Retired Mom Needs 403b, and Home Sale Advice!

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Topic Author
dunk1234
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Retired Mom Needs 403b, and Home Sale Advice!

Post by dunk1234 »

This is my mom’s situation. She’s a retired elementary school teacher, and she needs to make some changes.

Emergency funds: 12 months

Debt & Expenses:

196k, 2.75% mortgage. No other debt.

She pays $1600 on a $1360 monthly mortgage payment that includes principal, interest and insurance/taxes.

Utilities: $160

Insurance expenses: Health, Car, RV. Totalling $900/mo.

Food & Alcohol & Entertainment (english bull terrier): $1000

Expenses all together: $3,360/m0

Tax Filing Status: Single

Tax Rate: Federal 22%, State 0%

State of Residence: Washington

Age: 64, single.

Desired Asset allocation: I don’t know. Please recommend.
Desired International allocation: I don’t know. Please recommend.

Please provide an approximate size of your total portfolio:

700k home equity after mortgage,
403b 264,000 in Short-Term Investment Fund W (Money Market-Non 40 ACT)
403b 64,000k (VALIC not sure on individual investments)
Vanguard Roth $40,446 (VTSAX)
Vanguard Taxable: 26,570. (AMD, SQ, TCEHY, THO.)
22,000 HSA VEBA,
25,000 gold and silver coin.
Credit Union: 29,000 Checking/Savings

TOTAL: 1,142,000

Mom is 63, at age 65, her pension will pay $1,413/mo with survivor benefit of $940/mo to me for the rest of my life. OR, mom can take $1800/mo and I’ll receive nothing (I'm 33). Which is better?

SS- Mom plans to take at 66.5 years. She will receive $2,275/mo.

Questions:
1.Mom obviously shouldn’t be all in on money market in her 403b.

> She is all in on: Short-Term Investment Fund W (FTSE 3 Month Treasury Bill Index, .08% ER)
Here are her alternatives:

>Washington State Bond Fund
>Socially Responsible Balanced Fund (US Equity 52%, Non US Equity 18%, Government 22%, Corporate Bonds 8%, Mortgage-backed .2%, Money market .8%, ?ER)
>US Large Cap Equity Index Fund (BlackRock S&P 500 Index, 0% ER)
>US Small Cap Value Equity Index Fund (BlackRock, Russell 2000 Value, .02% ER)
>Global Equity Index Fund (BlackRock, MSCI ACWI IMI Net Dividend Return Index, .03% ER)
>Emerging Market Equity Index Fund (BlackRock, MSCI Emerging Markets Index, .09% ER)
>Retirement Maturity Strategy Fund (35% stocks/65% bonds (50% US securities 50% non-US))
>I left out all the Retirement Strategy Funds, but maybe she should just be in one of those for simplicity’s sake.


2. Mom plans to sell her house. This will create tax and investment challenges for her when she realizes ~$600k from the sale. How to proceed with this?

Apologies, there may be errors above. Mom and I are well into some libations this Friday night. Thank you, will reply to your advice, and please take care! Bogleheads for life!

P.S.- Mom is also worried that she may have retired too soon when she left her work last year. Please comment on whether she should or should not seek full or part-time employment agian. Thanks!
delamer
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Re: Retired Mom Needs 403b, and Home Sale Advice!

Post by delamer »

Unless you have a disability of some sort, there’s no reason for your mother to provide you with a survivor’s benefit for her pension.

Has she considered rolling over her 403b to an IRA? That will give her a lot more options, investment-wise.

She’ll only be taxed if she realizes more than $250,000 capital gains on the home sale — capital gains being the difference between the cost basis and sale price. The actual amounts that she walks way with after the mortgage is paid off is irrelevant. (You may already know all this.)

What is her plan for housing once she sells her current home? Presumably, the $1760/month she is spending change. Will she buy a new home outright or with a mortgage? That would definitely impact the investment advice.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. | | Alexandre Dumas, fils
Topic Author
dunk1234
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Re: Retired Mom Needs 403b, and Home Sale Advice!

Post by dunk1234 »

delamer wrote: Fri Oct 08, 2021 7:57 pm Unless you have a disability of some sort, there’s no reason for your mother to provide you with a survivor’s benefit for her pension.
-Can you explain this further? I didn't know that my collection of survivor's pension money was dependend on my having a disability. If that's the case, then yes, I will have some sort of disability...anything is possible. :)
delamer wrote: Fri Oct 08, 2021 7:57 pm
Has she considered rolling over her 403b to an IRA? That will give her a lot more options, investment-wise.
- No, we haven't. I am her power of attorney, and I am incompetent. I will look into eschewing the 403 in exchenge for the IRA, I didn't know this was an option. If you have any links on how-to, could you please provide?
delamer wrote: Fri Oct 08, 2021 7:57 pm
She’ll only be taxed if she realizes more than $250,000 capital gains on the home sale — capital gains being the difference between the cost basis and sale price. The actual amounts that she walks way with after the mortgage is paid off is irrelevant. (You may already know all this.)
-I did not know that. She will realize 700, she paid 165, so I assume she will see capital gains taxes?
delamer wrote: Fri Oct 08, 2021 7:57 pm
What is her plan for housing once she sells her current home? Presumably, the $1760/month she is spending change. Will she buy a new home outright or with a mortgage? That would definitely impact the investment advice.
-She'll move in with me. I have a separate dwelling on my property. She will commandeer it!

thanks Duncan
Topic Author
dunk1234
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Re: Retired Mom Needs 403b, and Home Sale Advice!

Post by dunk1234 »

delamer wrote: Fri Oct 08, 2021 7:57 pm Has she considered rolling over her 403b to an IRA? That will give her a lot more options, investment-wise.
De la Mer, did you notice that the total market index through BlackRock is free? Maybe it's worth trying to make the 403 work?

thanks.
Big Heart
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Re: Retired Mom Needs 403b, and Home Sale Advice!

Post by Big Heart »

Any improvements she's made to the house would increase the cost basis above what she paid for it, thereby lowering her gains.
Topic Author
dunk1234
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Re: Retired Mom Needs 403b, and Home Sale Advice!

Post by dunk1234 »

Big Heart wrote: Fri Oct 08, 2021 8:30 pm Any improvements she's made to the house would increase the cost basis above what she paid for it, thereby lowering her gains.
Yes, she was just explaining that to me. She has made some improvements, but we're both worried with what she's going to do with the proceeds from her home sale next spring (wishfully).

Thanx
HomeStretch
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Re: Retired Mom Needs 403b, and Home Sale Advice!

Post by HomeStretch »

Your Mom is retired, has a marginal tax rate of 22% but hadn’t claimed SS or her pension yet. Is she recently retired (and the 22% is while she was working?) or does she have an additional source of retirement income or is the 22% her projected rate when she claims SS/pension?

Your Mom’s expenses are $3,360/mo. Edit - or $3,660/month as per a post, below.
- Does this include everything, such as income taxes and periodic large expenses such as a new car?
- Will her monthly expenses change when she sells her house and moves in with you?
Last edited by HomeStretch on Sat Oct 09, 2021 11:35 am, edited 2 times in total.
delamer
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Re: Retired Mom Needs 403b, and Home Sale Advice!

Post by delamer »

dunk1234 wrote: Fri Oct 08, 2021 8:15 pm
delamer wrote: Fri Oct 08, 2021 7:57 pm Unless you have a disability of some sort, there’s no reason for your mother to provide you with a survivor’s benefit for her pension.
-Can you explain this further? I didn't know that my collection of survivor's pension money was dependend on my having a disability. If that's the case, then yes, I will have some sort of disability...anything is possible. :)
delamer wrote: Fri Oct 08, 2021 7:57 pm
Has she considered rolling over her 403b to an IRA? That will give her a lot more options, investment-wise.
- No, we haven't. I am her power of attorney, and I am incompetent. I will look into eschewing the 403 in exchenge for the IRA, I didn't know this was an option. If you have any links on how-to, could you please provide?
delamer wrote: Fri Oct 08, 2021 7:57 pm
She’ll only be taxed if she realizes more than $250,000 capital gains on the home sale — capital gains being the difference between the cost basis and sale price. The actual amounts that she walks way with after the mortgage is paid off is irrelevant. (You may already know all this.)
-I did not know that. She will realize 700, she paid 165, so I assume she will see capital gains taxes?
delamer wrote: Fri Oct 08, 2021 7:57 pm
What is her plan for housing once she sells her current home? Presumably, the $1760/month she is spending change. Will she buy a new home outright or with a mortgage? That would definitely impact the investment advice.
-She'll move in with me. I have a separate dwelling on my property. She will commandeer it!

thanks Duncan
What I meant is that there is no need for your mother to take a reduced benefit to provide you with a pension assuming you are healthy and able to support yourself.

There are some good funds in her 403(b); my point was that she doesn’t need to be limited to those funds. Here’s some information on 401(k)s and similar plans (like 403(b)); scroll to the section on rollovers: https://www.bogleheads.org/wiki/401(k)#Rollovers

And this link is about capital gains on home sales: https://www.nerdwallet.com/article/taxe ... -gains-tax

As far as the investments are concerned, the bottom line issue is how comfortable she’d be with the volatility of stocks. More stocks means higher long-run returns, but also more chsnce for extreme drops. She might find this interesting: https://investor.vanguard.com/investing ... portfolio-
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. | | Alexandre Dumas, fils
joverby
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Re: Retired Mom Needs 403b, and Home Sale Advice!

Post by joverby »

dunk1234 wrote: Fri Oct 08, 2021 8:15 pm
-Can you explain this further? I didn't know that my collection of survivor's pension money was dependend on my having a disability. If that's the case, then yes, I will have some sort of disability...anything is possible. :)
I think their point was that it isn't the responsibility of parents to support their fully capable adult offspring. She shouldn't sacrifice her retirement to provide a pension to you, if you are capable of providing for yourself. Now if it is extra and she doesn't need it, then she could consider it part of your inheritance. If you are providing her free housing on your property, then that would more then offset the $400 she is loosing by selecting the survivor benefit. Is the pension adjusted for inflation? If not that greatly decreases the value of the survivor benefit.

It actually seams like she is in a really good place. Mostly because of the low expenses, and the equity in the house. After she sells the house, and assuming she is living rent-free on your property, her expenses will be $3,360 - $1,600 = $1,760. That's actually so low I don't believe it. Her income will cover that two times over $1,413 + $2,275 = $3,688.

She just needs to get to 65, and then 66.4. Unfortunately she doesn't have a lot of non retirement assets (outside of the house) to cover her while she waits, and you don't really want to touch the retirement assets since they are already such a low part of the total NW. I would use the Vanguard taxable to pay expenses while she sells the house. Then use the proceeds from the house to fund her life until 66.4, and keep 5 years of expenses (after pension/SS) in a cash equivalent. Consult with a real estate attorney on the best way to deal with the taxes from the home sale. While she is waiting for SS she could convert from 403b to Roth since she'll be in a low tax bracket. I would look at the Retirement Strategy Funds for the 403b, they are perfect for people who don't want to be bothered by rebalancing. Once she sells the house, she can go for moderate growth with the 403bs since she won't really need them, anything from 40/60 to 70/30 stocks/bonds would be fine. VTSAX is fine in the Roth, or if you want to diversify VASGX. At this point the Roth is looking like the inheritance fund so its ok to invest for a long time horizon.
joverby
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Re: Retired Mom Needs 403b, and Home Sale Advice!

Post by joverby »

I forgot to mention that she should be encouraged to spend a little and enjoy herself. There is no reason to spend less then $3,688 since she has that in guaranteed income. You could make an argument for $6,543 per month (3,688 + (3% * 1,142,000)/12).
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dunk1234
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Re: Retired Mom Needs 403b, and Home Sale Advice!

Post by dunk1234 »

joverby wrote: Fri Oct 08, 2021 9:57 pm Is the pension adjusted for inflation? If not that greatly decreases the value of the survivor benefit.
Thanks Joverby. Assuming the pension is adjusted for inflation, might it be in my best interest to pay her the difference between the plan that all goes to her, and the plan that has a survivor's benefit? The reason I was most interested in the survivor's benefit pension plan was that it seems to maximize the return/utility of the pension.
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cchrissyy
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Re: Retired Mom Needs 403b, and Home Sale Advice!

Post by cchrissyy »

Are you sure the pension rules allow her to designate an adult child as her survivor? I've never heard of that. I feel like if that was how it works than we'd see more questions from well-off older couples or singles asking if they should take a lower payment for themselves and make their kid/grandkid/friend their survivor.
comfortable being all stock until age 40, now working towards 60-20-20 us-intl-bond
student
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Re: Retired Mom Needs 403b, and Home Sale Advice!

Post by student »

dunk1234 wrote: Sat Oct 09, 2021 8:51 am
joverby wrote: Fri Oct 08, 2021 9:57 pm Is the pension adjusted for inflation? If not that greatly decreases the value of the survivor benefit.
Thanks Joverby. Assuming the pension is adjusted for inflation, might it be in my best interest to pay her the difference between the plan that all goes to her, and the plan that has a survivor's benefit? The reason I was most interested in the survivor's benefit pension plan was that it seems to maximize the return/utility of the pension.
I would think that the actuaries have done the calculation so that on average the two options are roughly the same. But if you want the survivor's benefit, then I think you should pay her the difference so that you are not taking money away from her.
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JoeRetire
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Re: Retired Mom Needs 403b, and Home Sale Advice!

Post by JoeRetire »

dunk1234 wrote: Fri Oct 08, 2021 7:32 pm Age: 64, single.
Mom is 63
Mom and I are well into some libations this Friday night.
Okay.
at age 65, her pension will pay $1,413/mo with survivor benefit of $940/mo to me for the rest of my life. OR, mom can take $1800/mo and I’ll receive nothing (I'm 33). Which is better?
Is there some reason you need the survivor benefits? Clearly the $1800/mo is better for her, but not necessarily for both of you.
SS- Mom plans to take at 66.5 years. She will receive $2,275/mo.
Mom should check out https://opensocialsecurity.com/
Mom is also worried that she may have retired too soon when she left her work last year. Please comment on whether she should or should not seek full or part-time employment agian.
Financially she should be fine.
But if she wants to work (perhaps for the social aspects) she should.
Just remember: it's not a lie if you believe it.
joverby
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Re: Retired Mom Needs 403b, and Home Sale Advice!

Post by joverby »

dunk1234 wrote: Sat Oct 09, 2021 8:51 am
Thanks Joverby. Assuming the pension is adjusted for inflation, might it be in my best interest to pay her the difference between the plan that all goes to her, and the plan that has a survivor's benefit? The reason I was most interested in the survivor's benefit pension plan was that it seems to maximize the return/utility of the pension.
I suspect its not adjusted for inflation. However if it is, then it would be an attractive option.

Lets assume your mother lives to 85, and that you can invest the $400 / month for a 5% after inflation return. You'll end up with about 160k. Using 4% SWR that's about $530 / month, which is far less then $1413 / month.

If the pension is not adjusted for inflation, then by the time you are 65 it will be worth about $560 in todays dollars, and will keep dropping. Keep in mind the 4% SWR is adjusted for inflation, and you have a residual balance to leave to your heirs. In this case I doesn't seam to make sense.

Obviously the above has a lot of assumptions which may, or may not, bear true in real life.

Its not all about the numbers though. What is the risk that you won't be able to pay? Will your mom feel bad about depending on money from you? Will she limit her retirement and spending because of this? Do you actually even need this money? Personally I'd be tempted but only if it was inflation adjusted and only if I was 100% certain it wouldn't negatively impact my Mom. Money is a tool to help us live good lives, its not always about achieving the highest number.
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Re: Retired Mom Needs 403b, and Home Sale Advice!

Post by Dottie57 »

cchrissyy wrote: Sat Oct 09, 2021 9:19 am Are you sure the pension rules allow her to designate an adult child as her survivor? I've never heard of that. I feel like if that was how it works than we'd see more questions from well-off older couples or singles asking if they should take a lower payment for themselves and make their kid/grandkid/friend their survivor.
For most pensions I believe that the spouse is the only allowed person to receive the death benefit or perhaps a disabled child. This is in the U.S.
student
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Re: Retired Mom Needs 403b, and Home Sale Advice!

Post by student »

Dottie57 wrote: Sat Oct 09, 2021 10:14 am
cchrissyy wrote: Sat Oct 09, 2021 9:19 am Are you sure the pension rules allow her to designate an adult child as her survivor? I've never heard of that. I feel like if that was how it works than we'd see more questions from well-off older couples or singles asking if they should take a lower payment for themselves and make their kid/grandkid/friend their survivor.
For most pensions I believe that the spouse is the only allowed person to receive the death benefit or perhaps a disabled child. This is in the U.S.
I did not know that. Thanks for the info. I am not eligible for a pension so I know little about it.
retire2022
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Re: Retired Mom Needs 403b, and Home Sale Advice!

Post by retire2022 »

student wrote: Sat Oct 09, 2021 10:33 am
Dottie57 wrote: Sat Oct 09, 2021 10:14 am
cchrissyy wrote: Sat Oct 09, 2021 9:19 am Are you sure the pension rules allow her to designate an adult child as her survivor? I've never heard of that. I feel like if that was how it works than we'd see more questions from well-off older couples or singles asking if they should take a lower payment for themselves and make their kid/grandkid/friend their survivor.
For most pensions I believe that the spouse is the only allowed person to receive the death benefit or perhaps a disabled child. This is in the U.S.
I did not know that. Thanks for the info. I am not eligible for a pension so I know little about it.
In NYS pension system you could designate anyone, child, relative or significant other that that person will be surviving beneficiary, WITH the understanding that the monthly pension benefits would be reduced.

I am not aware of the specifics to Washington state or local government pension to OP so I cannot speak to that, but I would advise the OP to seek counsel from Washington state's retirement system.
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Re: Retired Mom Needs 403b, and Home Sale Advice!

Post by retire2022 »

dunk1234 wrote: Fri Oct 08, 2021 8:15 pm
delamer wrote: Fri Oct 08, 2021 7:57 pm
Has she considered rolling over her 403b to an IRA? That will give her a lot more options, investment-wise.
- No, we haven't. I am her power of attorney, and I am incompetent. I will look into eschewing the 403 in exchenge for the IRA, I didn't know this was an option. If you have any links on how-to, could you please provide?


She’ll only be taxed if she realizes more than $250,000 capital gains on the home sale — capital gains being the difference between the cost basis and sale price. The actual amounts that she walks way with after the mortgage is paid off is irrelevant. (You may already know all this.)
-I did not know that. She will realize 700, she paid 165, so I assume she will see capital gains taxes?

-She'll move in with me. I have a separate dwelling on my property. She will commandeer it!


thanks Duncan
[/quote]

OP here is the link for "rollover to IRA" which is a tax free transfer to IRA, ie 403b transfers to IRA

page 22 chart shows what can be transferred to and from

https://www.irs.gov/pub/irs-pdf/p590a.pdf

OP should consider carefully how sale of primary home would impact IRMAA premiums, see link:

https://www.medicareresources.org/medic ... unt-irmaa/

Additionally your mother may have post employment healthcare premium to pay down Medicare parts A&B, you should investigate with Washington State retirement system to see if she has credits for Medicare IRMAA offset, in my state NYS, it is covered by post employment health plan , Sick Leave credits earned while on payroll.
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Godot
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Re: Retired Mom Needs 403b, and Home Sale Advice!

Post by Godot »

dunk1234 wrote: Fri Oct 08, 2021 7:32 pm This is my mom’s situation. She’s a retired elementary school teacher, and she needs to make some changes.

Emergency funds: 12 months

Debt & Expenses:

196k, 2.75% mortgage. No other debt.

She pays $1600 on a $1360 monthly mortgage payment that includes principal, interest and insurance/taxes.

Utilities: $160

Insurance expenses: Health, Car, RV. Totalling $900/mo.

Food & Alcohol & Entertainment (english bull terrier): $1000

Expenses all together: $3,360/m0

Tax Filing Status: Single

Tax Rate: Federal 22%, State 0%

State of Residence: Washington

Age: 64, single.

Desired Asset allocation: I don’t know. Please recommend.
Desired International allocation: I don’t know. Please recommend.

Please provide an approximate size of your total portfolio:

700k home equity after mortgage,
403b 264,000 in Short-Term Investment Fund W (Money Market-Non 40 ACT)
403b 64,000k (VALIC not sure on individual investments)
Vanguard Roth $40,446 (VTSAX)
Vanguard Taxable: 26,570. (AMD, SQ, TCEHY, THO.)
22,000 HSA VEBA,
25,000 gold and silver coin.
Credit Union: 29,000 Checking/Savings

TOTAL: 1,142,000

Mom is 63, at age 65, her pension will pay $1,413/mo with survivor benefit of $940/mo to me for the rest of my life. OR, mom can take $1800/mo and I’ll receive nothing (I'm 33). Which is better?


1. 1,600 + 160 + 900 + 1,000 = $3,660.
2. Is she 63 or 64?
"If by Godot I had meant God I would have said God, and not Godot." | ― Samuel Beckett
student
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Re: Retired Mom Needs 403b, and Home Sale Advice!

Post by student »

retire2022 wrote: Sat Oct 09, 2021 10:41 am
student wrote: Sat Oct 09, 2021 10:33 am
Dottie57 wrote: Sat Oct 09, 2021 10:14 am
cchrissyy wrote: Sat Oct 09, 2021 9:19 am Are you sure the pension rules allow her to designate an adult child as her survivor? I've never heard of that. I feel like if that was how it works than we'd see more questions from well-off older couples or singles asking if they should take a lower payment for themselves and make their kid/grandkid/friend their survivor.
For most pensions I believe that the spouse is the only allowed person to receive the death benefit or perhaps a disabled child. This is in the U.S.
I did not know that. Thanks for the info. I am not eligible for a pension so I know little about it.
In NYS pension system you could designate anyone, child, relative or significant other that that person will be surviving beneficiary, WITH the understanding that the monthly pension benefits would be reduced.

I am not aware of the specifics to Washington state or local government pension to OP so I cannot speak to that, but I would advise the OP to seek counsel from Washington state's retirement system.
Thanks for the info.
anonenigma
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Re: Retired Mom Needs 403b, and Home Sale Advice!

Post by anonenigma »

dunk1234 wrote: Fri Oct 08, 2021 8:15 pm
-Can you explain this further? I didn't know that my collection of survivor's pension money was dependend on my having a disability. If that's the case, then yes, I will have some sort of disability...anything is possible. :)
So you'd consider fraud to advance this plan?

I don't know Washington State's rules, but in the California State Teachers Retirement System, for a non-spouse to receive a 75% survivor benefit, the beneficiary cannot be more than exactly 19 years younger than the retiring employee.

Make your own money - don't be a leech.
krow36
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Re: Retired Mom Needs 403b, and Home Sale Advice!

Post by krow36 »

What you list as: “403b 264,000 in Short-Term Investment Fund W (Money Market-Non 40 ACT)” and for which you list her investment alternatives, looks like the WA state 457b (which they call a DCP (Deferred Compensation Plan)). If she is in the TRS 3 pension plan, it is a hybrid pension plan. It has a defined benefit component and a defined contribution component. The defined contribution part uses the same funds as the 457b supplemental plan you listed as the 403b. Assuming she is in TRS 3, she could have contributed between 5% and 15% of her salary to her TRS defined contribution account. Here’s a link the the TRS 3 pension plan: https://www.drs.wa.gov/plan/trs3/ It discusses their Total Allocation Portfolio (TAP) Annuity and survivor options which includes using both the defined benefit and defined contribution account as well as the DCP 457b account if she has one. EDIT: The TAP annuity does not include the defined benefit pension.
Last edited by krow36 on Mon Oct 11, 2021 1:17 pm, edited 1 time in total.
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dunk1234
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Re: Retired Mom Needs 403b, and Home Sale Advice!

Post by dunk1234 »

anonenigma wrote: Sat Oct 09, 2021 1:23 pm
So you'd consider fraud to advance this plan?
No, but I would facetiously allude to the possibilty.
anonenigma wrote: Sat Oct 09, 2021 1:23 pm
Make your own money - don't be a leech.
I'm here for investment advice - pros and cons, not sententiousness. Serious question, "Make your own money" seems a philosohphy agains all forms of inheritance. Is that your position? Interesting if true.
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dunk1234
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Re: Retired Mom Needs 403b, and Home Sale Advice!

Post by dunk1234 »

cchrissyy wrote: Sat Oct 09, 2021 9:19 am Are you sure the pension rules allow her to designate an adult child as her survivor?
My mom tells me that she called them and they "calculated my age" (i'm 33) to determine the survivor benefit that would pass on to me. Yes, I was blown away by this as well. No disability is required. I'm thinking it would make sense to go with the survivor plan (TERS), and for me to pay my mom the difference while she is living. Disappointed that some BHs seem somehow personally offended by my consideration of taking the survivor approach...
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dunk1234
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Re: Retired Mom Needs 403b, and Home Sale Advice!

Post by dunk1234 »

student wrote: Sat Oct 09, 2021 9:33 am Is the pension adjusted for inflation? If not that greatly decreases the value of the survivor benefit.
It doesn't appear to be. A good case against the survivor benefit.
student wrote: Sat Oct 09, 2021 9:33 am
I would think that the actuaries have done the calculation so that on average the two options are roughly the same. But if you want the survivor's benefit, then I think you should pay her the difference so that you are not taking money away from her.
Agreed. Thanks.
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dunk1234
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Re: Retired Mom Needs 403b, and Home Sale Advice!

Post by dunk1234 »

Godot wrote: Sat Oct 09, 2021 11:19 am
Is she 63 or 64?
She'll be 64 in December, sorry.
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Re: Retired Mom Needs 403b, and Home Sale Advice!

Post by delamer »

dunk1234 wrote: Sun Oct 10, 2021 4:30 pm
cchrissyy wrote: Sat Oct 09, 2021 9:19 am Are you sure the pension rules allow her to designate an adult child as her survivor?
My mom tells me that she called them and they "calculated my age" (i'm 33) to determine the survivor benefit that would pass on to me. Yes, I was blown away by this as well. No disability is required. I'm thinking it would make sense to go with the survivor plan (TERS), and for me to pay my mom the difference while she is living. Disappointed that some BHs seem somehow personally offended by my consideration of taking the survivor approach...
In your initial post, you didn’t indicate that your mother would be moving in with you and so you’d be taking some financial responsibility for her. Hence the comments — including mine — that your mother should maximize her pension benefit and not be concerned about providing her (presumably healthy) adult child with a benefit once she’s dead.

Given that she is going to be dependent on you for her housing, then taking the survivor benefit is much more reasonable.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. | | Alexandre Dumas, fils
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dunk1234
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Re: Retired Mom Needs 403b, and Home Sale Advice!

Post by dunk1234 »

delamer wrote: Sun Oct 10, 2021 4:42 pm
In your initial post, you didn’t indicate that your mother would be moving in with you and so you’d be taking some financial responsibility for her. Hence the comments.
De la Mer,

I appreciate your followup. It's for none other than my mother to decide whether she takes the survivor/no survivor path. She is to decide also whether it sould be contingent on living with me in retirement. Your opinion there is equally as valuable as mine. We're here on BH to learn of the financial rammificaitons of those two courses, certainly not to learn of the moral implications of such choices.

Thanks you.
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Re: Retired Mom Needs 403b, and Home Sale Advice!

Post by KESP »

OP, my only concern would be if you pre- deceased her. I’m assuming you would be leaving her enough to live on? Also assuming you are not in a relationship with anyone or planning to as that could complicate things too. I realize you probably think it would be unlikely you would die before your mom, but us old people have seen it happen enough times that I felt like I should bring it up. If there is enough for her should that happen and you are willing to support her, makes sense. :sharebeer
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dunk1234
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Re: Retired Mom Needs 403b, and Home Sale Advice!

Post by dunk1234 »

krow36 wrote: Sat Oct 09, 2021 2:47 pm What you list as: “403b 264,000 in Short-Term Investment Fund W (Money Market-Non 40 ACT)” and for which you list her investment alternatives, looks like the WA state 457b (which they call a DCP (Deferred Compensation Plan)). If she is in the TRS 3 pension plan, it is a hybrid pension plan. It has a defined benefit component and a defined contribution component. The defined contribution part uses the same funds as the 457b supplemental plan you listed as the 403b. Assuming she is in TRS 3, she could have contributed between 5% and 15% of her salary to her TRS defined contribution account. Here’s a link the the TRS 3 pension plan: https://www.drs.wa.gov/plan/trs3/ It discusses their Total Allocation Portfolio (TAP) Annuity and survivor options which includes using both the defined benefit and defined contribution accounts as well as the DCP 457b account if she has one.
Thank you! I've emailed your comment on to my mom. She mentioned that her plan was called "TERS." It is the hybrid. Are there any investment options there that you might recommend?
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Re: Retired Mom Needs 403b, and Home Sale Advice!

Post by anonenigma »

dunk1234 wrote: Sun Oct 10, 2021 4:25 pm
anonenigma wrote: Sat Oct 09, 2021 1:23 pm
So you'd consider fraud to advance this plan?
No, but I would facetiously allude to the possibilty.
anonenigma wrote: Sat Oct 09, 2021 1:23 pm
Make your own money - don't be a leech.
I'm here for investment advice - pros and cons, not sententiousness. Serious question, "Make your own money" seems a philosohphy agains all forms of inheritance. Is that your position? Interesting if true.
Except for the very rich, inheritance usually happens upon death. Actuarially, your mother may have to sustain herself for as long as 20-30 years.
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Re: Retired Mom Needs 403b, and Home Sale Advice!

Post by dunk1234 »

KESP wrote: Sun Oct 10, 2021 4:54 pm OP, my only concern would be if you pre- deceased her. I’m assuming you would be leaving her enough to live on? Also assuming you are not in a relationship with anyone or planning to as that could complicate things too. I realize you probably think it would be unlikely you would die before your mom, but us old people have seen it happen enough times that I felt like I should bring it up. If there is enough for her should that happen and you are willing to support her, makes sense. :sharebeer
KESP. Thanks for those observations. I suppose if I passed away, my mom would have my wife to take care of her. She and I have actually discussed this in relation to my "fast" driving on dangerous Montana highways...Sad to think about but it must be considered. Cheers.
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dunk1234
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Re: Retired Mom Needs 403b, and Home Sale Advice!

Post by dunk1234 »

JoeRetire wrote: Sat Oct 09, 2021 9:48 am
Is there some reason you need the survivor benefits? Clearly the $1800/mo is better for her, but not necessarily for both of you.
Thank you for your input. No, I do not need the survivor benefit at all. I'm financially healthy. Wife and I are DINKs! We want to choose the course that maximizes the total return of the pension. Inflation is a good point..the pension is not inflation-adjusted... Also, what if I should die before she?
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Re: Retired Mom Needs 403b, and Home Sale Advice!

Post by KESP »

Are you talking about if you die before your wife? I am pretty certain that it would die with you, but then again it’s not usual for a non-spouse who is not disabled to be able to inherit it in the first place. I think you will have to check the plan paperwork to make sure. I would be absolutely shocked if the pension did not die with you.
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Re: Retired Mom Needs 403b, and Home Sale Advice!

Post by JoeRetire »

dunk1234 wrote: Sun Oct 10, 2021 5:22 pm
JoeRetire wrote: Sat Oct 09, 2021 9:48 am
Is there some reason you need the survivor benefits? Clearly the $1800/mo is better for her, but not necessarily for both of you.
Thank you for your input. No, I do not need the survivor benefit at all. I'm financially healthy. Wife and I are DINKs! We want to choose the course that maximizes the total return of the pension. Inflation is a good point..the pension is not inflation-adjusted... Also, what if I should die before she?
Maximizing the total return of mom's pension may be advantageous for you, but detrimental for mom. Most folks in her situation would seek to maximize what they collect (i.e. $1800/mo), not maximize what they-plus-their-child collect.

And if you die before mom does, then clearly her $1800/mo would have been the better choice.
Just remember: it's not a lie if you believe it.
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Re: Retired Mom Needs 403b, and Home Sale Advice!

Post by dunk1234 »

JoeRetire wrote: Sun Oct 10, 2021 5:53 pm Maximizing the total return of mom's pension may be advantageous for you...
It sounds like you might agree that the best plan is for my mom to take the survivor benefit, and for me to pay her the difference. win-win :sharebeer
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Re: Retired Mom Needs 403b, and Home Sale Advice!

Post by dunk1234 »

KESP wrote: Sun Oct 10, 2021 5:51 pm Are you talking about if you die before your wife?
no - my mom. I knew what I'd said was ambiguous. Sorry KESP. As an aside, I will die before my wife. Never met anyone healthier.
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JoeRetire
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Re: Retired Mom Needs 403b, and Home Sale Advice!

Post by JoeRetire »

dunk1234 wrote: Sun Oct 10, 2021 6:22 pm
JoeRetire wrote: Sun Oct 10, 2021 5:53 pm Maximizing the total return of mom's pension may be advantageous for you...
It sounds like you might agree that the best plan is for my mom to take the survivor benefit, and for me to pay her the difference. win-win :sharebeer
That could work I suppose, if rather complicating. I see a win for you, but none for her. (Maybe you should pay her more than just "the difference" so she could have a "win".)

It's not what I would do if I were her. I just don't see why mom should consider money for you when she makes her pension choices, assuming you are a self-supporting adult.

I'd have to know all the pension details to make the "best plan for mom and child" choice.

Does she have the option to take a lump sum instead?
In Washington, are teachers pension funds in good shape and well-funded?
Last edited by JoeRetire on Mon Oct 11, 2021 6:03 am, edited 2 times in total.
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Re: Retired Mom Needs 403b, and Home Sale Advice!

Post by student »

dunk1234 wrote: Sun Oct 10, 2021 6:22 pm
JoeRetire wrote: Sun Oct 10, 2021 5:53 pm Maximizing the total return of mom's pension may be advantageous for you...
It sounds like you might agree that the best plan is for my mom to take the survivor benefit, and for me to pay her the difference. win-win :sharebeer
You may also think about a portion of your life insurance (if you have one) to go to her, should you predecease her.
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Re: Retired Mom Needs 403b, and Home Sale Advice!

Post by Oldaroo3 »

If your mother does name you as a beneficiary, she could look at simply doing a partial such as 25%, 50%, or 75%. She would not lose as much per month and you would still get a portion of the benefit. Additionally, see if her pension offers a pop up survivor benefit. Her benefit would increase back to her regular amount if you pre-decease her.
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Re: Retired Mom Needs 403b, and Home Sale Advice!

Post by dunk1234 »

JoeRetire wrote: Sun Oct 10, 2021 6:29 pm
(Maybe you should pay her more than just "the difference" so she could have a "win".)
Joe Retire, are you not a parent? Coming out even + helping her son is a win for her.
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Re: Retired Mom Needs 403b, and Home Sale Advice!

Post by JoeRetire »

dunk1234 wrote: Sun Oct 10, 2021 8:14 pm
JoeRetire wrote: Sun Oct 10, 2021 6:29 pm
(Maybe you should pay her more than just "the difference" so she could have a "win".)
Joe Retire, are you not a parent? Coming out even + helping her son is a win for her.
I am a parent. I was a son until my parents passed.

I'd never think about advising my parents to take a lower monthly pension in order to send some my way when they passed.
And I'd be shocked and chagrined if my children asked me to do so.

But whatever you and mom agree to is solely your business. You asked which option was "better", so I offered my viewpoint. But your mom's viewpoint is the only one that really counts, IMHO. If she thinks that would be a win-win and it makes her happy, then great. Good luck to you both.
Just remember: it's not a lie if you believe it.
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Re: Retired Mom Needs 403b, and Home Sale Advice!

Post by dunk1234 »

Oldaroo3 wrote: Sun Oct 10, 2021 8:03 pm If your mother does name you as a beneficiary, she could look at simply doing a partial such as 25%, 50%, or 75%.
Yes, we are looking at these options. They seem to be 100%, 50%, 33%. Here they are:

100% $1800 / $0
50% $1500 / $750
33% $1400 / $950
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Re: Retired Mom Needs 403b, and Home Sale Advice!

Post by dunk1234 »

JoeRetire wrote: Sun Oct 10, 2021 8:19 pm
I'd never think about advising my parents to take a lower monthly pension in order to send some my way when they passed.
And I'd be shocked and chagrined if my children asked me to do so.
I definitely did not expect so many of the BHs, a group I understood to be specialized primarily in sound investment strategies, to wax so sentimental on this thread. I'm not interested in what might chagrin one or another, but rather, what strategy would maximize utility for my mother and her inheritants.

My mom's monthly income need not be affected by which pension plan she opts for, whether it be survivor or non-survivor. The idea that reaping a full pension allotment of $1800/mo, while also providing pension benefits to surviving children, could be anything but a win-win seems ridiculous to me. If it is somehow a loss/win, I'd like someone to explain to me how it is so.

My family members, generally speaking, do not enjoy long lifespans. Though my mom is in apparent perfect health now, we don't expect her to be for much longer. This has changed our thoughts on the pension.



Thank you, Joe, for your effort to add to this discussion.
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Re: Retired Mom Needs 403b, and Home Sale Advice!

Post by dunk1234 »

delamer wrote: Fri Oct 08, 2021 7:57 pm Unless you have a disability of some sort, there’s no reason for your mother to provide you with a survivor’s benefit for her pension.
No reason? I think there could (potentially) be a higher utility reaped from the pension if she were to include me in her survivor's benefit, and in exchage receive the difference in cash from me each month. De la Mer, hypothetically speaking, if she were to live for only five years more, would you then agree that the survivor's benefit had worth?
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Re: Retired Mom Needs 403b, and Home Sale Advice!

Post by JoeRetire »

dunk1234 wrote: Sun Oct 10, 2021 8:40 pm I definitely did not expect so many of the BHs, a group I understood to be specialized primarily in sound investment strategies, to wax so sentimental on this thread.

The idea that reaping a full pension allotment of $1800/mo, while also providing pension benefits to surviving children, could be anything but a win-win seems ridiculous to me.
Unless you want to venture into sentimentality, it seems at best to be a tie-win to me.
Though my mom is in apparent perfect health now, we don't expect her to be for much longer.
Sorry to hear that. Good luck to you both.
Just remember: it's not a lie if you believe it.
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Re: Retired Mom Needs 403b, and Home Sale Advice!

Post by krow36 »

I think your mom has “separated from service”, but has not started drawing on her pension? Does she plan to actually “retire” (start receiving her pension) at age 65 next year? The pension is the state funded part of the hybrid plan. That defined benefit payment is based on a formula: (years teaching)*(final average salary)*(1%). I didn’t read anything about the pension having a COLA.

Is she planning to annuitize her Self-Directed Investment Program account (her defined contribution part of TRS 3)? The TRS 3 hybrid plan offers a Total Allocation Portfolio (TAP) Annuity for taking withdrawals from her Investment Program account. It would give her a monthly income for the rest of her life, with a guaranteed 3% annual COLA. If there’s any of her contributions (plus interest at the time of annuitization) remaining on her passing, it would go to her beneficiary. She can start the TAP annuity anytime after separation.

An alternative to using TAP, is to invest the 264k in the state 403b and leave it to grow, taking distributions as needed. That is what you have asked for suggestions about. If you scroll down in “Available Investments” in the TRS website, you’ll get to the FEES information. The stock and bond funds have a total fee of about 0.11% (not free) or more, and the Retirement Strategy funds about 0.22%. I believe that you can defer taking the TAP annuity option indefinitely, as long as you still have your Investment Program account.

The state 403b is not as low-cost as an IRA, into which she could roll it. A Vanguard IRA would have fees about half those of the WA state 403b account. I don’t think you have mentioned her current income needs and where they are coming from? Which of her assets is she using?

I would roll the VALIC 403b (probably a variable annuity) of 64k into an IRA at Vanguard, Fidelity or Schwab. VALIC levies an annual fee around 2%, while Vanguard’s fee is around 0.1% to 0.2%. You/she needs to call the VALIC 800 help # and ask for her surrender fee. It’s possible it’s waived due to her time in the contract and/or her age. In any case, it’s usually worth paying the fee to escape the 2% annual expense.
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Re: Retired Mom Needs 403b, and Home Sale Advice!

Post by delamer »

dunk1234 wrote: Sun Oct 10, 2021 8:47 pm
delamer wrote: Fri Oct 08, 2021 7:57 pm Unless you have a disability of some sort, there’s no reason for your mother to provide you with a survivor’s benefit for her pension.
No reason? I think there could (potentially) be a higher utility reaped from the pension if she were to include me in her survivor's benefit, and in exchage receive the difference in cash from me each month. De la Mer, hypothetically speaking, if she were to live for only five years more, would you then agree that the survivor's benefit had worth?
You made these statements in your initial post:

“Mom is 63, at age 65, her pension will pay $1,413/mo with survivor benefit of $940/mo to me for the rest of my life. OR, mom can take $1800/mo and I’ll receive nothing (I'm 33). Which is better?”

“ Mom is also worried that she may have retired too soon when she left her work last year. Please comment on whether she should or should not seek full or part-time employment agian. Thanks!”

Your mother is worried about having enough income, so the solution isn’t to reduce her pension. That’s the obvious conclusion.

People volunteer their time to provide help with financial topics on this forum, and can do so based only on the information provided at the time. You need to take that into account, instead of getting upset/offended that people recommended a path that you don’t like or continuing to add information and then taking people’s earlier comments out of context.

I’m out.
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Re: Retired Mom Needs 403b, and Home Sale Advice!

Post by susan123 »

I don't think there's a simple answer to this. It all depends on how long she'll live, how long you will live, and how bad the inflation will be (you said the survivor benefits have no COL adjustments). Also is it your mom's idea to consider maximizing "mom and child as a whole"?
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