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Should I be nervous?
Old 07-25-2006, 04:02 PM   #1
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Should I be nervous?

Just found out my department/position is being eliminated. Will have 2 months to find another job within company and 4 months severance, plus bonus and vacation pay if nothing turns up. I took an early out package 3 years ago from my prior company, and left with a lump sum that is now valued at $1.555M (IRA). Since I am 57, I was hoping to avoid tapping into the lump until I reached 59.5, but now I am wondering whether to simply retire or look for another job to get me to that magic age. I know I can 72t, but it seems to me that this requires a lot of discipline and can take away some flexibility in structuring investments. I have no desire to work again given my many interests/activities, but I still feel a bit nervous and guilty about pulling the plug now at 57.

Current family budget is running around $82K, but this can be cut to about $70K after I pay off my mortgage. If we downsize from the mac-mansion, could probably get expenses down to ~ $60K.

In addition to the lump sum mentioned above, I have about $50K in 401K, and ~ $65K in other IRAs, and medical insurance is mostly paid for via my retiree benefits from my previous job. My wife has part time job, which is rewarding, but only pays $10K/yr. I also have a son half way through college and a daughter in HS, and this obligation may require an additional $75K in funding to get my daugther thru 4 yrs of college. Unfortunately, aside from college fund $s that are already set aside, my taxable savings are only about $115K. Once I turn 62, SS will kick in and when my wife turns 65, she will receive a DPB.

I feel very fortunate to have accumulated what we have, but having grown up in a blue collar family, I am still nervous about being without a job and making the money last. I realize this is fairly high level info, but given my general situation, should I be sweating this decision?

Thanks,

DFW
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Re: Should I be nervous?
Old 07-25-2006, 04:09 PM   #2
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Re: Should I be nervous?

You do not need to do a 72T...* IF you can roll the IRA into the company you are with in advance of exit...* If you can, since you are over the age of 55 once you sever, then you can utilize monies just the same as if you were the proverbial 59 1/2.

Tighten the belt a bit and encourage kids to look for grants & scolarship monies.* Go forth and enjoy life!
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Re: Should I be nervous?
Old 07-25-2006, 04:12 PM   #3
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Re: Should I be nervous?

So to clarify, when do you pay off the mortgage?

82k a year, minus 10k from DW's part time job leaves you with 72k to come up with. *72t rule will let you withdraw about ~5% (there are charts out there for exact numbers, based on 10 year note rates or something) and you have:

1,550,000 in IRA
0,050,000 in 401k
0,065,000 in another IRA for a total of

1,665,000 x .05 = $83,250, before taxes. *I think that you are home free, you can get a part time job that might interest you for a few grand to give you some margin of error.

Now before everybody jumps me on that % withdrawal and says, "4% is the safe rule!" remember he has SS coming up at 62, and at some point the house is getting paid off, and just because he withdraws it doesn't mean he has to spend it, and the equity in the house can always be a safety valve (downsize, reverse mortgage when he's older etc.). *

It looks quite comfortable to me. Congrats!

EDIT: I forgot the college kids cost, but I also excluded your after tax savings. Pay for half the college costs a la "matching funds" and let your kids make up the other half via grants, loans, and part time w*rk. They'll value their education more that way, JMHO from my personal experience.
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Re: Should I be nervous?
Old 07-25-2006, 04:19 PM   #4
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Re: Should I be nervous?

I calculate that you have $1550k + $50k + $65k +$115k = $1780k nestegg.

using SWR of 4% gives a $71.2k payout.

Usethe* Firecalc calculator your nestegg and SS to figure out what the net safe withdrawal rate would be. As Laurence points out it's probably around 5% total.

$1780 * 5% ==> $89k/year.

That $89k/year will give you aftertax maybe $6500/month to live on. That's an awful lot of money - you should be able to live well. Add in the wifes $10k/year job and her DBP and that's just gravy for you.

My wife and I would have no problem living on $89k/year (or $71.k/year either).

Since you have medical you are in great shape.

Time to bail....



P.S. - don't let the college obligations to the kids ruin your retirement. Let them fend for themselves.
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Re: Should I be nervous?
Old 07-25-2006, 04:27 PM   #5
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Re: Should I be nervous?

Quote:
Originally Posted by crazy connie
Tighten the belt a bit and encourage kids to look for grants & scolarship monies.* Go forth and enjoy life!
Perhaps it would have been a reasonable thing to do 10-15 years ago when he was setting his kids' expectations, but it would be a rather jarring change at this point*
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Re: Should I be nervous?
Old 07-25-2006, 04:28 PM   #6
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Re: Should I be nervous?

DFW, lots of moving parts in your post, but my overall impression is "you're there".

With medical covered (a VERY big issue as you probably know) you are in excellent shape. Crazy Connie isn't, at least when it comes to the advice she gave you regarding no need to worry about 72t rules if you lose your job after age 55. [Edit: Ooops. The age 55 rule applies to 401k, not IRA.]

I concur with requiring the kids to pull some of their own weight for college expenses. It builds character (just don't tell them that or their eyes will roll...)

Don't worry, be happy...

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Re: Should I be nervous?
Old 07-25-2006, 04:30 PM   #7
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Re: Should I be nervous?

Quote:
Originally Posted by Scrooge
Perhaps it would have been a reasonable thing to do 10-15 years ago when he was setting his kids' expectations, but it would be a rather jarring change at this point
Perhaps it would have been nice to know DFW was going to lose his job 10-15 years ago. That would have saved the entire family the posibility of a rather jarring change, right?

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Re: Should I be nervous?
Old 07-25-2006, 04:35 PM   #8
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Re: Should I be nervous?

Quote:
Originally Posted by Scrooge
Perhaps it would have been a reasonable thing to do 10-15 years ago when he was setting his kids' expectations, but it would be a rather jarring change at this point*
Jarring YUP... So is hitting the bricks. Overprotecting our children is an issue and does not prepare them to fend. Educated idiots abound and the nimble minds and adaptive natures still excel. Coping with change is critical.
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Re: Should I be nervous?
Old 07-25-2006, 04:36 PM   #9
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Re: Should I be nervous?

Per 72t calculations based on the following:

IRA $1.55M
Reasonable Int. rate (current) 6.27%
Uniform Lifetime Table
Your age 57...spouse assumed to be 57
Fixed Amortization Method

Yeilds

$106,730 per year for no less than 5 years. *Spend what you need and invest the rest or create a smaller IRA to just cover the needed funds for your 72t. *The value of that IRA would be $1.2M to give you $82k per year. *

This is all pretax and the tax rates on this would be the same as wage income. *
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Re: Should I be nervous?
Old 07-25-2006, 04:46 PM   #10
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Re: Should I be nervous?

Quote:
Originally Posted by REWahoo!
Perhaps it would have been nice to know DFW was going to lose his job 10-15 years ago.
Heck, if he had been able to predict the future 10-15 years ago, he would be so rich now that he wouldn't have to worry about college costs

Quote:
That would have saved the entire family the posibility of a rather jarring change, right?
Well, we don't know how difficult it would be for DFW to cut back in other areas to come up with the college money nor do we know what his kids' college choices are. If he does the math and discovers that paying for his kids' college education will put him in a difficult financial position, then I am sure he can sit down with the kids and explain that things have changed and the family can no longer afford what they thought they could afford. The kids may or may not take it well (teenagers and all that), but that's life. If he finds that he can do it, but it would make life uncomfortable, then it's a question of juggling priorities.

Come to think of it, I have more experience talking my friends out of paying too much for their kids' college education at the expense of their own retirement. Some otherwise smart people just can't seem to be able to get past the "expensive" = "must be high quality" = "bright future" hurdle. And don't get me started on parents who pay their adult kids' grad school expenses! *
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Re: Should I be nervous?
Old 07-25-2006, 05:00 PM   #11
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Re: Should I be nervous?

Kids college: Tell them that your circumstances have changed and that they should plan on borrowing what isn't in the college savings bucket.

Advantages: no interest until graduation, you can always help them pay off the loans (but I wouldn't let them know).* With the risk that THEY may have to pay the loans off perhaps they will think long and hard about goofing off and will choose a school that gives them the best return on the educational $.

Sit down with a good college advisor who understands how the FAFSA works so that whatever you do going forward considers that program.

For heaven's sake don't tell the kids what you have saved.* They are in no position to understand the need to manage your resources for the rest of your lifetime.

Added: I suggest this because it worked for us.* Both kids stayed on task and finished in 4 years.* They both worked in college, earned good grades, and were promptly employed after graduation.* One has a business, the other making well into six figures.* Both are under 35.* We paid off their college loans with no-where near your resources.
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Re: Should I be nervous?
Old 07-25-2006, 06:09 PM   #12
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Re: Should I be nervous?

I would be very nervous, about what to do with all my free time! Sounds like you are there. Enjoy it!
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Re: Should I be nervous?
Old 07-25-2006, 06:34 PM   #13
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Re: Should I be nervous?

The 55 yr rule only effects money in the 401k of the job he is leaving ? Or all 401ks?
Not that it really matters since he has enough there and in funds outside an ira to spend until he makes 59.5 .
I would borrow the school funds even if I had em . You get to use that money with no payments for awhile as Brat mentions.
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Re: Should I be nervous?
Old 07-25-2006, 06:45 PM   #14
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Re: Should I be nervous?

spidey:

The concept was...

Take the rollover IRA and roll it back into the 401k of the current employer whilst still employed.

Then you can take penalty free withdrawals at 55 of all the money that you need from the 401k due to the 55' rule on 401k's.

You can only do the 55 rule on 401k's with your last employer that you worked at and retired with provided (of course) that you are at least 55 years old when you retire.

If you don't want to roll all of the rollover IRA into the current employer plan, then split the rollover account into two separate rollover IRA pots (ie. separate IRA accounts). One pot would have the money you want to combine with the current employers 401k. The other pot remains as a rollover IRA and is left alone until the money is needed at a much later date.
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Re: Should I be nervous?
Old 07-25-2006, 10:04 PM   #15
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Re: Should I be nervous?

HMM
I didnt think of rolling money into a 401k job that you were being laid off
Gotcha now
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Re: Should I be nervous?
Old 07-26-2006, 07:43 AM   #16
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Re: Should I be nervous?

Thanks everyone for the encouraging words. I realize that my existing 401K is available to me when I leave without penalty, but I am not aware of any option to roll an IRA into my 401K, especially considering the IRA has been in existence for past three years. I thought that the rules allowed for 401K portability (roll 401K from old employer into new employers plan) only, but not the ability to roll an existing IRA into a 401K plan .

On my mortgage payoff, I have access to an interest free loan, which can be repaid when I sell existing home and downsize. As to taking care of my kids college expenses, this is something I am committed to provide for their bachelors degree; for grad school, they are on their own.

I will investigate further this IRA rollover into 401K and see what happens over the next couple of months job wise, but its certainly comforting to know that the sky won't be falling if employment ceases.

Thanks very much,

DFW
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Re: Should I be nervous?
Old 07-26-2006, 07:55 AM   #17
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Re: Should I be nervous?

Quote:
Originally Posted by DFW_M5
Thanks everyone for the encouraging words.* I realize that my existing 401K is available to me when I leave without penalty, but I am not aware of any option to roll an IRA into my 401K, especially considering the IRA has been in existence for past three years.* I thought that the rules allowed for 401K portability (roll 401K from old employer into new employers plan) only, but not the ability to roll an existing IRA into a 401K plan .
The IRS changed the rules a few years ago, so you can now roll an IRA into a 401k. The IRS also no longer cares if you don't keep rollover money separate. So the only restriction on dumping IRA money into a 401k is whether your employer/the plan allows it.
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Re: Should I be nervous?
Old 07-26-2006, 09:45 AM   #18
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Re: Should I be nervous?

Brewer, Thanks for the clarification. I will research with my plan. Given this type of rule, I don't see why IRS wouldn't let you tap your IRA early if laid off and over 55 :

Cheers,

DFW
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Re: Should I be nervous?
Old 07-26-2006, 10:02 AM   #19
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Re: Should I be nervous?

Quote:
Originally Posted by DFW_M5
Brewer,* Thanks for the clarification.* I will research with my plan.* Given this type of rule, I don't see why IRS wouldn't let you tap your IRA early if laid off and over 55 :

Cheers,

DFW
My guess is that they don't want to invest the time to monitor the IRAs. Monitoring employer plans is much more efficient, and they have professional (usually) administration.
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Re: Should I be nervous?
Old 07-26-2006, 10:03 AM   #20
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Re: Should I be nervous?

Boy is this ever good news, my 401K does allow rollovers from IRAs. *I will start the process today. *Thanks again everyone
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