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Further to my recent post, we've learned this morning, that they're going to push people to take a lump sum cash out of their pensions.

Our household is in the highest tax bracket, so this could hurt.

Are there any other disadvantages to managing my own money?


Thanks, MG
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I expect you will be allowed to roll the lump sum cash into a 401k or something and postpone taxes until you take it out.
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they're going to push people to take a lump sum cash out of their pensions.


Even if they push, you still make your own decision, but under the circumstances (what seems to be a pretty tacky company which will dump the pension plan at the earliest opportunity), it's probably wise to take the lump sum.
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Further to my recent post, we've learned this morning, that they're going to push people to take a lump sum cash out of their pensions.

If this is a defined benefit plan you might want to take a look at www.pbgc.gov before you make a decision.

Phil
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Thanks! I shoulda had a V-8!

I was discussing this situation with a co-worker who is over 65. In his case, he would not rollover, but add the money to this stash, so he is more concerned about the taxes. I forget that it's different for me - I would rollover into my 401K.


I have so much to think about lately, I think some of my marbles are falling out.


Thanks again, MG
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My mother rolled her lump sum pension into a T-IRA ~15 years ago. AFAIK you can do that today--no taxable event. If you decide to get another job that offers 401(k), I think you can roll your lump suim into that, but that makes no sense to me. Why pay 401(k) fees rather than manage your own IRA? The only disadvantages to managing your own money are making your own mistakes. Interestingly, I find that I manage our taxable investments better than our IRAs, especially my T-IRA. I tend to put the flakier ideas there. I should stop doing that!

Good luck with whatever you decide. IIRC you're in good shape to consider early retirement or part-time consulting.
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Author: MaryGoodnight | Date: 5/10/05 9:26 AM | Number: 9767
we've learned this morning, that they're going to push people to take a lump sum cash out of their pensions.

Our household is in the highest tax bracket, so this could hurt.


You should have the option to roll the pension lump sum to a Traditional IRA. Then, you won't pay any taxes until you take it out.

Are there any other disadvantages to managing my own money?

The most important thing when you are managing your own money is to invest conservatively, at first, and not try to hit a home run!! This is critical with retirement portfolios.

The simplest conservative approach I know of is to roll the lump sum to a T-IRA in Vanguard's Balanced Index Fund (VBINX or VBIAX depending on the amount of money). This fund will maintain a 60/40 ratio of Total Stock Market/Total Bond Market. This will give you reasonable growth potential from the equities balanced by the bonds for safety and stability. Leave it there forever, or until you learn more about investing, and decide you want to take either more or less risk. That's what I did with my pension lump sum rollover.

Also, if there is any of your company's stock in any of your qualified plans (pension, profit sharing, 401(k), etc), you may have the option of taking that stock out and paying income taxes only on its cost basis. Then, when you sell it, outside of an IRA, you pay income tax at long term capital gains rate. This can often be a very good way to go, since, if you roll it into the T-IRA, you will pay income taxes at your marginal rate when you take it out. Look up the details under 'Net Unrealized Appreciation' in Pub 575 at: http://www.irs.gov/publications/p575/index.html

Russ
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With interest rates at historically low levels, you should want to take a lump sum!

BTW, anyone who wants to get a rough idea of what their lump sum would buy in the way of a guaranteed stream of income (or what kind of lump sum it would take to replace thier pension) can check here: (click on "Consider an income annuity" and follow the links...)

https://flagship2.vanguard.com/VGApp/hnw/content/PlanEdu/Retirement/PEdInRetOVContent.jsp

Or here.... (click on "request a quote")

http://personal.fidelity.com/products/annuities/?bar=c

I am not recommending income annuities or suggesting these are the best deal around, but they do provide easy to use tools for comparing a lump sum to a stream of "guaranteed" income.

Be advised, however, that insurance companies, which offer income annuities, can go broke too, and if they do, there is no Federal Agency backing them up. You get into some murky State Insurance agency guarantees. Also keep in mind the same issues which are contributing to pension under-funding (low interest rates and lousy returns on stocks) will strain insurers as well.



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Author: readyteddy | Date: 5/12/05 10:37 AM | Number: 9774
...anyone who wants to get a rough idea of what their lump sum would buy in the way of a guaranteed stream of income (or what kind of lump sum it would take to replace thier pension)...


I think the best site for researching this is: http://www.immediateannuities.com/

This site takes into account what state you live. You tell it the lump sum, and it tells you the monthly income you can expect. Or, you tell it how much you want per month, and it tells you how big a lump sum it will takes.

Russ
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Thanks for the link, Russ.
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