TX Lady Wants to Retire; Should She?

[SSQQ]

Hello,
I've been lurking and reading the board for a while and just now worked up the nerve to post. I’m 60 and would like to retire in June or July 2008.

My current expenses and lifestyle choices are $68k/year and I do want to spend that much in retirement. Those dollars do include my mortgage/insurance/taxes ($740/mo) on home that will be paid off in 12 years. They also include my health insurance: My medical insurance through my company will cost me $107/mo, but supplement will be $52/mo at age 65 when I start medicare $93.50/mo Part B.
My dental insurance will be $23/mo and Vision will be $5.46/mo.

I can select a monthly annuity or a lump sum retirement from my company. The monthly annuity amount varies on the type I select.
I am considering selecting the 50% option which means I will get $4,250 for life; and since I am single, my daughter will get 50% of that amount for life when I die.

The basic annuity if I chose no beneficiary would be $4,718/mo.
If I chose a lump sum annuity payment it would be $797,611.

I will also get a $765 preSS monthly payment from my company until I am 62.
My SS at age 62 will be $1550/mo.
I owe $4k on my car—2001 Crown Vic, 123k miles.
No credit card debt at retirement, still owe one year of $360/mo on daughter's car.

Additionally I have $600k in a 401K (60% company stock and 40% cash).
Over the past 10 years, the company stock has performed at 14.3% and cash has performed at 5.08%.
In the past 5 years the stock has performed at 24%.
I currently also get $800/mo royalty interest payment from 4 gas wells in my hometown.

How does my retirement financial future look to you guys?

 

[Jarhead*]

How does my retirement financial future look to you guys?

Enjoy your retirement. (You've got your bases covered).

Do you Salsa Dance? (Poster Ha will be along shortly if so).

Good luck, and above all enjoy yourself.

 

[cardude]

Well, if your expenses are only 68K per year, and you have $52K coming in on the annuity plus $9180 in pre SS, that's $61,180 available right there. That means you only have to draw 1% per year out of your 401K.

Yeah, I'd say you definitely have it covered. Oh, I forgot to include the gas wells!

Nice job........hurry up and do it.

If you take the lump sum of $797K plus your 600K in the 401K and run it through firecalc using 50K as your expenses (68K less SS of 18K per year), it looks like you could safely survive at least 30 years. Then your daughter can inherit the remainder and could be able to continue to draw 3-4% ($41,910-55,000) for the rest of her life, which would give her a better sum than the annuity would give her ($25800). Maybe you could put the max SWR of 3-4% that she must use in your will?

 

[SSQQ]

Yes, Jarhead,
I've been known to salsa mambo, but have never learned salsa merengue (sp?).

CarDude,
I don't know how long the gas wells will produce at the rate their producing now. Since the 4th well just came on line in November, it may not sustain that level of production very long. I was just getting $115/mo for the first three wells.

 

[Coach]

SSQQ, one point of caution -- I assume the annuity is a fixed amount, with no annual increases. If that's the case, of course, the relative buying power of the payout will go down each year. By the time your daughter gets old, it will have lost much of its purchasing power.

You seem very generous to your daughter. If it's not too prying to ask, how come? NOYB is a perfectly reasonable answer

Coach

 

[SSQQ]

If you take the lump sum of $797K plus your 600K in the 401K and run it through firecalc using 50K as your expenses (68K less SS of 18K per year), it looks like you could safely survive at least 30 years. Then your daughter can inherit the remainder and could be able to continue to draw 3-4% ($41,910-55,000) for the rest of her life, which would give her a better sum than the annuity would give her ($25800). Maybe you could put the max SWR of 3-4% that she must use in your will?

CarDude,
One of the reasons I waited so long to post is that I am a bit lacking in financial savvy. I'm not real sure what you just said. Did you say to consider not taking the monthly annuity and to take the lump sum instead, in order to give my daughter a better inheritance? (I have no idea what SWR means in financial lingo....means statewide rule in my circles.)

 

[REWahoo]

SSQQ, maybe this link with help: http://www.early-retirement.org/forums/f47/acronyms-slang-frequently-used-forum-34884.html

 

[Rich_by_the_Bay]

SSQQ, by any conventional standard you are comfortably in retirement mode, financially. Make sure you factor in taxes (e.g. at a 20% tax rate yould need $85K to generate your $68K per year in expenses) but even then you have plenty of room.

The only other ingredient is to invest your holdings in a nice, diverse portfolio of stocks and bonds - lots of help is available in the way of books. Click here to see one of my favorite starting books -- I like to keep it simple.

Unless there is some other reason why you don't want to retire, let me be among the first to congratulate you, because you are there.

 

[FinanceDude]

I think you're pretty solid. My only concern is the large amount (60%) of your 401K in company stock. I think that's MUCH too high. My business partner has a LOT of GE retirees who feel the same way. However, those are the SAME folks that call when GE has a rough day to lament their holding so much.

Bottom line, I would trim the company stock down to no more than 25%.

 

[Moemg]

Welcome to the board ! Sounds like you are ready to retire !

 

[SSQQ]

You seem very generous to your daughter. If it's not too prying to ask, how come? NOYB is a perfectly reasonable answer

Coach

My only child is very special. Of course she is (you are thinking).
However, I supplemented my daughter's income during all the years that she was in a ministry position with very low pay. I considered that an honor to be able to help her serve others. She's now a stay-at-home mom, and I continue to supplement her some even though she is married now because I think I am investing in my grandchild's formative years.

I worry about her retirement years since she has no retirement fund. And since my husband walked away with 1/3 of my savings after 30+ years of marriage, I want to make sure that she is not left with nothing if her marriage should end after 30 years also. I guess I have a trust issue.

 

[SSQQ]

SSQQ, one point of caution -- I assume the annuity is a fixed amount, with no annual increases. If that's the case, of course, the relative buying power of the payout will go down each year. By the time your daughter gets old, it will have lost much of its purchasing power.

You seem very generous to your daughter. If it's not too prying to ask, how come? NOYB is a perfectly reasonable answer

Coach

Per my retiree friends, the company has given pension increases 3x in 23 years. So there is no guarantee of any increases, but could expect some very infrequently.

 

[SSQQ]

The only other ingredient is to invest your holdings in a nice, diverse portfolio of stocks and bonds - lots of help is available in the way of books. Click here to see one of my favorite starting books -- I like to keep it simple.

I plan to use a financial advisor from Smith Barney/Cooper Network that many retirees from my company have used for years; because if I had to learn how to manage my portfolio, I don't think I could enjoy retirement. Having to learn anything financial sounds like punishment to me. Is that really a bad decision on my part?

 

[FinanceDude]

I plan to use a financial advisor from Smith Barney/Cooper Network that many retirees from my company have used for years; because if I had to learn how to manage my portfolio, I don't think I could enjoy retirement. Having to learn anything financial sounds like punishment to me. Is that really a bad decision on my part?

It's up to you. You could always learn little by little as you go. Most folks on here manage their own money, but a fair number of them did have a financial advisor for some period of time before going on their own.

It's YOUR call, because it's YOUR money.......

 

[Rich_by_the_Bay]

I plan to use a financial advisor from Smith Barney/Cooper Network that many retirees from my company have used for years; because if I had to learn how to manage my portfolio, I don't think I could enjoy retirement. Having to learn anything financial sounds like punishment to me. Is that really a bad decision on my part?

I don't think that paying for expert advice is necessarily a bad thing. If it were me (though in fact I manage my own) I'd look for a financial advisor who charges by the hour or some similar arrangement. Remember that stock brokers make money when you buy stocks. Annuity salespeople do the same when you buy annuities. Insurance salespeople when you buy insurance. You need objective advice, coordination, and NO conflict of interest.

The book I recommended above might be useful to you regardless of what you choose to do. Please read it before you decide. By the way, you'll find a strong bias on this board against financial advisors - it's mostly a do-it-yourself culture around here. But I think for some people, advisors' fees are well worth the peace of mind. Just make sure they have no financial stake in your plan other than being paid for their objective advice and experience.

P.S. While scarey at first, it's not that hard to do it yourself if you're willing to do some reading and ask questions.

 

[SSQQ]

Thanks Rich,
I'll get that book and ... m a k e ... myself read it.

 

[Gumby]

Welcome aboard SSQQ. If you've been lurking, you already know about the FAQ sub-forum, so I won't bother with that.

I would echo what others here have said -- it looks like you are in good shape. If you feel uncertain, you may want professional planning, but I would reiterate that the best steward of your own money is you. No one else has an undiluted interest in your financial well being. If you do go with a planner, ask plenty of questions and do not stop asking until you fully and completely understand what your advisor is saying.

You have undoubtedly done tougher things in your life than financial planning. Think of it as just another one of the challenges you have already overcome and everything will work out fine.

Once again, welcome. The best part of life lies ahead.

 

[mh]

i agree with most/all of the prev postings. One thing i did note was that
Even though your company 401k stock has done well
you've got a lot of money invested in just one stock (in my opinion)
if i were you ( and i'm not ) i would at least think about diversifying some
of that if possible.

 

[militaryman]

Ok I am jealous!!

Board,

Isn't it unusual (unheard of for me) for a company to allow you to pick other than a spouse or dependant child (disabled for example) as a beneficiary for annuity payments.

I mean this really stretches a company's retirement liability for someone by perhaps 30 years longer than needed.

I sure would strongly consider this option if available to me.

 

[Rich_by_the_Bay]

i agree with most/all of the prev postings. One thing i did note was that
Even though your company 401k stock has done well
you've got a lot of money invested in just one stock (in my opinion)
if i were you ( and i'm not ) i would at least think about diversifying some of that if possible.

MH raises a very important point, and I agree. While some individual stocks and sectors have taken a terrible beating recently, a diversified portfolio would likely be bruised but not broken.

Imagine if all your holdings in your one company went down and out - you are very vulnerable there. It would be reasonable to transfer most or all of that to a broad index fund. If you're not sure which, just choose a balanced fund like Vanguard's Wellesley, STAR, Wellington or similar fund. You can fine-tune it later.

 

[SSQQ]

Ok I am jealous!!

Board,

Isn't it unusual (unheard of for me) for a company to allow you to pick other than a spouse or dependant child (disabled for example) as a beneficiary for annuity payments.

I mean this really stretches a company's retirement liability for someone by perhaps 30 years longer than needed.

I sure would strongly consider this option if available to me.

It's a possible good option for a single person with just one child. Since only one beneficiary can be named, the option does not work well for my other single co-workers with more than one child.

Of course, the beneficiary's age is worked into the benefit formula. That's why I will get $4,250 instead of $4,718/mo. If my daughter were much younger, then I would get even less.

 

[Abreutime]

Dumb question about annuity's through your previous employer: Do they tend to use an outside company of fund it themselves?

I ask because this person is in fine shape, and should seek to minimize the effect that low probability events (her employer pulling an Enron) will have on her portfolio. If the pension is also funded by megacorp, then that is just an added risk to having so much company stock.

 

[bssc]

Hi and welcome

As an addtional point, my DW has about 350K of her 401(k) in her company stock. Good performer, etc (GE) but I convinced her to move 250K of it to the SP500 Index fund. She was quite happy when it dropped 12% last week. While I doubt that it will Enron, it is so huge that I don't think that it will outperform the market.

 

[cardude]

CarDude,
One of the reasons I waited so long to post is that I am a bit lacking in financial savvy. I'm not real sure what you just said. Did you say to consider not taking the monthly annuity and to take the lump sum instead, in order to give my daughter a better inheritance? (I have no idea what SWR means in financial lingo....means statewide rule in my circles.)

Sorry for the confusion. I was trying to make the case that by taking the lump sum and diversifying it into several different asset classes that you could probably do better than just taking the annuity. By better, I think your daughter could have more money to spend after you are no longer around. The SWR means safe withdrawl rate, which is the maximum you can safely withdraw from your portfolio and have it weather most market downturns. That means if your portfolio is worth $1,400,000, you (or your daughter) may be able to safely withdraw $42,000-56,000 out each year for 50 years or so instead of the $25,800 per year the annuity would provide.

However, if you don't think you can put together the right kind of portfolio (you probably can), watch over it and rebalance it, and stick to the SWR, then you are better off just taking the annuity IMO. And I agree with everyone else-- your 401K has too much company stock in it.

 

[Milton]

I agree regarding the need for diversification in your 401K. Since the annuity is unindexed, the 401K is essentially the only inflation protection that your retirement will offer you (at least until your social security payments kick in). You are in a good position now and it's simply not worth incurring the company-specific risk, regardless of how well the stock has recently performed.

I am usually not one to encourage economic subsidies to adult children (see generally chapter 5 of The Millionaire Next Door). But you have reasons that make sense to you, and it seems like you can afford it (the $468 monthly difference the 50% option will cost isn't going to break you). So I wouldn't worry about it.