Is there a Mrs. MSQUARED48 and does she have some retirement income streams?
I have an internal debate going on whether I want to do some small, part-time jobs too after I retire. Part of me screams, HELL NO, and part of me says, maybe it’ll keep me young and sharp. I’ll probably never know until after I retire. When/how did you decide?
She has SS too. I decided to work too because I can, and I can afford to pick and choose based on my availability, ability, and liability. Plus, as you alluded to, the work 
helps forestall the dementia… 
along with playing the piano 
and sailing. 
To retire, in about 2 years, one of the first things I have to do is, “request a Transition Kit by contacting the Retiree Service Center at least 60, but not more than 90 days, in advance of your anticipated retirement date.” Therefore, I will have less than 60-90 days to make irrevocable decisions from seven (7) options that affects my wife and me until the end of time, our time anyway. Scary. @GregLocock, I see why you suggested engaging a financial planner.
One common pension strategy that life insurance companies push is “pension maximization”. In this strategy, the pensioner selects the highest payout single life annuity and uses some or all of the extra money to buy one, or a few, term life insurance policies. The payout of the life insurance policy(s) are then used to buy an annuity for the spouse to provide an income stream equal to the 100% Joint & Survivor annuity in the pension plan. If the spouse dies first, the pensioner just stops paying for the life insurance policy. It is a little complicated too, because annuity income is taxed, and life insurance payouts are not. It is also not without risk, as the following article says:
Here are my numbers at 65 years old:
Single Life Annuity $7,812/month
100% Joint & Survivor $6,796/month
Extra (before tax) $1,016/month
That is not a small amount of money, an extra 15%.
One part of me says, why go to all that trouble, when I can just check the 100% J&S box on my pension documents. Will the wife be able to execute all that when I kick the bucket? Do we want to be dependent on the life insurance and annuity companies, or, does that diversify the risk compared to trusting my megaCorp? And, can I save some significant money if I go to all this trouble?
I don’t know, but the following quote from the article sounds good to me:
Mark Maurer, president of Low Load Insurance Services in Tampa, Fla., develops ‘pension max’ strategies for clients of fee-only certified financial planners. He says that just 20% of the clients he reviews do better with pension max than with the joint-pension option.
80% in favor of just checking the J&S box!
Knowing me though, I will probably look into it, and excite a few life insurance and annuity sales people in the process. Any advice before I dive into the shark infested waters?
Sorry any help I can offer is for Oz. We get a year after officially retiring (which confusingly doesn’t mean stopping work), in which to sort our financial affairs out. Since this will span 2 tax years that gives some leeway in optimising tax over that period. Basically your super/accumulation fund gives you a lump sum that is protected from most income tax, and this can then be invested in funds of funds, or you can have a self managed scheme which can hold shares and other investments etc directly. Or you can buy an annuity. Only the first of those appeals to me.
I am seriously considering retiring next year at the age of 56. My wife will be 64 next year. She retired 6 years ago. I will have 32 years of service with my current employer next year.
I am fortunate to have a full pension from my company. They discontinued it about 10 years ago, but I was grandfathered in. I have been saving the maximum into my 401(k) for 30 years. My wife formerly worked for the same company and has already rolled her pension (lump sum) into an investment account and has a 401(k) that is about 1/3 of mine. Unless I take the full-life annuity for my pension, the payout is tied to the interest rate on January 1. Since the interest rate is at an historic low, the payout options are at historic highs. I may not be able to risk working another year and having the interest rates rise.
I plan to take my pension as a 10-year certain. I will get a monthly payment for 10 years and then it ends. That will take me from 56 to 66. At 67, I can get my full Social Security. We already own our retirement home with no mortgage. When we retire, we will sell our current home and that money goes straight into the bank. We own a cabin in the woods which we will sell at retirement and that goes in the bank. Based on my crude, but very conservative spreadsheet, I can maintain my current standard of living, keep up with inflation and will run out of money the day I turn 105. I don’t expect to live that long. I am assuming that Social Security will still exist in 10 years. But, if it doesn’t, I will still have plenty of money to live out my life in comfort.
Taking my pension starting at 56 comes at a high price. We are penalized 6% per year for every year under 65. But, even loosing half of my pension, the 10-year certain payout will match my current income. I can live on just the pension for the first 10 years, using the money from the house and cabin to supplement. After that, my 401(k), my wife’s 401(k), her pension and SS will carry us through to the end. I have budgeted US$3000 per month for health insurance which I expect to go up 3 percent each year. I take no credit for Medicare in case it disappears by the time I qualify.
I have no financial planner. I probably should consider getting one. I have done pretty well on my own up to now. But the stakes get higher once I have no income coming in from work. If it starts to look like I am falling behind, I will consider doing consulting work part time in retirement. Working as a field engineer on big compressor or turbine overhauls once or twice per year might be fun.
@Latexman - I don’t have formal training as a financial planner, but have been an investor since age 24. This includes self-education on stocks, mutual funds, exchange traded funds, an fixed income investments, and annuities. I’ve provided advice, recommendations, and guidance to family members and friends over the past 30 years, or so.
Investing through insurance companies has advantages, but the investor should have qualified, independent evaluation of the product offered. Insurance company fees are high and tend to be front-end loaded. This is why insurance agents promote these products (a high percentage of fees goes to the agent).
Pension max may not be a good idea for you:
Maximizing Pensions With Life Insurance
If you decide to hire a professional financial planner, I suggest looking at those who practice for “fee-only”:
Fee-Only Financial Planning
One of the basic rules of financial planning is to look at ALL of your and your wife’s financial resources… don’t make a decision on what pension option to exercise in a “vacuum”.
If you are considering staying with your employer’s pension system, make an independent financial review of the company:
Dow Inc. - Value Line Assessment
Value Line is a subscription investment advisory service - They make info on the Dow Jones 30 stocks (including Dow, Inc.) available to the public for advertising purposes. Info on other companies is copyrighted. I have been subscribing to and following their advice for 43 years. Current price of a subscription is $600 / year… I take investing seriously, but am NOT advertising their product - there are other services just as good.
Timing the market on a pension; sounds like a great plan!
Since our first kid, my wife has mainly been a SAHM, so I haven’t max’d out the 401k lately. I did early in my career when we were on two international assignments that lasted 5 years. Since then, the company and I have always contributed about 15%. A few years back, when the company gave us a Roth 401k, I switched to that to help temper the “tax torpedo” later on when SS and RMDs start.
Also, I used to time the market early in my career. It wasn’t insider trading because I was far, far away from the board room, but I’m convinced one still gets a good feel for how things are going, and going to go, down in the engineering trenches, kinda halfway between the board room and the operators and maintenance folks
I used to do okay timing the market. Nothing like a friend I have; he has the Midas touch. But he’s jealous of my one time huge success. So, in late 2006, I converted my entire 401k to our fixed income fund (cash) when house prices started falling. I got nervous. I never foresaw the subprime mortgage crises of 2007-2012. But, Dow Chemical and Kuwait had signed a JV in July 2008 for K-Dow. Unfortunately, in Dec. 2008 Kuwait pulled out and Dow was left hanging with half the $17B for the JV in debt. Dow stock fell to under $10/share. The hallway conversations were all gloom and doom! So, I swung my entire 401k and bought Dow stock at just under $10/share. Then, I waited. Dow sold preferred shares to Warren Buffet to pay off a big chunk of debt, so I knew I was in great company. And, I waited. I didn’t want to be greedy, so when it hit $40/share, I was happy with that 4%! 
After that, I became an index investor, and I sleep much better after that wild and crazy ride!
My friend still admires my bold move.
Sounds like your pension has more options than mine. My choices are Single Life, 50% J&S, and 100% J&S; no lump sum option. Very simple. But I think it pays out well. The 100% J&S pays out 9.5% of the account balance at 65 y.o.
What’s your SS strategy? Have you ever tried https://opensocialsecurity.com/ and used the Advanced Options?
@SlideRuleEra You are spot on! Since my post 6 days ago, I’ve been researching using online insurance and annuity calculators. Yes, I have aged out of the pension max option. Life insurance at 63 y.o. is just too expensive. So, I’ll be checking the 100% J&S box on the pension documents. That will be easiest for DW anyway.
Thanks for the tip on Value Line. I will use it to research and “keep an eye on” DOW, since it’s free, but my pension has no lump sum option, only SL, 50% J&S, and 100% J&S, so I really have no other choice than to take it, it’s just which of the 3 options are best for us. And being an index investor now, I’m not sure Value Line would be useful to me on those. Do you index invest? Is it useful on those?
@Latexman - Glad you looked into life insurance costs. I’m a believer in index investing, essentially “invented” by John Bogle at Vanguard Mutual Funds.. I make limited use of indexing, just for my Roth IRA. Value Line does not provide information on index funds or other indexing investments (exchange traded funds), only individual stocks.
You mentioned that you have Dow, Inc. stock, too. A financial planner will advise you not to invest too much in the same company stock that the pension comes from. If the company falls on “hard times”, chances are (and history has verified) that the stock’s price “tanks” and risk of pension loss/reduction goes up… not a good place to be.
How a financial plan values a pension (or Social Security payments) has been subject to debate. I prefer one accepted method of considering pension payments as interest from a treasury bond portfolio that you own (but cannot cash in).
In your case, a pension of $6796 / month = $81,552 / year. To generate that income a treasury bond portfolio (paying an assumed 4% interest) would be valued at $2,040,000. Do the same for SS. The result of this math exercise is that you have a substantial ($2,000,000+) fixed assets and can invest other funds more aggressively (say conservative stocks instead of bank certificates of deposit).
Another recommendation, when you retire, transfer your 401(k) to an IRA. You will have more investment options, possibility of lower fees, and less connection to Dow, Inc. Your 401(k) funds are isolated from an employer’s finances, but no need to risk having the money potentially tied up for some time in legal proceedings if “hard times” come to Dow, Inc.
Thank you. Just to clarify, I no longer have any DOW stock. I sold the last of it about 10 years ago. DOW sold me and my business unit to Arkema in 2010. I rolled all my DOW 401k into a tIRA. Yes, I knew not to have all my eggs in one basket. Too risky!
Good advice, I will look at that.
I’m gently moving out of individual shares into index trackers, and managed investments. My long time hold in MI has been run by a guy called Geoff Wilson, I am terrified by the fall under a bus syndrome in his case.
I’ve seen people use the 4% rule to convert an income stream like a pension or SS to a lump sum portfolio value, but I never really got a warm, fuzzy feeling from this. I don’t recall ever doing it with my numbers. All the retirement models I’ve used, mainly Fidelity’s and FireCalc, handle the planned income streams easily. And, I get they fold this into their asset allocation, and they are more aggressive with funds they can control. I don’t feel comfortable with this because I really have no control over this fictitious pile of money. So, I only apply my AA (60/40 now) to funds I can control.
I also do not include my home in my AA, because I need a place to lay my head at night. My home is not in play, at the moment, but if I ever need to go into a “retirement home” it’s my down payment.
I’d like to add, I understand the conservative strategy of assuming SS won’t be a thing for you. That puts focus on your other future sources of retirement funds. But, please, don’t get yourself into paying more taxes, potentially a lot more, in the future because of it. Yes, having to pay taxes is a good problem to have. It means you’ve won the race. It’s a first world problem, right? But, if you look at your future tax situation now, including SS, and let that also guide you on where to put funds in your differing tax strategies, I think you could save considerably more on taxes later on.
I did not do a good job of this when I was younger, and I now find I have too much in tax deferred. I’ve made corrections, but for the longest time, say 1990 to 2010-ish, I only saved into a 401k. Now, I wish I had saved more after tax. Roth’s weren’t available back then, IIRC.
I planning, there are options other than SS. There are state based, and rail-road plans that are options, if you are employed with a government, or rail-road. This should be on more peoples radar when they are younger.
I will soon see how a Roth withdraw works, as I used that for saving for my daughters schooling. Yes I could have used a college savings plan, but she had decided to not go to college, I would be stuck with having money I can’t use, except to go back myself.
The Roth is flexable in that it can be used for college, and needs to be used more.
Four of my kids were adopted through a church organisation. They always told us they would fund the kids college. Well, after 20+ years and a lot of bad luck/hard times, the best they can do is 50%, so I didn’t use a college savings plan (a 529 plan?) either. With one kid going to college now, I can cash flow it using the school’s payment plan to stretch it out, but when two were going I pulled from my 401k.
I should have funded Roth’s more and earlier. Hind sight is 20/20.
I do appreciate the 50% help! Things just didn’t work out as planned earlier.
Agree about not including a home’s value in asset allocation, I don’t do that either.
I have two public pensions and social security but still use balanced funds (60/40) as a core investment. Use individual stocks, selected with guidance from Value Line, for medium to long term investments. These stocks range from conservative to speculative, but all are listed on major stock exchanges… no “penny stocks” or day trading.
I opened and started funding an IRA the very first year they were authorized, 1975. Contribution limit at that time was $1,500 / year. Later, had to skip IRA investing for a number of years. For a period of time if you had a pension plan you could not fund an IRA, although you could keep one opened previously. My last employer had both a 401(k) and 457 plan in addition to a pension, but there was no company match of employee contributions.
Yea, the no retirement match for working for a government entity sort of sucks, and finding funds for a 457 is just as hard as funding a 401. I had a match from a prior employer, but it was required to be in company stock. The stock went to about zero, when Enron went bankrupt. So the match did not do me much good after all. No I did not work for Enron, but the company was trying to do the same type of trading (only legal, or maybe not. I will never know).
Moral, don’t invest in your own company stock, if you can avoid it.
I made that mistake when I first started out. Put everything I had at the time into it. I am still holding it 6 years later at a loss, though after a few strategic buys to average down, I am very nearly at a profit point on that stock now and can put that company definitively in my rearview…3 years after quitting.
Since my current company has no active pension, they contribute 5%/year (2.5% at end June and December) to my 401k.
They also match $ per $ on my first 3% 401k contribution and $0.50 per $ from 3 to 5%.
So, for a 5% 401k contribution, I get 14%! 
My current employer does the same matching rate, so 4% on top of a 5% personal contribution.
My previous employer’s was slightly better with 5% matched and an addition 2% matched at 50%. So 7% personal contribution got an additional 6% added. That was a nicely profitable scheme for my retirement plans while it lasted.
Either way I’ve taken full advantage of all matching offers since day one of employment. Instant returns on investments are hard to ignore.