Can we talk about 401Ks?

[tvguy]

There are a number of different types of annuities and one reason to talk to a financial advisors is to understand the differences and if they have a place in your total financial picture. They make sense for certain situations. With the higher interest rates lately, CD's and other similar investments may also be a fit for you. You get a fixed return with none of the risk associated with the stock market.

Yeah, I think annuities have their place in a well planned retirement strategy.

 

[QueenIsabella]

I guess we have been passive investors. The bulk of our financial plan was laid out 37 years ago. Now that we are retired that last thing we want to do is start spend time managing investments. For now we are living off savings. Within the next 12 months we too will have two Social Security checks coming in and that should handle all our needs. But we don't have to start taking the annuities until we are 70, and then, the distributions can remain within the IRA system, or we can start taking the money and have some fun.

See, I'm a total math nerd--investing is like catnip to me. I recognize that this makes me an outlier, particularly among women. 3 of our 4 kids prefer passive investing--we're fine with it. My DH is less math-nerdy than I am, but he has particular stocks that he likes (some are sentimental favorites, inherited from his folks--luckily, my IL's were big on blue-chip stocks).

We're also outliers due to the pensions. Ironically, the time we need more money isn't in retirement, but right now. We have 3 kids in college in some form (one full-time, one part-time, one doing dual enrollment), with very little financial aid. Even the "aid" that the full-time student gets is for her to live on campus, which we endorse anyway, but it ends up costing us more versus her living at home. So, we're actually withdrawing a monthly stipend from DH's IRAs now (he's 60), because we can use the money now. We still have more than enough to fund a comfortable retirement. Plus, the "kid problem" should resolve itself in 5 years or so. We're also concerned about the tax hit when we have to take RMDs in our own right (right now, DH just has RMDs from inherited IRAs).

Like I said, we're in kind of a weird situation, one that never seems to get talked about in retirement articles. I think it's fortunate that we're interested and involved in our investing, because we can't just take some guru's word on what's best in our case.

 

[LeslieLou]

I really like the bogglehead forum for retirement planning / advice. You can ask very specific questions about how to manage your portfolio. I’m not sure if I can post a link but if you google boggleheads you’ll find it.

 

[tvguy]

See, I'm a total math nerd--investing is like catnip to me. I recognize that this makes me an outlier, particularly among women. 3 of our 4 kids prefer passive investing--we're fine with it. My DH is less math-nerdy than I am, but he has particular stocks that he likes (some are sentimental favorites, inherited from his folks--luckily, my IL's were big on blue-chip stocks).

We're also outliers due to the pensions. Ironically, the time we need more money isn't in retirement, but right now. We have 3 kids in college in some form (one full-time, one part-time, one doing dual enrollment), with very little financial aid. Even the "aid" that the full-time student gets is for her to live on campus, which we endorse anyway, but it ends up costing us more versus her living at home. So, we're actually withdrawing a monthly stipend from DH's IRAs now (he's 60), because we can use the money now. We still have more than enough to fund a comfortable retirement. Plus, the "kid problem" should resolve itself in 5 years or so. We're also concerned about the tax hit when we have to take RMDs in our own right (right now, DH just has RMDs from inherited IRAs).

Like I said, we're in kind of a weird situation, one that never seems to get talked about in retirement articles. I think it's fortunate that we're interested and involved in our investing, because we can't just take some guru's word on what's best in our case.

I have a friend like you. He has done well. However he admits in hindsight he would have done better if he had not sold his initial investment. He put all his money in Microsoft in 1987 for 21 cents a share.

 

[QueenIsabella]

For us, Verizon is the sentimental favorite. DH's father worked there for decades, buying shares with every paycheck. His mom bought additional shares, too, back when it was GTE. We've got ~6000 shares at this point. It's not a stellar performer, but it's solid. Which is a good thing, because I think it would break my husband's heart to sell them. Even though his parents might say, "Sell them, you knucklehead, and invest in something better!" (They were NOT sentimental about the stock like DH is!)

 

[MillauFr]

I have a friend like you. He has done well. However he admits in hindsight he would have done better if he had not sold his initial investment. He put all his money in Microsoft in 1987 for 21 cents a share.

I had someone at work who put a bunch in Microsoft and all he did was complain about all of the capital gains he owned. I kept telling him to donate the stock to charity if he didn't want to pay the capital gains. He was a unique individual. He liked international travel and picked what country to visit based on much their currency depreciated against the US Dollar. This was back in the 1990s when Indonesia was experiencing political turmoil. The news was filled with tourists stuck at the Jakarta airport waiting to fly home. He said he would be fine since he was going to Bali. I said sure but your flight to Bali connects in Jakarta. Sure enough the State Department called him 3 days before he was supposed to leave and told him not to go. He went hunting for fossils in Montana instead.

 

[tikilyn]

Wow! Lots of great info here. Thank you for the forum suggestions. One poster questioned the retirement age (mandatory vs. minimum retirement age). My husbands job has a mandatory retirement age of 57 unless you were hired under special rules and at age 36, then you could retire at age 60. But my husband falls under the age of 57 rule. Anyways I'll be back to re-read all the post and post more. I've been knee deep in dirt the last couple of days prepping my vegie garden.

 

[georgina]

I still have a few stocks I bought in the early 90's that are basically all capital gains, having split multiple times in those go-go years. (100 shares of Cisco turned into 1600, 100 shares of T Rowe Price into 800) DH's company stock from the 401k is also highly appreciated. I have been using these for larger donations in the years I itemize.

 

[QueenIsabella]

I have a friend like you. He has done well. However he admits in hindsight he would have done better if he had not sold his initial investment. He put all his money in Microsoft in 1987 for 21 cents a share.

DH worked for Plug Power, back in the day. He had stock options galore, some at $15/share. At one point, the day traders found the stock, and pushed it up to ~$154 a share--we were millionaires for about 3 days before it fell back to earth. We made some money on the stock, not as much as we could have, that's the way life goes. Currently, it's trading ~$13/share. We no longer own any of their stock, too speculative for my taste (I don't mind some risk--but, not that much!).

 

[tvguy]

DH worked for Plug Power, back in the day. He had stock options galore, some at $15/share. At one point, the day traders found the stock, and pushed it up to ~$154 a share--we were millionaires for about 3 days before it fell back to earth. We made some money on the stock, not as much as we could have, that's the way life goes. Currently, it's trading ~$13/share. We no longer own any of their stock, too speculative for my taste (I don't mind some risk--but, not that much!).

Yeah, I have Disney stock I bought in the mid-1980's. It has split multiple times. My cost basis when factoring in the splits is $10 a share.

 

[Dakota731]

Yeah, I think annuities have their place in a well planned retirement strategy.

Especially during these past two years when many retirement accounts have taken a big loss. Most of us don’t have several pensions to fall back on, and when you get close to retirement age, it’s sometimes too risky to take big chances with your future.

 

[tvguy]

Especially during these past two years when many retirement accounts have taken a big loss. Most of us don’t have several pensions to fall back on, and when you get close to retirement age, it’s sometimes too risky to take big chances with your future.

I've been lucky. I have never lost a penny in my IRA or 401k (when I had them) plans over 40+ years.
But I tended to be conservative in my investment choices. And we have been living entirely on IRA withdrawals since July 2021 and our withdrawals so far have always been less than the investments earned. I will start Social Security in December and my wife in April 2024 and I am hoping to suspend IRA withdrawals then. Our Social Security will be about $1,500 a month more than we are living on now.

 

[jen7233]

Can we talk about 401Ks or TSP (in our case). My husband is nearing retirement. His MRA (mandatory retirement age) is 57, although he can retire right now at 50. He's planning to wait until he's 55 and will only stay until 57 if he feels our TSP balance isn't enough. Is it really ever enough, LOL? We are on a waiting list with his department to take a retirement class. The TSP wont be our only income as dh has a 6c pension and will receive a Social Security supplement until he turns 62.

My question is what to do with our 401/TSP after retirement? Should we just leave it and ride the market or take it out and buy an annuity? If you have already retired with a 401/TSP what did you do and how is it working out for you? And if you bought an annuity what happens to it when you pass away? Does your spouse keep receiving it?

It will depend on do you need that TSP as part of your monthly income at all. I wouldn't get an annuity, it doesn't seem necessary. But, I just don't find them to be a useful investment tool, at least for my own situation.

For another, we have 5 pensions

That many pensions in a working career is pretty good, and rare, I think!

 

[QueenIsabella]

That many pensions in a working career is pretty good, and rare, I think!

I know! We didn't plan it that way, DH worked for a number of companies through the years. And to be fair, two of them are quite small--less than $100/mo. We would cash those out (roll over into an IRA) if we could--hardly seems worth it. I think the smaller two are GE/Westinghouse/Bechtel (not sure which he finally left from--our division got bought and sold a couple times) and General Dynamics. The bigger three are Entergy, Duke Energy, and then a federal one--he currently works for the Army Corps of Engineers.

 

[tvguy]

I know! We didn't plan it that way, DH worked for a number of companies through the years. And to be fair, two of them are quite small--less than $100/mo. We would cash those out (roll over into an IRA) if we could--hardly seems worth it. I think the smaller two are GE/Westinghouse/Bechtel (not sure which he finally left from--our division got bought and sold a couple times) and General Dynamics. The bigger three are Entergy, Duke Energy, and then a federal one--he currently works for the Army Corps of Engineers.

I rolled my pension from my last employer into my IRA when I retired. I had a choice of taking the $28 a month for life............or $24 a month if I wanted it to continue for my wife if I passed away first, or $5,600. I figure I can make more than $28 a month in my IRA investments.
My last employer stopped their pension plan in about 2010, so I only had about 5 years in. They upped their contribution to the 401k percent by an additional 1% as compensation for ending the plan.
That is the only company I ever worked for that had a pension plan. I started with my first employer in 1979, and they shutdown their pension plan in 1977.,

 

[QueenIsabella]

Yeah, when I left (almost 28 years ago), I took the small lump sum and rolled it into my IRA with my 401k stuff. You could only do that if you were under a certain dollar amount, which DH wasn't, when he left. The bigger three are more recent employers.

 

[dcfromva]

Can we talk about 401Ks or TSP (in our case). My husband is nearing retirement. His MRA (mandatory retirement age) is 57, although he can retire right now at 50. He's planning to wait until he's 55 and will only stay until 57 if he feels our TSP balance isn't enough. Is it really ever enough, LOL? We are on a waiting list with his department to take a retirement class. The TSP wont be our only income as dh has a 6c pension and will receive a Social Security supplement until he turns 62.

My question is what to do with our 401/TSP after retirement? Should we just leave it and ride the market or take it out and buy an annuity? If you have already retired with a 401/TSP what did you do and how is it working out for you? And if you bought an annuity what happens to it when you pass away? Does your spouse keep receiving it?

In a perfect world, they would offer a retirement class 3 times. First at the beginning of a career, secondly at the midpoint and finally a couple of years before you retire. (But, of course they don't do that. )
Anyway, a lot has to do with what your expenses are/will be. The class I took they arrived at this number simply by taking (after tax) income minus savings because that is what you have been spending. Of course, there are nuances to that. In addition to your savings (such as TSP), you won't have deductions for your contributions to pension and social security/medicare, for example. But, one thing you could do is model retirement by living off of what you expect the pension/social security supplement to be and put the rest in savings. The thing that is hard to model is how much more you might be spending when you have a lot more free time to pursue your interests.

As previously mentioned, Bogleheads is a great resource. Even though there is not a lot of love for financial planners in general on that venue they do have a resource for hourly financial advisors. Some have a backlog, so I don't know how long it would take to get on their schedule. One financial advisor will only do an analysis one time only (which is kind of what you are looking for). The caution others have given regarding assets under management (AUM) is also spot on. Obviously, the financial planner will not get paid as much if most of your assets are in the TSP (under the AUM method of getting paid). This might result in a recommendations for rolling over TSP assets which may or may not benefit your financial situation.

You may not see a lot of love for annuities on Bogleheads in general (for a lot of reasons), but sometimes a case could be made for getting one if you are trying to maintain a certain income stream. The answer to your specific questions about annuities is you can set up an annuity to have a survivor benefit or a guaranteed refund (if both participants pass away before a certain specified amount of time). You can get an annuity with an inflation adjustment. There are many other features you can add on to an annuity, however each feature will cost you. A lot of analysis is done by Bogleheads trying to maximize returns, tax planning and safe withdrawal rate in the case of doing it yourself (instead of setting up an annuity). You will see discussions on whether or not the 4% safe withdrawal rate is "safe" in order to last through out your retirement years. You will see discussions on conversions to Roth-should I do it now? et'c.
Here is a link to the general wiki on Bogleheads for Retiree Portfolio Model.

https://www.bogleheads.org/wiki/Retiree_Portfolio_Model​

 

[amylevan]

We use a financial advisor who charges 1% of the funds we have with them. That said, they do not have control of our 401ks or 529s, and they still provide advice on which of our fund options are the best choice within them. So that 1% is not 1% of our total savings.

I get that a lot of people think that they aren’t worth it or too expensive, but a lot of people do use them. They provide financial advice, tax planning, and understanding of tax laws that I don’t have a desire to learn. They are able to run their programs and provide reports to help us see where we are. They know us, and know our plans for our kids, our retirement, and our current lifestyle.

And here’s the thing, they are professionals. I don’t want to spend hours on a forum learning tax laws and verifying spreadsheets. Because I have my own career and hobbies and family to raise. Finance is not a hobby I want to take up. I want to ignore the market when it’s tanking because it gives me anxiety, but I still want someone to know what’s going on and how to respond to it. So for us, they are worth it. Lots of people pay for others to do things for them, this is one of those things that we pay for. It’s the correct choice for us, and just because not everyone chooses it doesn’t make it wrong.

The point of this long diatribe, financial planners have their place. It’s not an evil thing to use them, and if you don’t have the time or desire to deep dive into the finance world, or simply want to trust a professional, they are out there.

 

[cvjw]

We also use a financial advisor that charges 1% per year. Yes, it adds up to a lot of money each year. But, they also make us ALOT of money. They have about half of our money - husband handles the rest. He doesn’t want any more on his plate to manage, so it works for us.

 

[Rickat96]

A lot of very good info here. I am retiring in 3 months.

The 2 things that make retiring hard will be housing and medical costs- if you have a good plan that covers these- the rest will be less of a worry.