whirlwind three week process, but I'm retired now

[phoneguy55]

One month ago, I was still of the mindset that I needed to stay with Verizon for 4 more years, which would get me to 60. With the absolutely horrific working conditions there as of late, ( the public has no idea...) I jumped at the chance to take an early retirement incentive which was proposed during the first week of March. The stipulation was that you had to be "gone" by April 1st. You can only imagine what the last few weeks have been like, since this came out of left field. Now, here I am on my first unemployed Monday morning in 26 1/2 years. It's kind of surreal.
My basic plan as of now ( with investment advice scheduled this week) is to have the $480K lump sum pension placed into an IRA to avoid any tax issue. The 401K amount, is going to stay with my employer's Fidelity plan in case I need to take any distributions before 59 1/2. The incentive gave me $27K cash and $950 a month for 48 months. For now I will take the summer to decide if I can make this all work as is.... ( using the $250K 401K as income until 62 1/2) or if I will need some kind of supplemental employment.
Any thoughts, critiques, or suggestions ?

 

[jclarksnakes]

Welcome and congratulations! First and biggest question is almost always........healthcare insurance? The next big question is how much do you need annually to live on? One other thing that struck me in your post. Putting the lump sum into an IRA will shield it from present taxes but will not avoid any tax issue later. The tax man will eventually get his due. Putting it into an IRA may in fact be the right thing for you to do though. Try running your numbers through Firecalc and see what you get.

 

[omni550]

Welcome.

Try running FIRECALC (link in light green band at bottom of board) to help with your decisions.

omni

 

[phoneguy55]

health care ....

Hi,... health care ( under current contract) is provided at no cost to retirees just as when working. I had the choice of either taking the lump sum as cash( yikes....tax would be huge) or, to prevent that I was advised to have the company deposit it into a sub account (newly opened IRA account) at my credit union, to avoid the tax.

 

[jclarksnakes]

Check out threads here on ER.org about converting traditional IRA money into a Roth IRA. You may want to consider doing that a little at a time over coming years and in amounts that keep you from going into the next tax bracket. The bigger issue is still for you to determine how much you need to live and whether your portfolio and SS will be enough with the 401K money providing the bridge from now till you start drawing SS.

 

[phoneguy55]

possible plan

as a total newbie to this whole "investment" world, my naive mind seems to think I might be able to take about $40K a year out of the 401K, which would last me until 62 . At 62 , I would then only have my S.S income and the $480K lump sum pension that had been hopefully growing ( untouched) for the past 6 years. Being only 56, and not having planned to "not work" ...I very well may find something to do which will only add to all of these calculations, but if I can swing it without working then I would feel relatively comfortable knowing that as a minimum, I should be OK going forward.

(thanks for your input.....I will meet with my investment guy Wednesday, even though no funds have been actually distributed as of yet)

 

[jclarksnakes]

Your investment guy may at this moment already be salivating over your half a million lump sum. Be careful

 

[phoneguy55]

ha ha....I know. I met with a few "big name" investment outfits during the last few weeks, and more or less , just asked if they thought I could swing this.( some were fee based...some commission based) I told them I would decide on who I went with, once I decided if I was actually going to make the move. The one who seemed the most practical, and had the least amount of salivation going on....was actually a subsidiary of my own credit union. He works on a salary rather than fees or commissions ( generally speaking) so I thought that was the safest place to start. Since my money is now "my job" ...I plan on taking a very proactive role and hope to set something up through him, that will grow modestly and safely for 6 years.

 

[H2ODude]

I think the only thing you really need to do NOW is associated with the IRA which I think you were correct on. You have PLENTY of time to become conversant enough in investing to pretty much do it yourself. Do NOT let anyone steer you into loaded funds. Read some books, read here, ask questions. There's no reason you can't develop the confidence to do it and do it well. After all, you have the time now to get up to speed on a very important topic...it's sort of your "job" now! Good luck and congratulations on the opportunity.

 

[BigE]

Congratulations. Read, read, and read some more. You are right in asserting that your money/retirment funds are your job. I personally think you can handle managing this all by yourself, armed with the knowledge from this site. You are now in the enviable position to manipulate your tax burden to the lowest amount possible. I personally would consider converting to ROTHS (at least some of the traditional IRAs) b/c it gives you much more versatility with the unknown changes in taxes and consider any side income to make just 6k/year so you can continue ROTH's. The fact that you made it to 55 with the 401 gives you awesome flexiblity until you decide on SS. Congrats again.

 

[phoneguy55]

H2ODude......
Thanks for corroborating what I feel is the best tact for me. I am not historically a financial wiz, but being well read and reasonably intelligent, and willing to embrace the whole financial genre with the same tenacity that I used to stay on top of all of the technical advances I've encountered for years in the I.T. world, I am optimistic.
Thanks....

 

[phoneguy55]

BigE....
good points.....I will bring those up to my investment guy when we do my initial "triage" this week. The absolute depth of the whole subject, with tax liabilities and fees, and expenses ... all make me feel that having someone as a resource is important. If this guy is there for me for free, whenever I need to talk, then I will feel that I am not trying to do too much , too soon, on my own. I appreciate your input....thanks

 

[Tractor guy]

The previous posters have given you good advice. I also suggest that you look at the Bogleheads blog and wiki. They have excellent advice and a reading list to get up to speed on investing. The bogleheads site is at: Bogleheads Investing Advice and Info

As others have said, go slow. The present market (bonds, stocks, or insurance) doesn't have any screaming bargains so there is no reason to be in a hurry to invest your lump sum. The biggest thing you need to do now, is avoid locking yourself into something that is expensive or costs you a lot in taxes. Spend 6 months to a year putting a plan together, check it out with this board and bogleheads, and then execute.

Lorne

 

[Midpack]

Welcome aboard phoneguy and congrats!

I can only reinforce what others have told you, take it slow there's no need to rush into anything, act when you are ready/comfortable. I'd also recommend you enter your numbers in FIRECalc: A different kind of retirement calculator to get a sense how feasible your first cut plan is. You've given us some of your inputs but not all of them, we understand why you may choose not to. Note there are several input pages (tabs across the top) to enter all sorts of income streams, expenses, asset allocations etc. A great place to start, and costs you nothing...

 

[harley]

Hi,... health care ( under current contract) is provided at no cost to retirees just as when working. I had the choice of either taking the lump sum as cash( yikes....tax would be huge) or, to prevent that I was advised to have the company deposit it into a sub account (newly opened IRA account) at my credit union, to avoid the tax.

You must have been a union guy. I didn't get that sweet a deal when I left. Good for you. In management we retirees only get 80% of what an active employee gets (minus, in my case a significant percentage for retiring early). But for me the important thing was the guaranteed (sort of) coverage through the group plan, more than the cost.

As the others have said, you don't need to make any quick moves with your IRA. Leave it in cash for awhile while you learn about investing and asset allocation and such. Feel free to report back here on what the financial advisor tells you to do. We'll be glad to give you dozens if not hundreds of other opinions. There are at least two or three other current or ex-VZ people here, and I'm always glad to see someone escape their clutches. Welcome.

 

[phoneguy55]

thanks so much to all those who responded.....( this is only day one for me) . Generally speaking, from what I have read as of late, I would not be well served by any kind of annuity, because of the "lock in" associated with it. I mean, I can just take annual disbursements from my 401K and budget my own salary, of sorts......right ? As for the lump sum pension, and the longer range goals for that....just a nice, well diversified approach with a moderate growth asset allocation would be my smartest bet...n'est pas?

(edit to reiterate, I won't see any retirement monies until after May 1st, but selling back 4 weeks unused vacation will get me through a month. I see a lot of jobs available in the technical fields I have experience in, but I am not so sure I really want re-enter the rat race I just bowed out of. I wonder about refinancing my mortgage while unemployed, though...(5.5% now...aarrggg)

 

[Khufu]

thanks so much to all those who responded.....( this is only day one for me) . Generally speaking, from what I have read as of late, I would not be well served by any kind of annuity, because of the "lock in" associated with it. I mean, I can just take annual disbursements from my 401K and budget my own salary, of sorts......right ? As for the lump sum pension, and the longer range goals for that....just a nice, well diversified approach with a moderate growth asset allocation would be my smartest bet...n'est pas?

Taking the lump sum was probably your first mistake. Companies know that people have a strong, even irrational, preference for "control." So, they price the lump sum option accordingly. Usually, the lump sum option is undervalued for two reasons: first, their actuaries and fund managers know more about investing than you do and, second, taking the life annuity was your chance to offload your longevity risk on them. What if you outlive your lump sum?

My advice to you would be to get another job if at all possible so that you avoid drawing down your slender resources. If you can get a job you can add to your savings for at least a few more years.

The second step is that you need to find competent advice to face the host of decisions that you will be making in the future and on which your well-being depends. For instance, a fee-only financial advisor could have analyzed the specifics of your lump sum/annuity choice and told you which was the better deal under some set of assumptions about your life span, return rates, inflation, etc. But it's not easy to find such a qualified advisor. Do you have any friend who is good at making money decisions?

You can attempt to educate yourself about investing and should do so. However, it is simpler, if more painful, to reduce your cost of living and do so as soon as possible before your financial options start to dry up. Consider such drastic steps as relocating to an area with a lower cost of living and/or taking a roommate.

Sorry if it sounds harsh and unwelcome, but frankly you are in a dangerous position for which you are unprepared.

 

[militaryman]

Having the healthcare paid for is HUGE ---
I think you are in good shape if you can do one of two things (or combo of both )
1. Try to pare your living expenses
2. Take on a parttime gig
If you can somehow manage to only draw 30k a year (due to implementation of one or both of the above) then you should be golden with the numbers you have even with conservative returns on your investments .

 

[phoneguy55]

Khufu.....
thanks for your take on things, and I agree with your points to an extent. If you knew the volatility going on within Verizon as of late, you might better understand my doubts about leaving anything in their hands concerning my future. ( too long of a story for this thread). In days of old when corporations ( and their CEO's) were honorable I would have taken the annuity for sure. I have not dismissed using a fee based pro going forward, for advice and guidance....but want to do my homework and research first. Thanks for the frank opinions.

Militaryman:
Getting a job will definitely keep things on track, and most likely will help me from a social aspect also since I have not really developed any kind of social circles due to always working, and living alone. Taking any more than a $30K annual disbursement will ( IMO) put the whole scenario in a much dimmer light, I agree.Without changing my lifestyle/bills at all will require more like $45K to even squeak by, so I need to react accordingly.

From the candid and heartfelt advice so far from everyone, I am at least certain that I made the move at the right time ( for me). This forum really is a comfort, and has really offered up some poignant thoughts to consider. Thanks to all...( again )

 

[FinanceDude]

Best of luck, phoneguy55.......... As far as Verizon goes, I think you did the right thing. If their customer service is any indication, there's a lot of unrest going on inside, and we as consumers can see the net results...........

 

[Midpack]

Taking the lump sum was probably your first mistake. Companies know that people have a strong, even irrational, preference for "control." So, they price the lump sum option accordingly. Usually, the lump sum option is undervalued for two reasons: first, their actuaries and fund managers know more about investing than you do and, second, taking the life annuity was your chance to offload your longevity risk on them. What if you outlive your lump sum?

I respectfully but strongly disagree with this advice.

• The lump sum is most likely the amount it would cost to buy the annuity the company is offering, in which case they are of equal value (lump sum vs annuity income). It's easy enough to get quotes to verify. Just assuming it is "undervalued" is incorrect.
  • It's unlikely the company is providing the annuity, they are probably buying an annuity on behalf of the retiring employee. Odds are the company is not 'pricing the lump sum.' Also as easy as asking the company.
• With interest rates at historic lows, the cost of an annuity for a given income/year is at or near all time highs. There has never been a better time to take a lump sum than now. I took a lump sum last Jun, and the amount was 1.7X what it would have been if interest rates were at 6%. This has been discussed factually here and elsewhere. I have seen dissenting views, but none with factual support.
• And finally, the OP can buy an annuity for himself at any time. He has definitely not missed his chance to "offload longevity risk." Odds are considerable that he can do so more cost effectively later.
• I can give other reasons if necessary...

Sorry if it sounds harsh and unwelcome, but frankly you are in a dangerous position for which you are unprepared.

I am sure you post with good intention but IMHO, I don't think you've begun to provide a basis to draw this conclusion.

 

[phoneguy55]

The whole "annuity" thing seems uncomfortable to me, whether it be a pension annuity, or even one I set up now. I wonder what advantage "locking in" so much capital has, over taking my own distributions. I know that I am more or less guaranteed a set amount, which won't be as affected by market changes going forward, but it seems unsettling somehow. Maybe if I was actually retiring ( completely) and going to just live off of one huge "nut" , then it would be more appealing, but I am not sure it would be best for me ,...now. ( very naive and trying to learn all the caveats involved..)

 

[Midpack]

The whole "annuity" thing seems uncomfortable to me, whether it be a pension annuity, or even one I set up now. I wonder what advantage "locking in" so much capital has, over taking my own distributions. I know that I am more or less guaranteed a set amount, which won't be as affected by market changes going forward, but it seems unsettling somehow. Maybe if I was actually retiring ( completely) and going to just live off of one huge "nut" , then it would be more appealing, but I am not sure it would be best for me ,...now. ( very naive and trying to learn all the caveats involved..)

'Locking in so much capital' is the one of it not the most common reasons people are (justifiably) wary of buying an annuity until later in life, you're not alone there. You can buy an annuity with your lump sum tomorrow, wait until you're 75, or never. Had you bought an annuity now, there would be no turning back. Take your time to learn more before you act...

 

[militaryman]

"guaranteed a set amount, which won't be as affected by market changes going forward"
^^^^ You got it there ..... This is precisely the reason ^^^^^^
Some folks like to create some "buckets" of income and it puts their mind at rest to take a bucket and buy enough annuity to cover their minimum needs ---- Like if they know they can scrape by on 20K a year they might buy an annuity with a strong company that provides that amount yearly for life with an inflation adjustment feature. Then all the $$ they have left can be invested with less trepidation as they can KNOW that they will always have the basics covered no matter what the market does to them.
What alot of LBYM'ers probably find out is that the amount they will get from SS (especially if they are a couple) will suffice to give them that guaranteed coverage for the basics and therefore an annuity would just be overkill -- (for my wife and I we should draw 28K+ in SS at 62 supposedly)
Still, some enjoy a pad of extra guaranteed $$ to insure a comfortable retirement before they wade out too far into riskier investments.

 

[militaryman]

'Locking in so much capital' is the one of it not the most common reasons people are (justifiably) wary of buying an annuity until later in life, you're not alone there. You can buy an annuity with your lump sum tomorrow, wait until you're 75, or never. Had you bought an annuity now, there would be no turning back. Take your time to learn more before you act...

^^^^ This makes alot of sense except for one point I will play the devil's advocate on .... "You can buy an annuity with your lump sum tomorrow, wait until you're 75" The reverse of that statement is what the basis of an annuity is predicated on -- Depending on what you screwup or the market does to you between now and "75" determines whether you will or will not have that $$ to get an annuity later --- Buying the annuity locks the $$ in a certain value versus an unknown value.