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Comments on FA's advice?
Old 08-15-2016, 12:53 PM   #1
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Comments on FA's advice?

I'm 4.5 months (86 working days, but who is counting??) away from FIRE. My wife will work for 3-4 years beyond me. We just met with our "for fee" FA for the second time a week ago. I am getting a 3/4 year salary severance in 2017 as my job is being assimilated (Ok, if I *HAVE* to retire....).

My plan when I retired was to "strip" my wife's paycheck of all savings (currently near 35%) except HSA and try to live on her salary and leave the portfolio alone. With our budget estimates, it looked doable to within $500-$1k a month. I would invest the severance.

And BTW, there are 3 more "phases" in our fin. plan beyond me retired her not, they are

we're both retired, paying out of pocket for healthcare

medicare kicks in

SS kicks in

The FA advice, and it kind of makes sens to me now, was to leave her paycheck as is (taking megacorp's 401K matching, plus some other other heavy 401k contributions) and supplement it with my severance (should last about 2 years) After that, burn the cash account to make ends meet, then only after that start leaning on the 401Ks, over drawing mine to zero eventually, then finally going into hers but keeping it pretty healthy (pulling only gains).

I also have a pension that I will take as a lump sum that he has left untouched to grow in an IRA until SS then it just becomes another income source.

There's a bit more to it than that, but those are the pertinent details. I think the idea is let the 401Ks age and ripen as long as you can by flying on cash and severance then go into the 401ks.

SS for us is significant, we both have 30+ years of megacorp salaries and fact is we could probably live off of SS pretty comfortably if we had to. So the stretch phase is that one where we are both retired, paying HC out of pocket and young enough to still spend like rockstars.

Interestingly I'll add, that the FA spreadsheet shows the net investable asset total pretty much flat in value from the time I retire until SS, a span of 15 years. Happy about that......

Thoughts??
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Old 08-15-2016, 12:58 PM   #2
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I agree re getting the max into the 401 from wifey's check, get as much free dough as you can.
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Old 08-15-2016, 01:09 PM   #3
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Of course he wants you to take the pension as a lump sum - he wants to manage it.

You may want to run some calculations and see if taking the LS is a good deal financially.
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Old 08-15-2016, 01:22 PM   #4
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You may want to run some calculations and see if taking the LS is a good deal financially.
+1

If you are comfortable being a creditor of whoever is paying you the pension, especially with today's asset values, I'd have to have a compelling case made to me before I'd lump sum.

Do you really want to take on more investment risk?

If you do take the pension, assuming it's not indexed, inflation becomes a bigger risk, and you could structure your portfolio accordingly.
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Old 08-15-2016, 01:24 PM   #5
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Of course he wants you to take the pension as a lump sum - he wants to manage it.

You may want to run some calculations and see if taking the LS is a good deal financially.
Nope. "For fee" means I pay him for his advice. Period. He doesn't manage anything, doesn't get a percentage of anything.

We did look at the LS annuity and he said it is pretty decent (about 5.7%) but he recommended taking the LS which I was leaning toward anyway. It's only about 20% of my investable assets.
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Old 08-15-2016, 01:41 PM   #6
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so you will take the LS and put it into a retail IRA? You may want to see what that LS will buy you on immediateannuities.com and compare that to the immediate payout

I assume this isn't a COLAd annuity.

So your only hedge against longevity is SS?
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Old 08-15-2016, 01:48 PM   #7
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Did the FA discuss the RMD tax bomb you could face, and ways to mitigate that ?
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Old 08-15-2016, 01:53 PM   #8
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so you will take the LS and put it into a retail IRA? You may want to see what that LS will buy you on immediateannuities.com and compare that to the immediate payout

I assume this isn't a COLAd annuity.

So your only hedge against longevity is SS?
Nothing cast in stone yet, but yes, a retail IRA is considered for the LS. Immediate annuities best offer was about $20/mo below what the pension manager is offerring. It is not COLA'ed, but I think they will add in about $600 more a month as an "offset" until I reach 65.

As I stated above, the overall portfolio value stays flat in his model, meaning that when we start collecting SS, it will have the same value as when I retire end of this year. In today's dollars, SS will pay about 2/3s of our monthly budget today (which will not be that high 15 years from now) so the load on the portfolio once we get to SS will be pretty low...
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Old 08-15-2016, 01:53 PM   #9
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I would max the wife's 401K matching and keep the pension as payments. The rest looks good.
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Old 08-15-2016, 01:57 PM   #10
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Nothing cast in stone yet, but yes, a retail IRA is considered for the LS. Immediate annuities best offer was about $20/mo below what the pension manager is offerring. It is not COLA'ed, but I think they will add in about $600 more a month as an "offset" until I reach 65.

As I stated above, the overall portfolio value stays flat in his model, meaning that when we start collecting SS, it will have the same value as when I retire end of this year. In today's dollars, SS will pay about 2/3s of our monthly budget today (which will not be that high 15 years from now) so the load on the portfolio once we get to SS will be pretty low...
the temp SS benefit may not be counted in the LS calculation. $7K a year isn't exactly chump change; I'd ask the pension manager how the LS is calculated. Also, the portfolio value depends almost entirely on making a certain rate of return over a time horizon. Pension payments generally don't change.....
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Old 08-15-2016, 02:04 PM   #11
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Did the FA discuss the RMD tax bomb you could face, and ways to mitigate that ?
Yes, he did cover that and has recommendations in his report. I have 60 days access to him to ask questions.....
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Old 08-15-2016, 03:10 PM   #12
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Once both of you stop, you may want to look into IRA-->Roth IRA conversion to counter that RMD. Your FA should've that in your plan.
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Old 08-15-2016, 04:10 PM   #13
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The only other thought I have beyond what everyone else has said is to pay attention to your asset allocation as you draw down your cash. The more cash you spend, the higher your exposure to non-cash investments (equities, bonds, or whatever you are in), so you may need to rebalance to reflect the reduction in cash holdings to make sure you are not over exposed to the markets.

I would also give some thought to sequence of returns risk, and consider the U-shape glide path that has been discussed many times here, where you lower your exposure to equities in the early years of retirement, and then slowly ramp them back up after you begin collecting SS.
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Old 08-15-2016, 04:27 PM   #14
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OP: you may want to consider reading the book Money for Life, by Steve Vernon, who is a retired actuary.

He discusses how to create income streams from piles of money (and pensions) and diversify them so you avoid actuarial ruin. He's not selling anything either.
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Old 08-16-2016, 12:42 PM   #15
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Thanks for all the good tips/perspectives. Nothing cast in stone yet. Big Hitter, I ordered that Vernon book (used, of course) from Amazon, look forward to reading it.....

84 days and counting.....
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Old 08-19-2016, 06:13 PM   #16
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Once both of you stop, you may want to look into IRA-->Roth IRA conversion to counter that RMD. Your FA should've that in your plan.
I was wondering the same thing. OP: did the FA discuss Roth conversions? They may or may not make sense in your situation, but anybody with heavy tax-deferred retirement accounts should at least run the numbers. This is especially true before SS and Medicare when you may be able to manipulate your AGI up or down around certain thresholds.

(btw: congrats - hopefully - on the "forced" retirement)
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