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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? Continue Reading →
Thirty years ago when I heard people talking and planning for retirement, I heard that when people got to be retirement age, they would spend about 40% less than they did when they were working. They would not need to spend money on gas getting to work. No spending money for new clothes so you were to be in fashion at the office. Retired women do not wear makeup and stockings every day – some days, but not every day. That means dollars saved there also. No more lunches downtown with the guys or girls from the office. No having to go to Happy Hour after work every Friday. No stopping in for Starbucks before you got on the 5 in the morning. And on, and on, and on. Look at all the money you can save when you retire.
Cutting Back
All of these things you are not doing when you retire would be saving you money. You would not go out to eat at nice restaurants as much and stay home more on Friday and Saturday nights to have your feet up. Your house would be paid for and the kids would be out on their own living their own lives. More money saved there too. So there was a good argument that most people would be saving a lot of money by not doing this or that. And by saving money that meant that they would not need as much when the day came to retire and get your gold watch. You could get by on 60% of your pay. Maybe less if you were frugal.
So What Happened?
Well the kids can’t find work and are still living at home even though they are in their mid twenties. And you are paying for their cell phones and texting. And since you didn’t save for their college, you are making payments to someplace for student loans that the kids were supposed to pay but they can’t since they don’t have a job.
At the bottom of just about every post I make, you have probably seen the line that says, “If you enjoyed this post, then make sure you subscribe to my RSS feed.”
So what is RSS and how do you use it? RSS stands for Really Simple Syndication. This probably doesn’t tell you much. RSS is really a simple way for you to get content or recent posts from a website or blog, or more specifically, my blog, from one central place. You can use an e-mail package like Microsoft Outlook or use the online RSS reader from Feedly.com. This will allow you to keep up with the most recent posts on your favorite blogs as easily as checking your email.
Feedly constantly checks your favorite websites and blogs for new content. All automatically. It is much like e-mail package because it automatically polls the RSS accounts that you have set up and downloads all of the articles. All without you having to go to a blog and look at the new content yourself. This is a big time saver for me, since I need to keep up to date with my subject and see what other bloggers are writing about.
Until I started blogging, I didn’t see or understand what RSS was or how it could benefit me. When I started blogging I found out that there wasn’t an easy way for people to tell what posts they had read and which ones were new. Enter the RSS reader. When you look at the reader is it like looking at an e-mail package. The articles you have not read yet are in bold black text and the ones you have read are not in bold text format. So you can easily see which ones you have read and which ones are new.
I really like the reader that Feedly has. (1) It is free. (2) It ties to my e-mail account that I have set up for my blog. (3) I can access it from anyplace where there is a computer and an internet connection. So I am not tied to my PC. I can check my RSS articles or e-mail from any place. This was a real benefit when I was on my cruise and had not brought my laptop. (I was supposed to be relaxing and taking it easy away from the computer.)
If you take a look at the main page of my blog, you will see a bright orange square and above it, “Subscribe Here” in bold letters and next to it “Subscribe in a reader”. If you click on the orange button, it will take you to: my FeedBlitz Account feed. From here you can subscribe to my feed using Feedly and other popular readers.
First you’ll need an RSS reader account. Let’s use Feedly since that is the one I use and with which I am most familiar. Go the Feedly reader page. This will bring you to the Feedly Reader main page. If you have a social media account, you can use that account to sign in. If not you can create a new account.
Setting up a new account in Feedly is pretty easy and it is free. Nice huh? Click the button that says Create an Account from the Feedly reader page and it will take you to the sign up page. Enter your current e-mail address. Choose a password and enter it again. Put in your location and type in the characters you see for Word Verification. This lets the program know you are a person and not software trying to get an account to SPAM or whatever. Read the Terms of Service and click the create an account button.
Now you have a Feedly RSS reader account. Congratulations! Go back to my FeedBlitz Account feed. This will bring you back to the Google reader account that you just set up and then click the button to add the feed to the reader. This will populate your reader with the most recent posts to my blog. Now intead of going to the blog, you can go to your reader and read all of the most recent posts in one easy place.
You can add other subscriptions if you like. If you have any questions, leave me a comment and I will answer you as soon as I can.
You are standing on a dock near a large body of water. There, tied up at the dock is a large yacht; you think to yourself, it must cost a lot of money. There is a sign next to the gangplank that you notice and it says, “Welcome aboard (fill in your first name here). We are ready to sail when you are!” You look up and see the Captain and four deck hands and stewards. You can’t believe how good the ship looks. The deck is clean – no spotless is more like it. There is radar spinning at the top, right next to a small satellite dish. At the stern, you notice a small power boat, hanging from the stanchions. The brass cleats are polished and very shiny. On the stern deck are lounge chairs sitting next to the pool. This is a nice ship. All you have to do is to get on and sail away. So what are you waiting for?
A lot of people go down to the dock and look at the ship moored there. Ten or maybe twelve out of one hundred, actually get onboard. They greet the captain and meet the crew. Once underway, they sip the sparkling wine from Waterford fine crystal, eat a nice meal prepared for them and eat off nice, fine china with real silverware from Gorham Silver. Now they are living the good life. They smile to each other and sail off into the sunset.
Where Are You Right Now?
Are you on the dock or are you on the yacht? 90 something percent of you are still on the dock. You are over 50 but you don’t have the money to retire and sail off like the other ten or twelve percent who are on the boat. So what separates you from them? They have been saving for years. They maxed out the amount they could put away into 401k plans and Roth IRAs. They have money in the bank. How do you measure up? Face it. A lot of you have been living for today and planning for tomorrow – tomorrow. I know many people who do not even know what their net worth is.
What Can You Do If You Are Close To Retirement?
You could consider retiring and working someplace part time. You could consider working for yourself as a consultant. What about a part time sales job selling cosmetics or vitamins? I know three women who retired from teaching and did some volunteering for area non profits. And they wound up getting hired as part time or full time employees.
I’ll Be Honest
I spent a lot of time, in my younger years, down at the dock. For as long as I can remember, I have always wanted a “Herreshoff S” boat. This is a one masted sail boat that typically sails along the Long Island to Cape Cod coastline. They cost between $29,000 and $39,000 US. Mr. Herreshoff was a boat builder who had a company someplace in Rhode Island; it may have been Warren or Barrington or Bristol. He built the first torpedo boats for the U.S. Navy back at the turn of the century (1900). When I think about going on a run in an S boat downwind with a full spinnaker flying, it gives me goose bumps. They are a thing of beauty. But going down to the dock and looking at them tied up, was how I spent a lot of time, when I was younger.
So What Did I Do?
I started planning and spent time figuring out how I could retire and sail on this boat. In 1974, when I was 17, I started investing in a mutual fund at the rate of $25 dollars per month. It was the Pioneer Fund. Sometime later when I was in the Army, I started a monthly investment in the Pioneer II fund at the rate of $50 a month, while still investing in the Pioneer Fund. The Pioneer II was an aggressive fund and I thought it would do well. I was correct. That is how I got started – $25 or $50 a month on the ABC plan – known as the Automatic Bank Check plan.
$25 a Month – Good Times and Bad
The market at this time was up and down and up again. But I hung in there doing dollar cost averaging. I bought a lot of shares when the market was down and prices were low and buying fewer shares when prices were high and the market was doing better.
I’ll share more later and show you how to retire early.
An accumulation variable annuity has what I call two timelines. The first timeline is an accumulation period of time. The second timeline is a payout period. There are also immediate variable annuities. which means that there is no accumulation timeline and you will start receiving annuity payments right after you purchase the annuity.
During the accumulation timeline, you will make purchase payments, which you can allocate to a number of investment options. For instance, you could designate 40% of your payments to an international stock fund, 40% to a U.S. stock fund, and 20% to a bond fund. Depending upon your age you might weigh your investments to more equity (stocks) and less to bonds (income). The money you have allocated to each mutual fund investment option will increase or decrease over time, depending on the fund’s performance. In addition, variable annuities often allow you to allocate part of your purchase payments to a fixed account. A fixed account, unlike a mutual fund, pays a fixed rate of interest. The insurance company may reset this interest rate periodically, but it will usually provide a guaranteed minimum (e.g., 3% per year).
Example: You purchase a variable annuity with an initial purchase payment of $10,000. You allocate 50% of that purchase payment ($5,000) to a bond fund, and 50% ($5,000) to a stock fund. Over the following year, the stock fund has a 10% return, and the bond fund has a 5% return. At the end of the year, your account has a value of $10,750 ($5,500 in the stock fund and $5,250 in the bond fund), minus fees and charges (which I will discuss in another post).
Read Your Prospectus
Your most important source of information about the variable annuity investment options is the prospectus – what I refer as the documentation. Request the prospectuses for the mutual fund investment options. Read them carefully before you allocate your purchase payments among the investment options offered. You should consider a variety of factors with respect to each fund option, including the fund’s investment objectives and policies, management fees and other expenses that the fund charges, the risks and volatility of the fund, and whether the fund contributes to the diversification of your overall investment portfolio.
Caution: Look over all the documents – prospectus – you receive when talking to the variable annuity agent and take your time reading about what kinds of investments they buy, and how often they might change their portfolio, also known as turnover. The documentation provides general information about the types of mutual funds and the expenses they charge. Don’t be shy about asking the agent how much or what percent commission they will make if you buy. This can vary from company to company, and it is part of your decision making process.
