When your retirement day comes you have to make some decisions. One of those decisions is regarding your 401k or maybe your pension or both. I will not pretend to have all of the answers. So I will tell you my choices and what I decided to do. You will have to decide for yourself what you need to do.
Retirement Day
When I retired in September of last year (2009), I decided to leave the 401k with my employer and also my pension plan. I told them I would be in touch. I sat down with my Texas Instruments calculator (TI-1795SV) and ran some numbers. When I retired, I was given a one year salary with 18 months of health insurance. So I was not going to need money coming in right away, or for a few months while I considered my options.
Joint Planning for My Wife and I
No matter what I decided I wanted to make up a plan that would include my wife and I. My wife and I have been together through thick and thin and I wanted any plan to include her so she would be taken care of if I died before her.
What is My Annual Yield?
I received a benefit statement and for my pension, I received a payout schedule of monthly income depending on my start date. I was thinking I might want to start collecting one year after I “retired” or maybe 18 months after “I retired” when my health insurance ran out. Your start date will be different. Looking at the retirement benefits website, I determined that in June 2010, for example, I would have a lump sum of $149878.55 and if I chose the Joint & Survivor benefit, I would receive a monthly payment of $754.20.
If I multiplied $754.20 times twelve – the number of months in a year, the annual payment would be $9,050.40. If I divided that annual retirement amount by the lump sum of $149,878.55, I got a yield of .0603. That means if I could get better than 6.03% on my investments, taking the lump sum and investing it in an IRA would be a better option for me. I thought I could get much better than that, but what about later years?
What About Payments at Age 60?
Looking at my numbers for June 2017, when I was almost 60, I saw that my cash benefit would have grown to $178684.54. If I chose the Joint & Survivor benefit, I would receive a monthly payment of $1230.13. If I multiplied $1230.13 times twelve – the number of months in a year, the annual payment would be $14,761.56. If I divided that annual amount by the lump sum of $178684.54, I got a yield of .0826 or 8.26%.
So again, if I left my money with the company, could I get better than 8.26% on my money? I thought I could do much better than that. Last year, on my overall portfolio, I earned 47% for the year. O.K. I earned 46.72%. But that’s almost 47%. I earned 65% on a portion of my portfolio from March 2009 until January 2010. I’ll show you how I did it in a future post.
The Benefit of a Lump Sum
One benefit I did not mention was that if I choose to take the lump sum and invest it myself, I still had the lump sum plus investment gains minus any income draws, to pass on to heirs. That is a very attractive option to consider.
For Taking Early Retirement (TER), I hope you are enjoying a great retirement or are close to that day!
Jeremiah John
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