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Ex-Deputy Sheriff
Old 04-23-2014, 11:10 PM   #1
Confused about dryer sheets
 
Join Date: Apr 2014
Location: Keizer
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Ex-Deputy Sheriff

Hello All,

Just retired after a 22 1/2 year stint as a deputy sheriff in Oregon. I am 52 years old and started working as an investigator for a public defender in Marion County where they do not have PERS.

My dilemma is this......I can retire as an early retiree with reduced benefits that would pay me at approx. 2200 a month for the rest of my life. I could take a lump sum of approx. 295,000.00 and invest with Vanguard, MF's, IRA's etc....or I can "freeze" it till I am 55 which would put me at 2800 a month for the rest of my life or about 312,000K lump sum.

I took a huge pay cut in leaving police work....working hard to pay off debt. I have a wife that is 10 years younger than I. She is in the Air Force and works for the state of Oregon. So we have that to look forward to as well. We are currently using my wife's health insurance and can until she decides to retire 10 plus years down the road. My new job is only paying me about 48K a year as opposed to 74K......

My real dilemma is that I would like to at least have something to show for being spat on, having kids and adults die in my hands, almost being ran down on the highway etc.....such as a new vehicle.

In the state of Oregon we have PERS Tier system of which I am on the Tier 1 system. We also have an IAP account. This account has 60K in it. The tier one account has 240K....

Ideas anyone??

I have talked to 4 CFPs and all give me different scenarios / perspectives

Thanks in advance for you replies,

Krymedogg
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Old 04-24-2014, 12:37 AM   #2
Confused about dryer sheets
 
Join Date: Apr 2014
Posts: 4
Well... average life expectancy of a male in this country is about 76 years. Assuming you plan to make it even close to that, and want to be done working before, say, 60, I'd take the monthly payments over the bulk. Bulk payment with 5% returns is only $14,750 a year versus $26,400 a year from the payments... while inflation will hammer that as time goes on, it's still the better option unless you can somehow generate returns very near 9% or greater per year. The difference in this scenario is $11,650 per annum... times the 24 years you would reasonably expect to live, that's $279k given up. About the same as the lump sum plus one extra year.

OTOH, if you think you can preserve the $295k capital and not touch any of that money or the profits from investing it for 11 years (work until medicare age at 63), and yield 5%... Then you'd be looking at $505k in capital generating $25,227 a year.

If you freeze it until you're 55, the numbers change a bit, but the monthly payment is far more appealing than the bulk sum at that point, at least in my opinion. Here's a quick spreadsheet that charts out some of the difference and makes it easy to visualize where I am coming from.



I understand your desire to have something to show for your 22 years of law enforcement, and this may come off as a bit harsh, but you really should have just worked the old job a couple years longer if you wanted a nice, new car... $26k a year times two years, even after taxes, is enough to buy a pretty nice brand new car. Sometimes you need to put aside desires (buy a new vehicle) and face realities (opportunity cost of that vehicle).

Just for arguments sake, let's say you take the bulk payment and buy a new vehicle priced at $30k. The top two charts show the bulk sum and expected returns if you don't touch the capital. The bottom two show the bulk sum and expected returns if you immediately spend $30k to buy a new vehicle.



So either way you opt to do it, that new car ends up costing you ~$200/mo in income (based on my assumptions) down the road. That's a pair of round-trip plane tickets to Belize every year, with enough money leftover to pay for some great food.
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Old 04-24-2014, 01:13 AM   #3
Confused about dryer sheets
 
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Gracias FTB for a nice analysis....I really appreciate it...

Krymedogg
Keizer, Or
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Old 04-24-2014, 01:26 AM   #4
Confused about dryer sheets
 
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Plus FTB I have to take into consideration the taxes that would be taken out of a lump sum as opposed to just letting it accrue at a guaranteed 7.75 percent every year...

The other idea I had was take the IAP acct which is at 60K and roll that over and take, let's say, 25k from that to purchase a veh/pay off debt... Then take my monthly pension and throw a good chunk of that into the IRA or a tax deferred comp acct and let that accrue....??
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Old 04-24-2014, 02:26 AM   #5
Confused about dryer sheets
 
Join Date: Apr 2014
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Taxes will nail you and you'll definitely be hurting if you take the lump sum, tax-wise... I don't know the details of your financial condition, but you should be able to run the numbers factoring in everything and figure out the safest way to generate good returns based on the different options. 5% returns per year is pretty conservative, you can easily boost that to 7% or so with a touch more aggressive structuring using preferred stocks and higher-yield plays like MLP's, REIT's, or BDC's.

As for the IAP account, do you have to take your other accounts at the same time? From here it says "As of January 1, 2011, when you retire from the IAP you must also retire from Tier One, Tier Two, or OPSRP." Something to consider... That would eliminate the option of freezing your additional funds until 55.

Per the same page, "You have the option to roll over your IAP account into a traditional IRA, an eligible employer plan, a 457 deferred compensation plan, the Oregon Savings Growth Plan, or other qualified plan," which may actually be your best option. I'm not familiar with 457 plans, but if you could roll it to a 457 then take a loan from the 457, you could pay it back over time... I know you can do that with some 401k's, and I think you may be able to with 457's, but I don't know for sure.

EDIT: Found this link RE 457 loans... There can be different regulations on different types of accounts, so you may want to look into it more. This is all way beyond my depth, though, so have a pallet of salt with this advice.

All of this really depends on your knowledge of finance and what kind of management you want to have with your money. I know from lurking here that many prefer index funds, but given your financial goals for retirement and the finite amount of time you have to get there, you may want to do better than just matching the market. That's another variable that's up to you and your tolerance for risk.
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Old 04-24-2014, 04:58 PM   #6
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Do you have any other savings/accounts? real estate etc?

If I were you I'd work until 55 and then take the monthly payments but in the next 3 years I'd also save like crazy. At least enough to buy a decent new car - nothing fancy though and some money for incidentals.

I'd buy a new car just before pulling the plug and expect that car to last me 15-20 years. Toyota is offering 0% financing on several models. I'd finance not because I want to take on debt but because I'd take the $30k and invest it while making 0% payments. But that is just me.
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