Financial people -- need your opinion ....

[EdiePA]

I'm leaving my job with the State of Pennsylvania after almost six years of employment. Therefore, I'm vested in the pension fund and have three options -- take a lump sum now (about $25,000), take an annuity ($400 monthly) or leave it in there until age 60, when I'd have to start drawing out money ($750 monthly). (I'm 50 now.)

I'm hopeless when it comes to money questions, so my instinct is to just leave it where it is, but I'm not really sure that's best.

Any ideas??

TIA,
Edie

 

[mudnuri]

My instict would tell me to go see a financial planner, since I'm like you have no clue!

I'd check into talking to someone.....

Brandy

 

[goofyforlife]

I would think your best option is to leave it until retirement age....

If you take annuity now, wouldn't you have to pay tax penalty on it?

 

[dawnball]

Leaving aside tax advantages, and assuming that you live to be at least 80...

The lump sum is the worst option, if you never spend a dime and reinvest your interest you'll end up with around $143K. Taking an annuity now is almost break even. You'll get $144,000 if you spend every penny as it comes in and make no interest. You would do better if you invested the money for a later retirement. The later annuity (at 60) gives you $190K.

I'm assuming a relatively modest interest rate of 6%, but that may or may not be realistic depending on how you would invest the money.

Tax treatment of the money could make a huge difference in those calculations though. So could your expected life span - if you expect to die early you do better with the lump sum or early annuity - if you expect to live to be 122 you'll do better with the later annuity.

I'd talk to a financial adviser (CPA, FPA, etc) but those are some rough numbers to kick around.

 

[Toby'sFriend]

Is the $750 withdraw at 10 years a guaranteed annuity for the remainder of your life - or just until the fund depletes?

 

[EdiePA]

The $750 at age 60 (or the $400 now) is guaranteed for LIFE. If I should die before the fund is depleted, any remainder would be paid to my survivors. (The benefits are subject to federal taxes. Under the PA State employees retirement code, my benefit is totally exempt from PA and local income taxes, as long as I am a PA resident, which I will be.)

Where does one find a financial planner and how much does it cost??


Thanks again,
Edie

 

[plummer925]

If you withdraw it now, you will be hit in approx. 40% taxes and penalties. Just not worth it.

How about rolling it over into an IRA so YOU have control over it?

Definitely see a financial councelor. Talk to your bank, they should be able to hook you up.

 

[LoveBWVVBR]

I wouldn't bother seeing a financial planner for such a modest amount. If you do go this route, please see a FEE ONLY financial planner, and DO NOT get suckered into any sort of annuity, whole life insurance, etc.

My advice would be to roll the money over into an IRA, and then convert it to a ROTH IRA if you are in a tax bracket that would allow such a conversion. Check with your CPA about that. For IRA's, you can always go with a "no brainer" such as the T.Rowe Price target retirement funds. Vanguard has similar funds, but they are a bit more conservative than T.Rowe Price target retirement funds. Either of these fund families is a good choice, though. They are low fee and well run. You just pick your "target" retirement year and do a direct rollover from your plan into the IRA. The fund companies have phone #'s of reps who can help you with your rollover from start to finish. It's simple, and it gives YOU control of your own money.

Also, no more being "hopeless" about money! That's not OK for anyone, especially for a woman in her 50's who's coming up on retirement in the future. Please make it your new year's resolution to become savvy about your own money. You can get a subscription to Kiplingers for like $10 for 3 years on Ebay. I bought one for myself and one for my dad and they both came quickly. Also, Money Magazine and Smart Money are great. All 3 magazines are written in an easily digestable way. Suze Orman has written some wonderful books on personal finance. Half.com should have them for a good price. Just search her name. My old favorite is "The 9 Steps to Financial Freedom," but she's written other good ones also. She has a great call-in show on Saturday nights at 9PM on CNBC. It's definitely worth watching/TIVOing every week.

The classic money book in my opinion is "Your Money or Your Life" by Joe Dominguez. I got it for like $1 on half.com. It's a wonderful read also.

 

[EdiePA]

I do work at managing my money -- I have a budget and I earned an impressive 13+% on my 401k investments last year. But annuities and payments, etc., just create static in my head. Just like some people are good at math and others love science.

So, I'm bumping this up for the evening crowd to see if someone can explain this to me.

I understand roll-overs and wonder if I'll be able to roll-over my 401k into my 403b at the new job.

Ugh! If I only had a brain!

Edie

 

[dvcgirl]

I do work at managing my money -- I have a budget and I earned an impressive 13+% on my 401k investments last year. But annuities and payments, etc., just create static in my head. Just like some people are good at math and others love science.

So, I'm bumping this up for the evening crowd to see if someone can explain this to me.

I understand roll-overs and wonder if I'll be able to roll-over my 401k into my 403b at the new job.

Ugh! If I only had a brain!

Edie

I would see a fee based Certified Financial Planner, not just for help with the decision to take the lump sum or an annuity, but for overall planning help. Start here http://www.napfa.org/ This is the website for the National Association of Professional Financial Advisors. They are a "fee-only" organization meaning that members do not receive commision for the products they recommend to clients, rather they work for a fee. Fees are charged either by the session, or by a percentage of your portfolio.

As for rolling your 401K, definitely roll it over into an IRA, and not into your 403b. You have much more control that way will have an endless amount of investment options vs. the small amount that your new 403b will offer you. A CFP can help you with this as well.....

 

[ceecee]

CFP do receive fees from investments they sell, so they would probably advice you to get a lump sum and invest with something they recommend. You can see a licensed financial advisor at a bank or credit union free of charge. See several and fiqure out whats best for you.

 

[dvcgirl]

CFP do receive fees from investments they sell, so they would probably advice you to get a lump sum and invest with something they recommend. You can see a licensed financial advisor at a bank or credit union free of charge. See several and fiqure out whats best for you.

I'm not sure what you mean by receiving "fees", but there are fee-only based CFPs who receive no commision at all for the products that they recommend. They simply charge you a fee for the services provided. That's the only type of CFP I'd ever recommend.