Money Makeover column in the LA Times

[chinaco]

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Originally Posted by Midpack Exactly what I was thinking underlined above. They've done great and gotten themselves in good financial shape, why blow it by living high (at an arguably unsustainable withdrawal rate) now? Looks like they could retire if they wanted and live pretty much as they have. Ditto the comment, who FA'd the article?

I did not read it like that. I read 94k total.

94k - 33k (ss) - 5k (pension) = 56k/year from the 1.7M. That would be a 3.3% withdrawal rate.

Did I interpret it wrong?

[Spanky]

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They both work and both contribute to 401(k)s, ...

I thought he's eligible for a big, fat pension. Can one contribute both 401K and a defined pension plan as well?

[Spanky]

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If they get rid of the mortgage, I would say they are in great shape.

Agreed since mortgage payment is almost half of their expenses, assuming the loan is about $400K (most likely is a lot higher).

[Alan]

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Originally Posted by Spanky I thought he's eligible for a big, fat pension. Can one contribute both 401K and a defined pension plan as well?

Yep, I can attest to that, it's wonderful

[Alan]

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Originally Posted by chinaco I did not read it like that. I read 94k total. 94k - 33k (ss) - 5k (pension) = 56k/year from the 1.7M. That would be a 3.3% withdrawal rate. Did I interpret it wrong?

That is correct if he retires at 62, but they are planning to retire at age 57 - this Fall when he gets his pension lump sum which gives the $1.7M total to live off for the first 5 years before SS and annual pension start.

[Spanky]

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Originally Posted by Alan Yep, I can attest to that, it's wonderful

That's great that one can contribute to a 401K plan and participate in a defined pension plan. I guess the pension plan of the gas utility company in southern cal must be very generous and it's salary for a technician is also quite attractive as evident in the amount of his cashed-out pension.

[RockOn]

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Originally Posted by LOL! My, my! What nitpicking! These folks have saved a third of their income over the years. They both work and both contribute to 401(k)s, so getting to a million in 401ks/IRAs would be pretty trivial for them over 30 years of working. My spouse and I are there after working only 20 years. You just have to max out every year and get a little match from your employer. You certainly don't need dubious after-tax contributions. They live on sub-$70K a year now and can expect $33K in SS and $5.4K in pension income in about 7 years. As for the Lexus, that was just them dreaming. They also dreamed of buying RV. Anyways, folks reading this thread should read the article to see how well this couple has done. The responses in this thread paint the wrong picture.

Im not saying 1.7M isn't great, it is. They are doing great. But when Kessel tells them they are going to die with too much money, to give away more money, to be freewheeling, that they whould start withdrawng $94k and their portfolio will earn 8.8% and grow to $9.4M. That is about the worst advice I have ever heard.

[Alan]

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Originally Posted by RockOn Im not saying 1.7M isn't great, it is. They are doing great. But when Kessel tells them they are going to die with too much money, to give away more money, to be freewheeling, that they whould start withdrawng $94k and their portfolio will earn 8.8% and grow to $9.4M. That is about the worst advice I have ever heard.

I agree. We don't know the full extent of the interview, but this does sound pretty crappy advice summarized like this.

[Rustic23]

I believe DW and I will be able to give away more money, and which ever of us die last can give it away in their will!

[jazz4cash]

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Originally Posted by RockOn It doesn't add up to me. $1.7M at age 56 isn't close to over the top for a Southern Cal lifestyle IMHO. At a ultra safe 2.5% withdrawal rate (a 4% SWR invested in the stock market at these valuations is risky, I don't care what anyone tells you) is only $42,500 per year until SS kicks in. I wouldn't be wasting the money. Telling them to expect 8.8% a year means being very lucky and having atleast 80% in stocks. What kind of advice is that, am I missing something? 40 year life expectancy, at least a few more bear markets in their lives. Who wrote that article?

This is the piece that confused me also. I think OP is correct in challange these assumptions.

Another amusing element is all the credit given to frugal lifestyle and then the admissions that there are two inheritances in the mix and the Bob Brinker windfall is responsible for a significant piece of thier portfolio, but they slough that off as luck. I don't really see how many folks would find this couple's scenario helpful

[jazz4cash]

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Originally Posted by Want2retire What boggles my mind is $888K in 401Ks and IRAs. I wonder if that is even possible, given that these have not existed forever. Maybe so for those with substantial $$$ in them through the 1990's, but I have no idea.

My ex-megacorp was an early adopter of the 401k. I think it was around 1983-4. We were able to roll-in funds from the ESOP plan that was replaced by the 401k. According to last years annual summary there are several employees/retirees with over 1M and one person has >5M.

[W2R]

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Originally Posted by jazz4cash My ex-megacorp was an early adopter of the 401k. I think it was around 1983-4. We were able to roll-in funds from the ESOP plan that was replaced by the 401k. According to last years annual summary there are several employees/retirees with over 1M and one person has >5M.

Amazing! Thanks, jazz4cash and everyone, for explaining this and broadening my horizons. Most people I know seem to have far less.

[packrat44]

In the fall, Steve will receive a $430,000 pension payout, which Kessel recommends he take in a lump sum.



I find it disturbing that a CFP would recommend a client take such a large pension payout in a lump sum, especially on top of almost a full year of wages. The taxes would be terrible. Why wouldn't a CFP recommend rolling it into a IRA? :confused:

[LOL!]

packrat, pension payouts can go directly to an IRA, so I assumed that's what was going to happen. We see this question from time to time on this forum: Should I take lump sum or annuitize my pension? The LS goes to an IRA.

[packrat44]

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Originally Posted by LOL! packrat, pension payouts can go directly to an IRA, so I assumed that's what was going to happen. We see this question from time to time on this forum: Should I take lump sum or annuitize my pension? The LS goes to an IRA.

My mistake. Thanks for the clarification. When ever I have heard someone referring to taking their pension as a "lump sum" it was in the form of cashing out, not having it rolled over into a IRA or another pension plan (if they were changing jobs).

DW and I met a couple 3 days ago who were convinced into the husband taking his pension as a cash "lump sum" last Nov when he retired. Now they are upset that their taxes are going to be so high.

[Alan]

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Originally Posted by packrat44 My mistake. Thanks for the clarification. When ever I have heard someone referring to taking their pension as a "lump sum" it was in the form of cashing out, not having it rolled over into a IRA or another pension plan (if they were changing jobs). DW and I met a couple 3 days ago who were convinced into the husband taking his pension as a cash "lump sum" last Nov when he retired. Now they are upset that their taxes are going to be so high.

When DW retired 4 years her lump sum pension was rolled into her 401(k) and then a couple of months later we rolled the 401(k) into an IRA.

Whoever advised that couple you mentioned was simply stupid, and confirms that most people need a FA for even the basics.

[LOL!]

I guess it goes both ways. That Frontline show on retirement did show a couple that withdrew their 401(k) all in one year and lost a big fraction of it to taxes.

[haha]

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The Haibachs need to live it up a bit more and help those who are less fortunate than they, he said. As extreme savers, they can balance their thrift through more volunteering, charity and pleasure-seeking, he said.

Do you think that the FA profession may draw more than its share of bossy busy-bodies?

I vote the FA balance his life with more vounteering, charity and pleasure seeking. Maybe Alexandra Dupre has a free time slot soon?

Ha

[jazz4cash]

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Originally Posted by packrat44 My mistake. Thanks for the clarification. When ever I have heard someone referring to taking their pension as a "lump sum" it was in the form of cashing out, not having it rolled over into a IRA or another pension plan (if they were changing jobs). DW and I met a couple 3 days ago who were convinced into the husband taking his pension as a cash "lump sum" last Nov when he retired. Now they are upset that their taxes are going to be so high.

The point to me is this: I would expect the writer to make it crystal clear that the lump sum was being rolled over to an IRA tax-free and we would not be debating this issue. I guess I missed the boilerplate too.

The more I think about the whole article, it's more of a gossip column than a self-help article.

[chinaco]

The columnist could have butchered the piece. Who know if important detail was left out.

The couple is in pretty good shape. As long as they stick to the basic LBYM approach they should be fine.

The main part left out was the question about health care expenses. This is a large oversight in the article.