possible retirement

[Jpoucher]

hello everone, I am new to the Early Retirement. Org. I did answer on another thread. I am currently employed with the State of Ohio. I have 30 years in. I have bought 6 months of previouse state time. I would like to think about retiring August 2011. I would have 31 years and 3 months.

With the estimate I received from the State Retirment system I would have approx $3000.00 to live on with a (50%) for my wife. which would equate to $1500.00 a month if something was to happen to me.

I have contacted a Financial Planner, Who I have worked with before. Withe the estimate I received, I have sat down with him to look at options. He said take the PLOP which would be approx$111,000.00 he wanted to me to pay off the $22,000.00 in unsecured debt and it would leave approx funds of 89000.00, I would roll it over to an account with American Funds, from there he would have 80,000.00 go to a Prudential Variable Annunity. I would pay around 6%. He is stating not to touch it for around 9 year until age of 65. My only concern is I would not be able to touch it for along time

With taking that PLOP I would jeopardize receiving a 3% Cola. I was wondering if it would make more sense to take approx 80,000.00 and pay off the $22,000.00 in unsecured debt an roll over 25,000.00 into emergency and the other $25,000.00 into a variable annunity without the Financial Planner and avoid the substanical fee he would receive from the annunity.

Monthly amount without Plop would be approx $3000.00
With Plop it would be approx $2500.00( out of that would come $200.00 for Health Insurance which includes dental and vision. ( Good deal ) as I see it.

With my option of a Plop of $80,000. I could pay off the debt and still have approx an emergency fund of 25,000.00 and the rest into a Variable annunity. This would leave an approx amount a month of $2700.00 for me and at my death approx 1600.00 which is not including my spouses SS.

not mentioned was an amount of $20,000.00 from accumulated vacation. Can anyone tell me if that can be rolled over to a 403 plan to reduce taxes or will I have to pay taxes on it.

as to question on the vacation I was in a 457 plan but took the money out around 22 years ago and I can not get back into it due to an IRS ruling. I was just wondeing if anybody might suggest somethings.

I have a meeting with the Financial Advisor with the Retirement board on May 16, 2011.

As to working after possible retirement I am thinking I would. as to possibilities , I would like to go into Financial Planning. Current education is MBA along with a Master Certificate in Emergency and Disaster Mangement and two classes taken for the Undergraduate In Financial Planning. I would just take the necessary classes for sitting for th exam which is the CFP ( Certified Fiancial Planner)

While a long post, i would like any suggestions.


Thanks

Jpoucher

 

[lark_L]

I'm afraid the first thing I would do is look for a financial planner that is NOT trying to get you to buy into load mutual funds. He's going to make some money off of you right there. You could put that into a no-load fund(s) - like Vanguard - and not lose money right from the start.

I've looked at the CFP myself. Problem for me is, I have NO interest in selling to people. I'd enjoy working as a fee only planner. To get the CFP you have to finish the training/schooling, then find someone to "sponsor" you for awhile. I doubt I can find someone who's a fee-only planner to do that. There aren't any in my area.

 

[chinaco]

Is the only debt 22k? Is the interest rate low? If not can you get a lower it with home equity loan?

Do you have a large nest egg and other income resources (in retirement)?


I would be wary if I was pointed toward loaded funds and variable annuities!

Why would you trade in an annuity with a cola (your pension) for a variable annuity?

Get some quotes (from another agent) from a highly rated insurance company (AAA rating) for an Single Premium Immediate Annuity with a cola. That will give you an idea of what it would cost to purchase your pension on the open market. How much of annuity (SPIA with the same cola) would the PLOP buy? Could you replace the cola annuity (pension) by taking the PLOP and buying it from an insurer. That might help you to understand what you would be giving up by taking the PLOP.


If I did not have a large nest egg or other significant financial resources... I would be suspicious of someone encouraging me to cash out part of my pension.


Take your time and study the situation. You do not need to rush into retirement... especially if you do not have a plan yet.

Are you financially ready to retire? Switching jobs at your age may just end up reducing your salary (because you will be inexperienced). Think it through!

Consider Reading Jim Otar's Book "Unveiling the Retirement Myth". I think you can get the pdf (read only edition) for $5.99.

Here is a link to his site. There is a link on there where you can order the book. You can looks around on this site for several people's comments about the book.

otar retirement calculator


if you intend to be a Financial Adviser.... you can consider it to be early advanced study.

Otar's book covers most of the conventional approaches and has a framework that should help you to better understand the conventional options and the pros and cons.

 

[chinaco]

One final comment... and I do not mean this to be a snide remark...

If you are unsure of your situation... why are you considering being a Financial Planner for others?

 

[Jpoucher]

I would like to do consulting work. The reason I am unsure of my situation, was after my meeting with my Financial Planner, I was doing alot of thinking. I could get the basic knowledge and be able to help alot of people without making alot of money, but to help. My concern with my Financial Planner was that within 25 minutes we were deciding my fate. As you pointed out he is going to point me to a Fund in which he will receive commission from the loaded Mutual Funds and then turn around and get additional monies for the sale of the additional annunity.

The reason for the thought of retirement,is the work has become very boring and their seems to be little light at the end of the tunnel. Currently under bill being introduced to the Pension Plan and SB5 here in the State of Ohio there could be alot of changes.

SB5 would increase our contributions to the Pension system by 2% and increase the years to be able to retire to 35 years. I would be in a group that would still be able to retire at 30 or above. Currently I would be locked into a COLA for 5 years at a guaranteed 3%. With the new pension plan this would be connected to the CPI and would be between 1% through 3%.

In the SB5 their are alot of changes with changes in a system from a guarnteed % increase to a merit based system. Now I know this hits a major cord with alot of people so I don't want into political discussion on this. But my concern of course with my own personal situation.

 

[travelover]

I won't beat around the bush. There are entire industries set up around separating people from windfall payouts. You are in their sights and they are salivating at the prospect of dipping into your cash payout. You will need the full pension monthly payout to continue to live a middle class life. Don't screw it up by taking a PLOP.

Denied.

 

[73ss454]

Every time I hear the words "financial planner" I can only figure that they are planning their own future. Loaded funds and annuities are just what you/the planner needs.

 

[2B]

Read William Bernstein's The Investor's Manifesto: Preparing for Prosperity, Armageddon, and Everything in Between. You may already have but it's the best "first start" to becoming your own financial planner. Starting to plan now for an August retirement is cutting things pretty tight. I wouldn't do anything until you understand the ramifications of all your decisions. The stuff you are throwing around are almost all non-reversible.

I don't know the "qualifications" of your present financial planner but if he wants you to give up on a COLA'd State of Ohio pension so he can put you into load mutual funds he is not looking out for your best interest. You will make a healthy contribution to his/her retirement plan. DANGER, DANGER WILL ROBINSON seems like a reasonable comment.

Have you discovered FireCalc? If not, give it a go.

 

[sjw4]

Caution. Variable annuities don't provide a guaranteed 6%/year return. That 6% is usually the maximum they will credit you in any year. Yearly returns will vary with how well the market does. Variable annuities pay the Financial Advisor a hefty commission, so it's hard for a Financial planner (that has a lot to gain) to be objective about this.

 

[GregLee]

We were just talking in another thread (http://www.early-retirement.org/for...-or-negative-net-worth-55916.html#post1065130) about the convenience of the 4%, or 25X, rule as a conceptual tool for comparing cola'd pensions with PLOPs. You're thinking about taking a pension reduction from $3000 down to $2500/month, $6k/year, $6k X 25 = $150k is the value of the equivalent portfolio, by this simple rule. But the PLOP would only be $111k? Bad deal. And the survivor benefit also goes down by $250/month?

My mother had to make a similar decision when my father, who worked for the Ohio state welfare dept., died, and the PLOP then was a terrible deal for her. That was a long time ago, but it made me paranoid about cash settlements.

 

[Mulligan]

The longer you live, the wider the gap becomes with the COLAS piling on year after year. I'm looking forward to my first of hopefully many COLAS to come this January. I guess a devils advocate position could be by taking the plop you diversify your income stream a bit instead of it all being at the whim and control of the government. But, if the system gets in such shape they renege on your cola or reduce pension, chances are your investments failed poorly , too.

 

[GregLee]

The longer you live, the wider the gap becomes with the COLAS piling on year after year.

Not with my pension. The "COLA" is a fixed percent of the initial amount of the pension -- no compounding.

 

[Mulligan]

I didn't know some were set up that way. I imagine there are as many ways COLAS are treated as there are pensions themselves. My pension will compound, but it caps out at 80% of your original yearly pension. Keeps the octogenarians from bankrupting the system, I imagine!

 

[KingB]

Maybe I don't understand the numbers, but this is what I'm reading:

The state pension plan will pay you $36,000 annually, as long as you live, with a COLA adjustment of up to 3% per year. If you die before your wife, she gets 50% of your benefit for her lifetime.

OR, the state pension plan will give you a lump sum of $111,000.

If those are the facts, the pension plan is heavily weighted to favor the lifetime income over the lump sum. Your $3,000 per month equals $111,000 after just 37 months.

I can't imagine anyone recommending the lump sum with those numbers.

The $111000 is partial lumpsum which, if he took, will reduce the monthly payment from $3000 to $2500. So, $110000/$500 = 222 months.

 

[Independent]

The $111000 is partial lumpsum which, if he took, will reduce the monthly payment from $3000 to $2500. So, $110000/$500 = 222 months.

Thanks, I didn't read far enough.

 

[nun]

Why would you take a PLOP and then buy a variable annuity locking the money up again.....oh yes because your financial planner will get a big check out of it.

Run away from all financial planners who try to sell you annuities, or loaded mutual funds. My inclination would be to stick with the full state pension. If you do take the PLOP, don't let any financial planner near it!!!!!!!! Pay off your debt and put what's left in bank saving account while you educate yourself about how to invest it. Go to the sites of the reputable mutual fund companies and use the educational stuff they have, you don't need brokers or money managers, as you can buy directly form companies like Vanguard and Fidelity. Also go to bogleheads.org and read their wiki.

 

[chris2008]

Stay in the job for some months longer, try to live on 2500 + work related expenses during that time and use the leftover to pay down your debt asap.
Once that is achieved you know (in contrast to just guessing) if you are able to live on 2500 or 3000 and you have eliminated the need for the plop and the purchasing of the annuity.

 

[ucb23]

I was doing a search on PLOP's and found this thread and had to register and respond. Everyone that is bashing the PLOP and variable annuity option is missing a BIG piece of the puzzle.

What if JPoucher and his wife are in a car accident a month after he retires? I presume the pension is terminated, nothing will go to his bene's. What if he takes the PLOP of $111,000 and rolls it into a variable annuity? In that case he will get a death benefit, his bene's will receive $111,000 instead of $0.

There are of course other options to consider too. For example, if Jpoucher wanted some long-term care coverage he could purchase an annuity rider and in essence buy LTC insurance using qualified pre-tax money. This would be especially helpful if Jpoucher isn't insurable with straight LTC insurance.

I'm just saying that variable annuities aren't all that bad when the alternative is not having any death benefit. Hopefully Jpoucher listened to his financial advisor and protected his assets for his heirs.

 

[Moemg]

.

What if JPoucher and his wife are in a car accident a month after he retires? I presume the pension is terminated, nothing will go to his bene's. What if he takes the PLOP of $111,000 and rolls it into a variable annuity? In that case he will get a death benefit, his bene's will receive $111,000 instead of $0.

.

His pension has a survivor benefit of 50% .

 

[ucb23]

His pension has a survivor benefit of 50% .

I see that it has a 50% survivor benefit, but that's not the same as a death benefit. If something happened to him and his wife at the same time, his kids will receive nothing with the pension option. With the variable annuity, or any other investment they would receive $111,000.

Even if his wife died 10 or 15 years later his kids would still get the account value death benefit, whereas they would receive nothing with the pension. Plus he could still get the income off the annuity or mutual funds.

 

[REWahoo]

I was doing a search on PLOP's and found this thread and had to register and respond. Everyone that is bashing the PLOP and variable annuity option is missing a BIG piece of the puzzle.

What if JPoucher and his wife are in a car accident a month after he retires? I presume the pension is terminated, nothing will go to his bene's. What if he takes the PLOP of $111,000 and rolls it into a variable annuity? In that case he will get a death benefit, his bene's will receive $111,000 instead of $0.

There are of course other options to consider too. For example, if Jpoucher wanted some long-term care coverage he could purchase an annuity rider and in essence buy LTC insurance using qualified pre-tax money. This would be especially helpful if Jpoucher isn't insurable with straight LTC insurance.

I'm just saying that variable annuities aren't all that bad when the alternative is not having any death benefit. Hopefully Jpoucher listened to his financial advisor and protected his assets for his heirs.

Isn't this a scene from the movie Groundhog Day?

 

[73ss454]

I'm just saying that variable annuities aren't all that bad when the alternative is not having any death benefit. Hopefully Jpoucher listened to his financial advisor and protected his assets for his heirs.

Yup, not bad at all. FOR THE SELLER!

 

[Walt34]

Oh boy, more popcorn!

 

[ucb23]

Trust me I'm no annuity salesman and I'm not going to be telling people what a great idea annuities are, but in some cases (like this one), they are better than the alternative.

Taking a public pension is pretty much annuitizing a lump sum with zero death benefit. Don't ya think that everyone that was recommending him to take the "annuitization" option of a pension may have been slightly wrong in this case? You die, money is gone forever. If you take the PLOP at least you can get income off the balance and protect that asset for your heirs. Am I missing something? I guess if he has no heirs that he would like to pass the money on to?

 

[chris2008]

Doesn't it boil down to making a guesstimate how long the retiree + spouse will probably live?
If you expect a short time a PLOP and annuity is a good idea.
If the time is long the pension was the better option.
You can try to calculate by using actuary tables on average life spans. But it remains an educated guess.