Ask Terry Questions Pension Rollover Risk

Pension Rollover Risk

By Terry Savage on July 13, 2021 | Financial Planning / Retirement

Dear Terry, I have a state pension fund that would pay $6,000. per month also providing affordable health insurance until I reach Medicare eligibility. I have the option to roll the lump sum over into a tax sheltered account forgoing the monthly payment and insurance benefit. The fund is worth over $950,000. Is there a way to safely invest and generate better income? I fear an investment planner may steer me into significant risk.

Terry Says

That’s a reasonable fear! First thing to note is that this pension is likely not adjusted for inflation. It will be a fixed sum for life. If you want to see whether this $6,000 a month is a “fair” amount, then go to www.immediateannuities.com, input the amount, your age, and state of residence — and see what major insurance companies would offer you based on your gender and life expectancy. I’m sure the state pension fund offer is pretty good compared to what you could get from a major insurance company.

I note that you don’t mention a spouse, but if you have one you should check the payout over two lives, so your spouse is not left without an income at your death. Then compare that amount at the annuity site.

BUT — and this is a big but, that was not really your question. Historically, you could get an average annual return of about 10%/year including reinvested dividends from the S&P 500 stock index. But the market has been above average in recent years, so may be due for a significant correction. A decline in the start of your retirement could impact your ability to fund your later years. Or you could panic and sell out at just the wrong time!

That is why I am going to suggest you talk with a FEE-ONLY (doesn’t get paid for selling stuff) FIDUCIARY (puts your interests first) Certified Financial Planner. You can get matched with one at Wealthramp.com.

They are all carefully vetted by Pam Krueger who really cares about their integrity as well as knowledge. Read my take on this site in one of the four little boxes marked “find a financial planner” top right at TerrySavage.com. I know most of the Chicago area planners and know you will be in good hands!

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