is the single most powerful influence on mortgage rates. As the yield on the 10-year bond increases, mortgage rates normally follow. Shortly after the announcement. Bond yields dropped significantly and correspondingly, mortgage rates improved. Today, yields increased and mortgage rates worsened. 

Why is the Fed taking action? The Fed is trying to take action to control inflation (inflation is simply the rise of prices on most things) as we have seen the highest inflation in several decades. 

What does this mean to you? First, if you have credit card or other consumer debt where the rate is not fixed, your rates will go up soon and that means the cost of your borrowing will increase. Other borrowing will get most costly as rates increase as well. Mortgage rates are likely to continue to rise as well as noted above.

 

matttyl

Footballguy
So I bonds as a college savings vehicle - making sure I get the mechanics here.  My wife and I can both buy $10k worth if I bonds, with a current rate of 9.something, which resets each May and October.  Assuming inflation stays high to moderate and the rate is 5%+ we’ll leave it there and use basis and (tax free) interest for our 6 year olds college.

Question is what happens if rate drops and I want to get my basis out.  Can I do that or is any withdrawal considered interest first?  Anything else to consider with these?

 

jm192

Footballguy
So I bonds as a college savings vehicle - making sure I get the mechanics here.  My wife and I can both buy $10k worth if I bonds, with a current rate of 9.something, which resets each May and October.  Assuming inflation stays high to moderate and the rate is 5%+ we’ll leave it there and use basis and (tax free) interest for our 6 year olds college.

Question is what happens if rate drops and I want to get my basis out.  Can I do that or is any withdrawal considered interest first?  Anything else to consider with these?
You can withdraw any time after 1 year.  If you withdraw before 5 years, you forfeit the last 3 months of interest.  I've heard some people advocate that if the interest rates turn to crap--you should leave it there for the 3 months so you forfeit 3 months of bad interest instead of your 5+%.  Obviously opportunity cost--3 months to get 5% when you could be using the money other things, but I do like a safe 5%.  

The other thing I would consider with these as college savings vehicles is taxes.  You'll be taxed on your gains with this.  Whereas a 529 is typically tax free if I'm not mistaken.  If college is 12 years out, you may start out a little more risky (more stocks) in a 529, and then start trending more towards bonds as college grows near.  

 

matttyl

Footballguy
You can withdraw any time after 1 year.  If you withdraw before 5 years, you forfeit the last 3 months of interest.  I've heard some people advocate that if the interest rates turn to crap--you should leave it there for the 3 months so you forfeit 3 months of bad interest instead of your 5+%.  Obviously opportunity cost--3 months to get 5% when you could be using the money other things, but I do like a safe 5%.  

The other thing I would consider with these as college savings vehicles is taxes.  You'll be taxed on your gains with this.  Whereas a 529 is typically tax free if I'm not mistaken.  If college is 12 years out, you may start out a little more risky (more stocks) in a 529, and then start trending more towards bonds as college grows near.  
I’ve read that interest is tax free if used for college.  We’ll also be doing a 529, but you’re limited to the tax write off each year (and it’s only a state tax deduction on deposits).  With I bond so long as it’s used for college the interest is fed tax free (and it’s state tax free regardless).  
 
My question, which I doubt, is if I can withdrawal my basis in a few years if rates drop but leave interest there for college down the road.  Or would I have to take principal and interest upon redemption.  

 

jm192

Footballguy
I’ve read that interest is tax free if used for college.  We’ll also be doing a 529, but you’re limited to the tax write off each year (and it’s only a state tax deduction on deposits).  With I bond so long as it’s used for college the interest is fed tax free (and it’s state tax free regardless).  
 
My question, which I doubt, is if I can withdrawal my basis in a few years if rates drop but leave interest there for college down the road.  Or would I have to take principal and interest upon redemption.  
I did not realize that about education.  You're correct.  

In regards to your question, from the TD Website:  

You can cash a minimum of $25 or any amount above that in 1-cent increments. If you cash only a portion of the bond's value, you must leave at least $25 in the TreasuryDirect account.  Redemptions are comprised of principal and interest. (In a partial redemption, we pay interest only on the partial amount you cash.)
 

matttyl

Footballguy
Dang, that’s worst case scenario if using this for college as any redemption before college would be fully taxable.  So I’d be locking in all deposits for ~12 years given my son is in kindergarten if I want interest to be tax free.  I guess if rates go down considerably I’ll just withdrawal and put funds somewhere that’s earring something and that would counter the tax bill on gains.

 

SFBayDuck

Footballguy
Dang, that’s worst case scenario if using this for college as any redemption before college would be fully taxable.  So I’d be locking in all deposits for ~12 years given my son is in kindergarten if I want interest to be tax free.  I guess if rates go down considerably I’ll just withdrawal and put funds somewhere that’s earring something and that would counter the tax bill on gains.


Pretty sure there are income limits to this as well, once above that the tax-free treatment goes away.

 

Sand

Footballguy
I’ve read that interest is tax free if used for college.  We’ll also be doing a 529, but you’re limited to the tax write off each year (and it’s only a state tax deduction on deposits).  With I bond so long as it’s used for college the interest is fed tax free (and it’s state tax free regardless).  
 
My question, which I doubt, is if I can withdrawal my basis in a few years if rates drop but leave interest there for college down the road.  Or would I have to take principal and interest upon redemption.  
Not sure on that one, but did run across this relevant topic on BG: https://www.bogleheads.org/forum/viewtopic.php?t=375783

Maybe it helps, maybe not.

 

-OZ-

Footballguy
matttyl said:
Dang, that’s worst case scenario if using this for college as any redemption before college would be fully taxable.  So I’d be locking in all deposits for ~12 years given my son is in kindergarten if I want interest to be tax free.  I guess if rates go down considerably I’ll just withdrawal and put funds somewhere that’s earring something and that would counter the tax bill on gains.
Really the gains won’t be that huge anyway. and easily offset by losses. 

 

Orange&Blue

Footballguy
So caution about i-bonds.  The customer support is the worst I've ever seen.  I managed to lock my account and I've been trying to call for three days.  I've been on hold for 6 hours and yet to speak with anyone.  You email them and they direct you to call them.

 

-OZ-

Footballguy
So caution about i-bonds.  The customer support is the worst I've ever seen.  I managed to lock my account and I've been trying to call for three days.  I've been on hold for 6 hours and yet to speak with anyone.  You email them and they direct you to call them.
Yep

 I did this to unlock both of our accounts. Did mine first, then my wife’s (they need to talk to the person herself). Hung up, my wife’s account is fine now. They didn’t unlock mine. So now I get to find a time to call back to unlock mine again. 
Everyone’s review

 

steelerfan1

Footballguy
So caution about i-bonds.  The customer support is the worst I've ever seen.  I managed to lock my account and I've been trying to call for three days.  I've been on hold for 6 hours and yet to speak with anyone.  You email them and they direct you to call them.
Well, that settles that then…I’m just going to continue to lose 10% in BND. THE CUSTOMER SERVICE IS GREAT!

 

Runkle

Footballguy
I'm 15 years out.  It can keep going down for all I care.  I'll keep buying.  Hope those newly retired folks have some cash reserves to tap into.   


I remember, maybe 5 years ago, I said to a coworker "I'd rather not have the stock market gradually go up like it has, I'd rather it stay pretty flat & level and then all of sudden jump up all at once to where it should be the day I retire."

That coworker announced her retirement 4 weeks ago. Ouch!

 

Charlie Harper

Footballguy
Question. My wife never opened a ROTH IRA and now that we're married our income is past the phase out limit. 

Can she still open ROTH IRA and do a back door? Or is she screwed because she didn't have a ROTH IRA prior to exceeding the income limit? 

 
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Just Win Baby

Footballguy
Looking for advice on a pension situation.

Some basics:

  • I am 53 and working.
  • Currently in the 24% tax bracket.
  • My wife is disabled; though she is covered by Medicare, it is secondary to my employer insurance, and I perceive the benefit of the employer insurance + Medicare to be substantial enough that I expect to work to age 65 or later, assuming she lives that long.
  • We do not have children.
  • As things stand today, we don't really need to rely on this pension in our retirement.
I ran two calculations on the pension web site today:

  • July 1, 2022 - soonest I can access any benefit
  • Dec 1, 2033 - latest I can access any benefit (month after I turn 65)
Choices include:

  • Lump sum - "a single lump sum payment of [amount], calculated as of [date], which represents your entire interest under the plan"
  • Various monthly annuities

    Single life annuity - monthly benefit for my lifetime
  • 5 year certain and life - lower monthly benefit than previous, with 5 years of payments guaranteed; lump sum remainder goes to beneficiary in event of my death
  • 50% joint and contingent annuity - lower monthly benefit than previous; beneficiary gets 50% of the amount for the remainder of her life in the event of my death
  • 66 2/3% joint and contingent annuity - lower monthly benefit than previous; beneficiary gets 66 2/3% of the amount for the remainder of her life in the event of my death
  • 75% joint and contingent annuity - lower monthly benefit than previous; beneficiary gets 75% of the amount for the remainder of her life in the event of my death
  • 100% joint and contingent annuity - lower monthly benefit than previous; beneficiary gets 100% of the amount for the remainder of her life in the event of my death

Here are the benefits available on July 1, 2022:

  • Lump sum payout - $52,469
  • 50% joint and contingent annuity - $200.87 per month
  • 75% joint and contingent annuity - $194.83 per month
Here are the benefits available on Dec 1, 2033:

  • Lump sum payout - $53,192
  • Single life annuity - $281.24 per month
  • 5 year certain and life - $279.50 per month
  • 50% joint and contingent annuity - $255.08 per month
  • 66 2/3% joint and contingent annuity - $247.41 per month
  • 75% joint and contingent annuity - $243.75 per month
  • 100% joint and contingent annuity - $233.37 per month
I can evaluate starting the annuities sooner, but even 1 year earlier, it drops to from $281 to $248/month. Almost 12%.

Until rechecking this, I didn't remember that I could actually take a lump sum benefit now. It surprised me that the lump sum 11+ years from now is less than $1K more than if I take it next month. The fact that the amounts differ seems to show these amounts are accounting for estimated growth that would occur by waiting. It isn't much, but it makes sense that pension funds wouldn't be invested in growth assets.

Obviously, if I take a lump sum next month, it would be taxable, so I would probably lose 1/3 of it or so. But then I would have $33K or so to invest in the market. I expect it could grow back to 50K by Dec 2023, assuming I didn't lose much to capital gains taxes. That is a fairly conservative annualized return (~4%).

Of course, I might not be alive in 2033, and my wife might not be either. In that case, taking lump sum now is a win, since there won't be anyone to receive the benefit.

If she and I are both alive in Dec 2033, I will probably still be working at 65, as stated above. So I can't necessarily count on my tax rate to be much reduced. In fact, there is probably as good a chance of me being in a higher tax bracket as a lower one, whether due only to my (hopefully) increasing income by then and/or tax bracket changes implemented by our Government. So I might actually get paid out (if I took lump sum) a lower amount 11 years from now than I would next month. That scenario seems to make taking lump sum now a win.

If I am not alive but my wife is, I am uncertain what benefits she gets if we have not started one of the annuities by the time I pass away. She would certainly be in a lower tax bracket. Though, honestly, I am skeptical she will outlive me by much. So this scenario may not matter much.

If I were alive but she is not, it is conceivable that I could retire early, and thus taking a lump sum then could generate lower taxes, but I'm still not sure that would end up as more than taking it next month and investing.

I'm having trouble seeing a scenario where it makes more sense to wait than to take the lump sum next month.

It seems likely I am I missing something. Thoughts? I appreciate any help any of you have to offer.

 

Sand

Footballguy
Looking for advice on a pension situation.

Some basics:

  • I am 53 and working.
  • Currently in the 24% tax bracket.
  • My wife is disabled; though she is covered by Medicare, it is secondary to my employer insurance, and I perceive the benefit of the employer insurance + Medicare to be substantial enough that I expect to work to age 65 or later, assuming she lives that long.
  • We do not have children.
  • As things stand today, we don't really need to rely on this pension in our retirement.
I ran two calculations on the pension web site today:

  • July 1, 2022 - soonest I can access any benefit
  • Dec 1, 2033 - latest I can access any benefit (month after I turn 65)
Choices include:

  • Lump sum - "a single lump sum payment of [amount], calculated as of [date], which represents your entire interest under the plan"
  • Various monthly annuities

    Single life annuity - monthly benefit for my lifetime
  • 5 year certain and life - lower monthly benefit than previous, with 5 years of payments guaranteed; lump sum remainder goes to beneficiary in event of my death
  • 50% joint and contingent annuity - lower monthly benefit than previous; beneficiary gets 50% of the amount for the remainder of her life in the event of my death
  • 66 2/3% joint and contingent annuity - lower monthly benefit than previous; beneficiary gets 66 2/3% of the amount for the remainder of her life in the event of my death
  • 75% joint and contingent annuity - lower monthly benefit than previous; beneficiary gets 75% of the amount for the remainder of her life in the event of my death
  • 100% joint and contingent annuity - lower monthly benefit than previous; beneficiary gets 100% of the amount for the remainder of her life in the event of my death

Here are the benefits available on July 1, 2022:

  • Lump sum payout - $52,469
  • 50% joint and contingent annuity - $200.87 per month
  • 75% joint and contingent annuity - $194.83 per month
Here are the benefits available on Dec 1, 2033:

  • Lump sum payout - $53,192
  • Single life annuity - $281.24 per month
  • 5 year certain and life - $279.50 per month
  • 50% joint and contingent annuity - $255.08 per month
  • 66 2/3% joint and contingent annuity - $247.41 per month
  • 75% joint and contingent annuity - $243.75 per month
  • 100% joint and contingent annuity - $233.37 per month
I can evaluate starting the annuities sooner, but even 1 year earlier, it drops to from $281 to $248/month. Almost 12%.

Until rechecking this, I didn't remember that I could actually take a lump sum benefit now. It surprised me that the lump sum 11+ years from now is less than $1K more than if I take it next month. The fact that the amounts differ seems to show these amounts are accounting for estimated growth that would occur by waiting. It isn't much, but it makes sense that pension funds wouldn't be invested in growth assets.

Obviously, if I take a lump sum next month, it would be taxable, so I would probably lose 1/3 of it or so. But then I would have $33K or so to invest in the market. I expect it could grow back to 50K by Dec 2023, assuming I didn't lose much to capital gains taxes. That is a fairly conservative annualized return (~4%).

Of course, I might not be alive in 2033, and my wife might not be either. In that case, taking lump sum now is a win, since there won't be anyone to receive the benefit.

If she and I are both alive in Dec 2033, I will probably still be working at 65, as stated above. So I can't necessarily count on my tax rate to be much reduced. In fact, there is probably as good a chance of me being in a higher tax bracket as a lower one, whether due only to my (hopefully) increasing income by then and/or tax bracket changes implemented by our Government. So I might actually get paid out (if I took lump sum) a lower amount 11 years from now than I would next month. That scenario seems to make taking lump sum now a win.

If I am not alive but my wife is, I am uncertain what benefits she gets if we have not started one of the annuities by the time I pass away. She would certainly be in a lower tax bracket. Though, honestly, I am skeptical she will outlive me by much. So this scenario may not matter much.

If I were alive but she is not, it is conceivable that I could retire early, and thus taking a lump sum then could generate lower taxes, but I'm still not sure that would end up as more than taking it next month and investing.

I'm having trouble seeing a scenario where it makes more sense to wait than to take the lump sum next month.

It seems likely I am I missing something. Thoughts? I appreciate any help any of you have to offer.
The difference between the two dates is so small I'd just take it now - I can't see any mathematical reason not to take it.  Take the 75% and not look back.  Use the money to make memories.

 

pollardsvision

Footballguy
Looking for advice on a pension situation.

Some basics:

  • I am 53 and working.
  • Currently in the 24% tax bracket.
  • My wife is disabled; though she is covered by Medicare, it is secondary to my employer insurance, and I perceive the benefit of the employer insurance + Medicare to be substantial enough that I expect to work to age 65 or later, assuming she lives that long.
  • We do not have children.
  • As things stand today, we don't really need to rely on this pension in our retirement.
I ran two calculations on the pension web site today:

  • July 1, 2022 - soonest I can access any benefit
  • Dec 1, 2033 - latest I can access any benefit (month after I turn 65)
Choices include:

  • Lump sum - "a single lump sum payment of [amount], calculated as of [date], which represents your entire interest under the plan"
  • Various monthly annuities

    Single life annuity - monthly benefit for my lifetime
  • 5 year certain and life - lower monthly benefit than previous, with 5 years of payments guaranteed; lump sum remainder goes to beneficiary in event of my death
  • 50% joint and contingent annuity - lower monthly benefit than previous; beneficiary gets 50% of the amount for the remainder of her life in the event of my death
  • 66 2/3% joint and contingent annuity - lower monthly benefit than previous; beneficiary gets 66 2/3% of the amount for the remainder of her life in the event of my death
  • 75% joint and contingent annuity - lower monthly benefit than previous; beneficiary gets 75% of the amount for the remainder of her life in the event of my death
  • 100% joint and contingent annuity - lower monthly benefit than previous; beneficiary gets 100% of the amount for the remainder of her life in the event of my death

Here are the benefits available on July 1, 2022:

  • Lump sum payout - $52,469
  • 50% joint and contingent annuity - $200.87 per month
  • 75% joint and contingent annuity - $194.83 per month
Here are the benefits available on Dec 1, 2033:

  • Lump sum payout - $53,192
  • Single life annuity - $281.24 per month
  • 5 year certain and life - $279.50 per month
  • 50% joint and contingent annuity - $255.08 per month
  • 66 2/3% joint and contingent annuity - $247.41 per month
  • 75% joint and contingent annuity - $243.75 per month
  • 100% joint and contingent annuity - $233.37 per month
I can evaluate starting the annuities sooner, but even 1 year earlier, it drops to from $281 to $248/month. Almost 12%.

Until rechecking this, I didn't remember that I could actually take a lump sum benefit now. It surprised me that the lump sum 11+ years from now is less than $1K more than if I take it next month. The fact that the amounts differ seems to show these amounts are accounting for estimated growth that would occur by waiting. It isn't much, but it makes sense that pension funds wouldn't be invested in growth assets.

Obviously, if I take a lump sum next month, it would be taxable, so I would probably lose 1/3 of it or so. But then I would have $33K or so to invest in the market. I expect it could grow back to 50K by Dec 2023, assuming I didn't lose much to capital gains taxes. That is a fairly conservative annualized return (~4%).

Of course, I might not be alive in 2033, and my wife might not be either. In that case, taking lump sum now is a win, since there won't be anyone to receive the benefit.

If she and I are both alive in Dec 2033, I will probably still be working at 65, as stated above. So I can't necessarily count on my tax rate to be much reduced. In fact, there is probably as good a chance of me being in a higher tax bracket as a lower one, whether due only to my (hopefully) increasing income by then and/or tax bracket changes implemented by our Government. So I might actually get paid out (if I took lump sum) a lower amount 11 years from now than I would next month. That scenario seems to make taking lump sum now a win.

If I am not alive but my wife is, I am uncertain what benefits she gets if we have not started one of the annuities by the time I pass away. She would certainly be in a lower tax bracket. Though, honestly, I am skeptical she will outlive me by much. So this scenario may not matter much.

If I were alive but she is not, it is conceivable that I could retire early, and thus taking a lump sum then could generate lower taxes, but I'm still not sure that would end up as more than taking it next month and investing.

I'm having trouble seeing a scenario where it makes more sense to wait than to take the lump sum next month.

It seems likely I am I missing something. Thoughts? I appreciate any help any of you have to offer.
I'm no financial advisor, but lump sum now seems to make sense. 

That $52K would grow to $132K in 12 years invested with an 8% return.

If you then took out 4% of the 132K per year ($5280), that's $440 per month. 

EDIT: Forgot about taxes, so say $40K becomes $100K, drawing $4000 a year and $333/month.

If you are planning on working 12 more years, I can't see any reason not to invest fairly aggressively into S&P500 type index funds, at least for the next 7-9 years. I've really never understood the purpose of bonds until somebody is a couple years away from retirement.

 
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Tom Hagen

Footballguy
Looking for advice on a pension situation.

Some basics:

  • I am 53 and working.
  • Currently in the 24% tax bracket.
  • My wife is disabled; though she is covered by Medicare, it is secondary to my employer insurance, and I perceive the benefit of the employer insurance + Medicare to be substantial enough that I expect to work to age 65 or later, assuming she lives that long.
  • We do not have children.
  • As things stand today, we don't really need to rely on this pension in our retirement.
I ran two calculations on the pension web site today:

  • July 1, 2022 - soonest I can access any benefit
  • Dec 1, 2033 - latest I can access any benefit (month after I turn 65)
Choices include:

  • Lump sum - "a single lump sum payment of [amount], calculated as of [date], which represents your entire interest under the plan"
  • Various monthly annuities

    Single life annuity - monthly benefit for my lifetime
  • 5 year certain and life - lower monthly benefit than previous, with 5 years of payments guaranteed; lump sum remainder goes to beneficiary in event of my death
  • 50% joint and contingent annuity - lower monthly benefit than previous; beneficiary gets 50% of the amount for the remainder of her life in the event of my death
  • 66 2/3% joint and contingent annuity - lower monthly benefit than previous; beneficiary gets 66 2/3% of the amount for the remainder of her life in the event of my death
  • 75% joint and contingent annuity - lower monthly benefit than previous; beneficiary gets 75% of the amount for the remainder of her life in the event of my death
  • 100% joint and contingent annuity - lower monthly benefit than previous; beneficiary gets 100% of the amount for the remainder of her life in the event of my death

Here are the benefits available on July 1, 2022:

  • Lump sum payout - $52,469
  • 50% joint and contingent annuity - $200.87 per month
  • 75% joint and contingent annuity - $194.83 per month
Here are the benefits available on Dec 1, 2033:

  • Lump sum payout - $53,192
  • Single life annuity - $281.24 per month
  • 5 year certain and life - $279.50 per month
  • 50% joint and contingent annuity - $255.08 per month
  • 66 2/3% joint and contingent annuity - $247.41 per month
  • 75% joint and contingent annuity - $243.75 per month
  • 100% joint and contingent annuity - $233.37 per month
I can evaluate starting the annuities sooner, but even 1 year earlier, it drops to from $281 to $248/month. Almost 12%.

Until rechecking this, I didn't remember that I could actually take a lump sum benefit now. It surprised me that the lump sum 11+ years from now is less than $1K more than if I take it next month. The fact that the amounts differ seems to show these amounts are accounting for estimated growth that would occur by waiting. It isn't much, but it makes sense that pension funds wouldn't be invested in growth assets.

Obviously, if I take a lump sum next month, it would be taxable, so I would probably lose 1/3 of it or so. But then I would have $33K or so to invest in the market. I expect it could grow back to 50K by Dec 2023, assuming I didn't lose much to capital gains taxes. That is a fairly conservative annualized return (~4%).

Of course, I might not be alive in 2033, and my wife might not be either. In that case, taking lump sum now is a win, since there won't be anyone to receive the benefit.

If she and I are both alive in Dec 2033, I will probably still be working at 65, as stated above. So I can't necessarily count on my tax rate to be much reduced. In fact, there is probably as good a chance of me being in a higher tax bracket as a lower one, whether due only to my (hopefully) increasing income by then and/or tax bracket changes implemented by our Government. So I might actually get paid out (if I took lump sum) a lower amount 11 years from now than I would next month. That scenario seems to make taking lump sum now a win.

If I am not alive but my wife is, I am uncertain what benefits she gets if we have not started one of the annuities by the time I pass away. She would certainly be in a lower tax bracket. Though, honestly, I am skeptical she will outlive me by much. So this scenario may not matter much.

If I were alive but she is not, it is conceivable that I could retire early, and thus taking a lump sum then could generate lower taxes, but I'm still not sure that would end up as more than taking it next month and investing.

I'm having trouble seeing a scenario where it makes more sense to wait than to take the lump sum next month.

It seems likely I am I missing something. Thoughts? I appreciate any help any of you have to offer.
Are you certain the lump sum would not be eligible for a rollover to an IRA? You may have a qualifying event based on the plan rules. I would check with the plan administrator.

 

bcat01

Footballguy
Are you certain the lump sum would not be eligible for a rollover to an IRA? You may have a qualifying event based on the plan rules. I would check with the plan administrator.
When my dad retired he took the lump sum and it rolled over into an IRA.

 

Just Win Baby

Footballguy
Are you certain the lump sum would not be eligible for a rollover to an IRA? You may have a qualifying event based on the plan rules. I would check with the plan administrator.
When my dad retired he took the lump sum and it rolled over into an IRA.
Great question, and I don't know the answer yet. If I can roll it into my Roth IRA, I will.

Thanks for all of the responses!

 

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