Got a letter in the mail today saying to be on the lookout for an offer to buy me out of my corporate pension. I worked at AutoTrader juuuuust long enough to be barely vested. The monthly payout at this point wouldn't be much. I'm 41 years old so it will be a LONG time til I could start drawing anything. Anyone have experience taking the money up front? Part of me thinks I can invest it myself and do better just parking it in a targeting retirement fund.
Find out what the value is, what the value would be, and do the math. You probably also want to check out the health of the fund, but knowing the size of Cox you're probably safe there.
All I can say is if you do take it, make sure you roll it into an IRA or your current company 401k. Don't be like my father when he left the govt in the late 80's and spent the money instead - and didn't understand why he got hit with a big tax bill.
Ian F said:All I can say is if you do take it, make sure you roll it into an IRA or your current company 401k. Don't be like my father when he left the govt in the late 80's and spent the money instead - and didn't understand why he got hit with a big tax bill.
I asked an old coworker who took a buyout and she said they just added it to her company 401k (the 401k from the pension buyout company). That sounds ideal to me. I already socked away a chunk of change in that 401k, I'd love to add to it.
CMI did this for me recently. The offer was.. Take your money now or we'll keep it for you at a 0.9% return... I took the money and put it into my company 401k.. You need to think about how this will be taxed. GOing from a pension fund to 401K no tax(from what I can remeber).. Going from a pension fund to a handful of stock.. Tax!
Get yourself a fiduciary.
I really read that title wrong...
Roll into an IRA, not a 401k. Unless you have one of the very, very, very few 401ks with more control, fund options, and better fees than a Vanguard or Fidelity IRA.
But yes, the 3 most important words in this thread are: do the math
Fueled by Caffeine said:Going from a pension fund to a handful of stock.. Tax!
...Unless the stock is purchased through an IRA.
In reply to slefain :
I took a lump from my previous employer. You can set it up to go into a pre tax IRA you control and not pay a penalty on it.
In my case I had already rolled the company's 401k into an IRA with Vanguard. It was really hassle free, just a simple half page form to fill out.
The0retical said:In reply to slefain :
I took a lump from my previous employer. You can set it up to go into a pre tax IRA you control and not pay a penalty on it.
That is what I'm leaning towards. I actually started saving for retirement when I was 20. I've got a variety of investments already, I was never really depending on the pension. If I can roll it into an investment vehicle without taking a tax hit I'd be happy. Considering the returns I've already seen on my first 20 years of meager investing, I'm confident the next 20 should have nice momentum.
RossD said:Get yourself a fiduciary.
Any thoughts on finding a financial advisor that is a fiduciary? A fiduciary has to act in your best interest. A run of the mill financial advisor doesnt have to, and some can be more interested in selling you stuff than getting a better interest rate of return.
Fueled by Caffeine said:CMI did this for me recently. The offer was.. Take your money now or we'll keep it for you at a 0.9% return... I took the money and put it into my company 401k.. You need to think about how this will be taxed. GOing from a pension fund to 401K no tax(from what I can remeber).. Going from a pension fund to a handful of stock.. Tax!
This is good to know. About how long has it been since you left?
I've done this twice from once from Boeing and another from Bombardier. Getting money now from Bombardier now rather than later is always a good thing. Boeing I wasn't really quite as worried about at the time, but after the last year, who knows.
Put the lump sum into a "rollover IRA" to avoid tax consequences. My 401(k) wouldn't accept funds from those sources. It both cases, it was enough money that it was a bit nervous-making having a check to get lost of those amounts.
One of the better points is that I am now classified as a retiree, so I'm able to tell my current co-workers that I'm now retired.
If you roll it over into a Roth IRA vs. regular IRA, do so. Taxable now but not when you withdraw it in 19 years. (Unless you think tax rates are gonna be lower in 19 years.)
In reply to M2Pilot :
I'd argue that most people will draw a lower 'income' in retirement than they were making mid-career. Also the entire lump sum would be taxed at the full rate on top of their current income, while retirement draws will be taxed progressively from the bottom. So yeah, I would bet that even if the tax rates go up, there is a high likelihood that each of those dollars will still be taxed less in retirement.
In reply to Driven5 :
Very good points on the tax rates and income level considerations now, and in the future.
The other consideration should be how much value to put on the flexibility of the Roth vs the traditional. If you might want/need access to the funds before age 59.5, or you don't want to be forced to pull money from it later through RMDs, then the Roth is the only choice. Traditional won't require any taxes now but will penalize you heavily if any money is withdrawn before age 59.5, and they'll force you to begin RMDs at age 70 (I think).
Depends how you want to pull money from it. You can use a 72(t) distribution to access a traditional IRA penalty free.
Also, if converting to Roth, you'll need to have the cash on hand to pay the taxes on it out-of-pocket, as paying it out of the converting account is not a great idea.
Wow, I'm glad some of you folks have already done this. I've always been the kind of investor who wants to protect as much principle as possible. If I can find a way to roll the pension lump sum into a tax deferred investment vehicle that seems to fit with my strategy.
Side question: is this kind of offer usually sign of bad things at the company? Or is it just a normal business strategy when interest rates are lousy? AutoTrader nixed their pension for anyone hired after 2017 and apparently the place is even less fun than it was when I left five years ago.
slefain said:Wow, I'm glad some of you folks have already done this. I've always been the kind of investor who wants to protect as much principle as possible. If I can find a way to roll the pension lump sum into a tax deferred investment vehicle that seems to fit with my strategy.
Side question: is this kind of offer usually sign of bad things at the company? Or is it just a normal business strategy when interest rates are lousy? AutoTrader nixed their pension for anyone hired after 2017 and apparently the place is even less fun than it was when I left five years ago.
Pensions are a thing of the past, to put it plainly. I wouldn't be worried about it in terms of bad things coming, just that they're long term unsustainable. Giant ponzi scheme, after all.
Also since this is technically bonus money I never counted on for my retirement, all kinds of evil thoughts have filled my head...
slefain said:Also since this is technically bonus money I never counted on for my retirement, all kinds of evil thoughts have filled my head...
Let those evil thoughts percolate until your retirement. Then they can be eviler.
slefain said:Side question: is this kind of offer usually sign of bad things at the company? Or is it just a normal business strategy when interest rates are lousy? AutoTrader nixed their pension for anyone hired after 2017 and apparently the place is even less fun than it was when I left five years ago.
It's mostly a business strategy these days - a lot of companies don't want that sort of long term liability on their books. Interferes with the stock buyback programs 
.
I think the main issue is that a decently run pension fund is usually able to generate better returns for the same or similar risk compared to what you as an individual can do. Assuming that the pension is open to everybody and not just the old fogeys that have been around for 20+ years, the investment profile changes becausse you can take a bit more risk with the younger people's money. OTOH if the incentive for pulling out the money is that they'd otherwise pay you less returns per year than you get in a decent savings account, it's time to head for the hills.
I would either put the money into a rollover IRA at a low cost brokerage or if there is a 401(k) available with decent choices and low fees, into the 401(k). The problem with doing a Roth conversion is that if you have other regular IRAs, you have to convert all of them AFAIK. That gets a bit expensive.
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