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Greetings, Ehendler, and welcome. You wrote:

<<I recently left a job with the State of Texas after 7 years (I am in my mid 30's). I am now self-employed, so do not have a new employer plan to roll over my state retirement funds (15-20k) into. I need to make a decision whether to stay with the state retirement system or to roll the money over into an IRA to manage myself. I have read several MF books, but have not invested before. I can't seem to get a clear answer from anyone at the state agency--they just tell me that "everyone" leaves the money in. My understanding is that I will receive 14% of my final salary of 4k/month at age 65 for the rest of my life, which comes to $560/month. This does not seem like a king's ramsom to me 30 years down the road, and I guess I think I can do better with the same money carefully invested now. Of course, if I live another 25 years after that, it adds up to about 168,000. Am I missing something? Can anyone give me some advice about what to do? >>

Your choice boils down to taking an annuity of $6,120 per year 30 years from now that will be unadjusted for inflation during the remainder of your life or taking $15K in cash today. What you take today can be invested for the next 30 years and for the rest of your life. If you invest that $15K to earn 10% per year (well within anyone's power to do), then at retirement 30 years from now it would be worth $261,741. Assume inflation runs 4% per year for the rest of your life and that you leave the money invested at 10% and will live for another 30 years. You could then take $$17,536 in your first year of retirement (or nearly 3 times what your state pension would provide), and then increase that amount by 4% in every year that follows for 30 years (something the state pension won't do).

Which result would you rather have? If you are confident you can invest that money and let it grow during the years, then you can indeed beat the dickens out of whatever the state pension would provide by taking the money now. Otherwise, leave it where it is and settle for the guaranteed payment.

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