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Retirement payout decision

By Terry Savage on December 02, 2019 | Financial Planning / Retirement

I was in public education for fifteen years and paid into the Teacher Retirement System (TRS). I have been working in the private sector for the past 13 years. Recently, I was sent a letter by TRS indicating I could begin collecting a $51,000 pension starting in 2026 (age 60) or I could take a one-time payment of $334,000 immediately. I am leaning toward the one-time payout to put in a money market 401K and transfer money incrementally into 401K mutual fund until there is a market correction, then I would push “all-in” to the mutual fund. Do you agree with this? Thank you.

Terry Says

No, NO, no!! You need some professional tax help! It’s a good assumption that the one-time payout would be taxable — now, at your currentmarginal tax bracket!!! (Ask them if your choice is to take a tax-DEFERRED payment into an IRA rollover account, but from what you say you’re not likely to have this choice.)

Second, you can’t just “put this money into a 401(k)! Those contributions must come from salary withholdings or matching contributions!
And, even if you “can” do a “direct rollover” to an IRA –you don’t want to be “timing the stock market” at this stage of your life.

The first step is to find out the details of what’s allowed and the tax consequences of each choice.

Then, if a rollover is allowed, you need to see whether their offer is better than a monthly check (and ask if the check has any inflation step-up or adjustment each year.) That will let you decide whether — if you want a monthly check — and are allowed to roll the cash amount into another insurance product without taxation, whether you can get a better payout each year.

You also want to know if this is a “good deal” at $51,000 annually. So go to www.ImmediateAnnuities.com and enter the gross amount ($334,000) your age, state of residence, and marital status — and click to see what size check you could get from top insurance companies.

In short, don’t “lean” anywhere until you find out the facts. Then you can write back to me if you can answer all these questions!

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