Cashing out my pension?
I received a letter from my past employer offering me the option to cash out my pension of 145,000+ or leave in the pension. I currently work for the Federal government and contribute to my thrift savings plan. I will be 59 this year. Should I combine with my TSP account or keep my pension? I have til 7/16/21?
Terry Says
OK, first you do NOT want to cash out that pension and pay taxes now!! That would be a huge mistake, and would rob you of future tax-deferred growth.
But the answer of “what else” you can do depends on asking a lot of questions. So ask your former employer:
1. At what age can I take my pension if I decide to stay?
2. What amount do you project I would get monthly at that age? And what is the amount if I decided to (and am qualified to) get a monthly check right now?
3. Can I do a direct rollover into a “qualified plan” such as a Rollover IRA — and what is the amount I could roll now?
Then you’ll have the basic possibilities. BUT you still need to decide if you want to leave the pension with them.
You’ll want to compare what you could get if you just bought an immediate annuity now from that lump sum of money. Go to www.immediateannuities.com to get a comparison of what private companies would give you.
Then decide if you want to start getting money right away — or let it continue to grow. If so, the IRA rollover would be the best option for you. Contact Fidelity or Vanguard and they will handle it directly, avoiding current taxes. And you can take money out any time after age 60, but must make Required Minimum Distributions after age 72.
Then you have to decide how to invest it inside the IRA. I would suggest at least 60percent in their Equity/Income fund, or balanced fund. Perhaps the rest in a money market fund. Or since you have a government plan as well, consider buying a DEFERRED annuity inside your IRA — one that doesn’t start payouts until perhaps age 75. You’ll be amazed at how much more you would get for your lifetime if you decide to wait until age75 (or 80,if longevity runs in your family)!
The one thing you should NOT do is ask advice from someone trying to sell you something~! So I’m glad you came to me first, because I don’t sell anything! BUT, this might be a good time to find a FEE ONLY FIDUCIARY financial planner to review all your options, including using some of this money to purchase a “combo” long term care/life insurance policy. (The need for custodial care could wipe our your financial plans.)
Go to www.wealthramp.com to find a CFP FIDUCIARY who will put your interests first and fully disclose the fee for this advice.