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Too Conservative over the years and Paranoid
Old 11-18-2013, 09:45 AM   #1
Confused about dryer sheets
Join Date: Sep 2013
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Too Conservative over the years and Paranoid

Hello All,
This is my first post. First off, I wanted to thank everyone for providing the great resources on this site. I have been reading for about the last 3 years and I am still amazed at the vast amount of knowledge that is provided “first hand” by persons’ living the dream.
I started saving 6% of my salary 38 years ago when I first started working in the Petrochemical Industry. That, plus the company match has turned into $768K today. My goal was always to retire at 55 (now we’re both 56). My wife and I have been seriously preparing for retirement over the past 2-3 years. This started by buying acreage out in the county (where taxes are lower). We sold our 2800 sq. ft. home, which was paid for and downsized to 1900 sq. ft.. We now have a septic system and our own well. After living there a year and a half we have tracked our budget religiously and found we can live quite comfortably on $2800/month excluding taxes and insurance. We had also held this spending level 2 years prior to moving. I had slowly started removing take-home income by payroll deduction until we got down to the $2800 level. When dropping lower, I found us dipping into savings some months.
We have also updated one of our vehicles as a new “tow vehicle” for our new travel trailer. We have been RV’ing for about the last 10 years. I am still running a 2006 Tacoma with 139,000 miles that I hope to replace at some point as a second vehicle.
In 2010 our company was purchased by a larger European company to form a mega-corp. At the time, I was working as a manager of an IT development group dedicated to a single manufacturing site. I have since been moved to downtown Houston, where the drive consists of staring at bumpers for 2 hours a day. Along with the newly adopted environment/culture, it has been a challenge to come to work. I have spent the last 4 years working to replace everything my previous team had created with the “company standard”. Not so rewarding and not very satisfying.
I have used RIP, Firecalc, TRP, I-ORP and every other planner I could find to run the numbers. Although I feel we are ready, I am still having trouble convincing myself I am ready to “pull-the-trigger”. We met with a Fidelity account rep last week to review the RIP numbers verify I had everything setup correctly and discuss how we would roll-over the 401K to an IRA. I guess I still want some additional eyes to tell me I am not jumping the gun “too early”. We also spent several years working with an Ameritrade financial planner who hoped to get my pension as a lump and my 401k but I am convinced I can do this on my own.
My main concern is Lump or Pension. I am leaning towards the pension (today). There are 3 separate plans. This is being caused by my moving within the company to different “legal” companies responsible for paying the benefits. They are funded at 85%, 89% and 92% and held in a trust managed by Bank of New York Mellon. I understand that the PBGC will ensure up to $1,579.50 for the first 2 plans (based on my age the year the plans terminated when the company was purchased). The pensions, when added together come to $3599 a month and would be made up from 3 separate plans ($1692, $1621 and $285). I can’t beat this rate on the open market. . Knowing this is a pretty secure amount as base pay, I am leaning to take the pension to supplement smaller withdraws from my 401k which is now at $768. I also plan to have about $80K saved as emergency money by then. Lump would be $709K.
I will also be able to purchase the company medical I currently have at $800/month. This is the full rate of our group policy. Previous retires suggested I plan on it increasing every year. I verified with Fidelity that this is included in RIP
I also have a one-time shot at accessing my 401K funds as they roll over using the “Rule of 55” with our 401K plan. This allows me to take amounts from the 401K roll-over paying 20% withholding but no penalty. Knowing the market is way up today and what I feel approaching “over valued”, I hope to take $120K to bridge us the 3 years (57-59 ½ ). This would also allow us to establish a CD bridge to get past a down market if by 59 ½ the market has tanked.
I know this is a very long post but one more question. When I roll over to Fidelity, I had hoped to keep some of the Fidelity Retirement 2020 Plan I have ($200K). I also wanted to purchase index funds from Vanguard with the balance. According to Fidelity, I could do this for $49 per fund. I like the management tools in Fidelity. Should I just direct IRA to 2 companies, Fidelity and Vanguard?

Lump or Pension?
How much to withdraw and establish market bridge?
How should I buy Vanguard, separate or through Fidelity?
RIP & Firecalc say I am ready if I die at 92 and the wife at 94. Am I truly ready?

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Old 11-18-2013, 10:02 AM   #2
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Unless those pensions are COLAed, I'd take the lump sum.

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Old 11-18-2013, 10:02 AM   #3
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Welcome to the post and congratulations on all your planning.

You have enough pension income to pay your current living expenses, if I read you correctly. You also have SS to look forward to at some point in time.

I'd hang on to healthcare (800 mo), split the cash between VG and FIDO, ask VG for a financial plan, low cost if you invest with them, and possibly look into consulting work part time with you IT background.

Overall, you have many good choices. And, you didn't mention it but I'd look into a ROTH IRA, taxes appear to continue to go up and the taxes you now pay will insure tax free income in the future.......the best to you......if everyone planned as well we'd have less to worry about as a Country.
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Old 11-18-2013, 10:16 AM   #4
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I vote for the pension. It puts you in the relatively unusual position of having all of your basic expenses covered by a secure source of income.
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Old 11-18-2013, 11:00 AM   #5
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Whether you take the pension or the lump sum, I suggest you get a quote from to see what it would cost you to buy your pensions. If the lump sum is close to the cost to buy a new one, I recommend you take the lump sum. I had a similar opportunity and the lump sum was only 60% of the cost of a new annuity. As much as I hate annuities, it was a better financial deal.

Deciding when to start your pension should be based on how fast it increases by waiting and when you need the money. Most current pensions go up very slowly so I suspect it's in your best interest to take in ASAP.

$800/mo for health insurance doesn't sound too wacky for a couple of 55 yo. You didn't give any details on coverage so I'd recommend you compare what a private policy would cost along with the coverage.

I wouldn't worry about taking money out at 55 when you roll over unless you have an immediate need for cash. You can always wait until you are 59 1/2 or do a 72t. If you take it out at rollover, your tax rate will probably be significantly higher than the following year.

I personally prefer Vanguard to Fidelity. Vanguard has a better selection of index funds. I'd rather do my own fund picking and not default to a target retirement fund.
The object of life is not to be on the side of the majority, but to escape finding oneself in the ranks of the insane -- Marcus Aurelius
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Old 11-18-2013, 12:39 PM   #6
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On your pensions, what kind of survivorship options exist? Are the numbers you are giving those for having your wife get 100% of the pension if you die first?

DH faced a decision on whether to take a lump sum when he retired 3 years ago. In our case we decided to take the lump sum (which we rolled over to an IRA at Vanguard).

1. In our case, the PBGC limits were such that in default we were not guaranteed to get the full amount. You should carefully read the PBGC guarantees as there are limits on them.

2. Even if we felt we guaranteed to get the full amount, the big issue for us was that PBGC guarantees can change. If it starts running out of money it can change what it does in the future when it would be too late for us to do anything about it. PBGC is funded by insurance premiums not by taxes.

Obviously, how you weigh that depends on the specifics of your situation. We felt more comfortable with the rollover but we didn't have as much in our retirement accounts as you have and DH's rollover amount was higher than yours. With a different mix of the two maybe we would have felt differently.

Since there are 3 different plans, do you have an option to do a rollover on one of them and take a pension from a different one?
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Old 11-18-2013, 01:21 PM   #7
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Hi and welcome

If I had another secure source of income for the rest of my life (and spouse) that covers all expenses, then I would take the lump sum. If not, I'd take the pension which seems will do you very well.

It is a hard decision. In fact, when I was retiring, I had to make this difficult decision and this is one of the places that I came. At the time, I was too shy or whatever to ask questions. Luckily, someone else was asking about it whose situation was similar to mine and the consensus of this forum was to take the pension (in this person's situation). So, based almost solely on that (and some other sources), I took the pension and I am so glad that I did because now I can enjoy a worry-free retirement. But every situation is different. Hope you make the right decision for you.
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Old 11-18-2013, 01:38 PM   #8
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Pension is a safer way to go in the long run. Some of us think we can dabble in finance and will take the lump sum to multiply it & prosper. In reality, a lot of us fail in managing our own money - folks in this forum excepted, of course . And we wonder why large number of lottery winners who took lump sum end up in bankruptcy.
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Old 11-18-2013, 01:48 PM   #9
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Originally Posted by HFWR View Post
Unless those pensions are COLAed, I'd take the lump sum.

You're an insightful guy HFWR..........

Non-cola'd pensions have a huge risk due to inflation. Starting one and then entering a period of high inflation, such as we had in the 70's, could be more devasting to retirement finances than having a lump sum invested and then hitting a severe recession.

My MegaCorp pension is non-cola'd and has no lump sum option . If it did have a reasonable lump sum option, I'd take that in a heartbeat.
"I wasn't born blue blood. I was born blue-collar." John Wort Hannam
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Old 11-18-2013, 06:25 PM   #10
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I would take the pension as from what you say the plans are well funded, from your "can't beat" comment I assume you mean that the monthly fixed benefit exceeds what you could get by investing the lump sum in a SPIA, it will more than cover your spending for many years to come and your 401k can be invested a bit more aggressively since you have secure forms of income and that growth will help cover the inflation risk.

If you take the pension would it start when you stop working and make the need for bridge funds moot?

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