Lump Sum Pension Guidance

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CompassPion
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Lump Sum Pension Guidance

Post by CompassPion » Tue Oct 17, 2017 8:59 pm

I would like opinions for investing a lump sum pension.

For preliminary background information, I will be receiving my 30-year lump sum pension in a couple of months. I plan to quasi retire, and retire in about 10 years at age 61. While I will no longer have a pension with the company, I will still have my 401k with the company which is currently about half the amount of my lump-sum pension.

Many fellow co-workers who have previously received their pension, have went with Edward Jones but I am concerned with the fees. In addition to talking with Edward Jones, I have also talked with an adviser from Fidelity Investments. My lump sum pension amount will be around $850,000.

I am not an experienced investor so I want to ensure this pension (in addition to my 401k) will be enough to last me. I welcome opinions of what some of you folks would do if this was your situation. Would you go with an adviser? Would you invest on your own? If so, how would you spread it (60% mutual funds, 40% stocks)? What mutual funds/stocks? I'm open to all opinions and advice.

Thanks for any guidance or input!

Beehave
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Re: Lump Sum Pension Guidance

Post by Beehave » Tue Oct 17, 2017 10:40 pm

I'll help get the ball rolling and I'm sure more experienced hands will chime in.

Regarding advisor: If you feel the need for one pay for one on an hourly basis who does not sell anything other than her or his advice. I'd steer clear of any advisor who has financial products to push.

Regarding lump sum:
(a) If you roll it over into your 401k or roll it into an IRA you will not pay tax on the money until you start to take it out of the 401k or IRA. I'd strongly suggest rolling it into an IRA or 401k retirement fund because if you don't the whole amount will be immediately taxable and you'll be in the highest tax bracket with that amount.
(a) You have an existing 401k. Are you staying with that company? Is the 401k a good one (low fees and good fund choices)? If the answer to both is yes, you may want to see if they will allow you to roll the lump sum into the 401k. There are advantages to 401k over IRA in terms of protections against lawsuits. Also, stable value funds available only in 401ks usually pay very nicely compared to money market or CD funds for liquid cash investments.
(b) If you either must or would prefer to put it into an IRA, I'd suggest Vanguard or Fidelity. Others may (and I'm sure will) disagree, but my further suggestions would be mutual funds and not ETFs (and certainly not individual stocks). My recommendation would be Vanguard over Fidelity based on actual experience, but the basis for that is now old and things may have changed.
(c) If you do roll the lump sum into an IRA, first decide on the IRA company before accepting the lump sum payout and then have the lump sum transferred DIRECTLY by your company over to the IRA company. Do not be in the middle -- you should not handle the money. If you do take possession of the lump and then somehow your re-deposit into the IRA is screwed up or late there are big cost implications.
(d) How to invest the money within the IRA (or 401K) is a big guess. Based on your self-described inexperience I'd recommend deciding on a "bond-stock" target ratio. Say it is 50 -50 (and I'd say stick anywhere from 40-60 - to 60-40). For simplicity's sake let's ignore percentage of foreign stock and bond holdings within that 50-50 split. I'd say put ten or 20 percent into your funds that comprise 50% stock and 50% bond (preferably low cost index funds like Vanguard total stock market and Vanguard intermediate bond). The rest goes into a money market fund or other ready cash fund. Then I'd dollar cost average every month one twenty fourth or one thirty sixth of the cash in proportion into the stock and bond funds - - but I'd leave a meaningful amount in the cash - - I would not put all the money into the bonds and stocks. This cash reserve can be used for future investment if there's a crash (buy low) or if there's some huge spike in interest rates in the future an annuity may be appealing and you should jump on that if interest rates have spiked high. I would not buy an annuity today with interest rates so low.
(e) Consider working to 65 if you'll be getting insurance at your part-time work and if Medicare is still around and worthwhile.
AND - - best wishes to you and I hope that this is helpful and that any errors in what I've said will be picked up and corrected by others.

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Tyler Aspect
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Re: Lump Sum Pension Guidance

Post by Tyler Aspect » Tue Oct 17, 2017 11:15 pm

You should consider rolling the pension lump sum payment into a traditional IRA account at Vanguard Brokerage. Balanced Funds are often worth considering if you are introduced to investing near retirement age. Putting half into Vanguard Balanced Index Fund, half into Vanguard LifeStrategy Conservative Growth will result in a portfolio with 50% stock / 50% bond.

A set-up like this has the advantages of simplicity, auto-pilot, and diversification.

Run away from Edward Jones like the plague.
Past result does not predict future performance. Mentioned investments may lose money. Contents are presented "AS IS" and any implied suitability for a particular purpose are disclaimed.

eldinerocheapo
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Re: Lump Sum Pension Guidance

Post by eldinerocheapo » Wed Oct 18, 2017 8:01 am

Been there, done that. I had the same situation three years ago with about a quarter of your payout, and yes, it's a lot of money. Since I'd already been with VG for over 30 years, I called them and discussed the conversion and forwarded the info to my old company. The funds were transferred in about a week into VG Wellington Admiral, and I've been enjoying the quarterly and year end distributions ever since. The amounts you're dealing with will probably result in you being transferred to an upper level concierge service with an individual dedicated manager assigned to your account. They will answer all your questions and keep you informed as events progress, and no, it does not cost extra.

I'm very happy with my decision and the results that have followed.

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Earl Lemongrab
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Re: Lump Sum Pension Guidance

Post by Earl Lemongrab » Wed Oct 18, 2017 12:06 pm

If it were me, I'd be looking at generating extra money by rolling over to IRAs. At least one. Right now, Merrill Edge would be my best target. Use the free trades you get besides the bonus to by a selection of Vanguard ETFs.

No need for any advisers. This really isn't that hard.
This week's fortune cookie: "You will do well to expand your horizons." Ow. Passive-aggressive and vaguely ominous.

billfromct
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Re: Lump Sum Pension Guidance

Post by billfromct » Wed Oct 18, 2017 8:20 pm

I rolled over my company pension, administered by Fidelity, to my Vanguard rollover IRA about 2 years ago.

Fidelity would not send the check directly to Vanguard, but did make out the check to "VFTC (Vanguard Fiduciary Trust Company) FBO (For Benefit Of) bill", sent it to me & I forwarded it to Vanguard with a cover letter stating my rollover IRA account information.

This "trustee to trustee" transfer eliminates the possibility of a check made out to me personally which would be considered a taxable distribution in which Fidelity would withhold 20% for Federal income tax.

I would recommend Vanguard, but my point is that whomever you choose, make sure the rollover is a "trustee to trustee" transfer so you don't get caught up in a potential Federal & state tax nightmare.

bill

CompassPion
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Re: Lump Sum Pension Guidance

Post by CompassPion » Thu Oct 19, 2017 8:21 pm

I appreciate all of the good information. Yes, while I will be receiving my pension, I will be continuing to work at the same company for an additional 10 years. My 401k will remain with the company until I retire, as they will continue to match contributions until my retirement. And yes, the funds will certainly not come to me in order to avoid any tax penalties. My initial pension package includes documents to be completed by whomever so the funds can be rolled over/sent directly.

I have contacted Vanguard as suggested, with an adviser appointment scheduled. During my initial conversation, I was blown away with the amazingly low expense ratio for each fund compared EJ. Not to mention that EJ didn't discuss the expense ratio when explaining the advising/upload fees associated with the two investing models.

Vanguard certainly looks like the way to go.

Thanks again for your advice!

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Watty
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Re: Lump Sum Pension Guidance

Post by Watty » Thu Oct 19, 2017 10:33 pm

If you use the search in the top right corner to search for Edwards Jones you will find lots of posts about the bad experiences that people have had with them. In addition to their upfront fees they will likely try to get you to put your money in high cost investments that will cost you more, sometimes a lot more. There are all sorts of assumptions and details but once you retire most people can only spend about 4% of their money each year to likely not run out of money(safe withdrawal rate). If you pay EJ a 1% upfront fee and another 1%(or more) in hidden fees for high cost funds that is 2% of have of your money each year!

Vanguard has a personal advisory service with a modest 0.3% fee(I think) and they can help you get it your investments set up in low cost investments if you need help. After a few years when everything is settled and on "auto pilot" and you feel comfortable with your investments you can stop paying for their advice.

There is a getting started wiki that you can also use to help you figure out what you need to know.

https://www.bogleheads.org/wiki/Getting_started

There can be special situations but investing does not need to be complicated. When I retired a few years ago I moved almost all my funds into a Target Date 2015 fund so it would be simpler for me to manage as I age or if my wife who knows less about investing has to manage it some day. People sometimes think that the Target Date funds are a dumbed down investing choice that needs to be improved on but in the right situation they are an excellent choice. The main reasons not to use them are if you also have a lot of money in taxable non-retirement accounts and taxes are a problem, or if you have a 401k does not have a good low cost target date fund.

After you have had a chance to read the getting started wiki you can post your information in this suggested format to get better responses.

viewtopic.php?f=1&t=6212

That is mainly a guideline and you do not need to follow it exactly.

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FIREchief
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Re: Lump Sum Pension Guidance

Post by FIREchief » Thu Oct 19, 2017 10:53 pm

billfromct wrote:
Wed Oct 18, 2017 8:20 pm
I rolled over my company pension, administered by Fidelity, to my Vanguard rollover IRA about 2 years ago.

Fidelity would not send the check directly to Vanguard, but did make out the check to "VFTC (Vanguard Fiduciary Trust Company) FBO (For Benefit Of) bill", sent it to me & I forwarded it to Vanguard with a cover letter stating my rollover IRA account information.

This "trustee to trustee" transfer eliminates the possibility of a check made out to me personally which would be considered a taxable distribution in which Fidelity would withhold 20% for Federal income tax.

I would recommend Vanguard, but my point is that whomever you choose, make sure the rollover is a "trustee to trustee" transfer so you don't get caught up in a potential Federal & state tax nightmare.
In the rare cases where we've had such a need, I always prefer to do everything one step at a time. In your situation, I would have opened a Fidelity rollover IRA and had Fidelity rollover 100% of the 401k assets to the Fido IRA. Then, I would have contacted Vanguard and requested that they "pull" the IRA from Fido to VG via trustee-to-trustee transfer. I really like my post office folks, but just get nervous with large checks like that floating around in the wild. Most custodians now charge something like $50 to totally close out an IRA, but when hundreds of thousands of dollars are in play, that is just noise.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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g$$
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Re: Lump Sum Pension Guidance

Post by g$$ » Thu Oct 19, 2017 11:29 pm

This post may be useful for you.

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