Retiring in 2 weeks, Traditional 401k

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reeko0530
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Retiring in 2 weeks, Traditional 401k

Post by reeko0530 » Thu Dec 06, 2018 7:45 pm

Hi,
My father came to me to help him with his retirement. He is turning 65, and is planning on retiring Dec 31st. He has worked in a factory his whole life and struggle to save for retirement. He currently has T Rowe Price and his entire retirement fund is in the Target 2020 fund. He only has 275k in total investement after the 12k decline in the past month. After watching this decline and having no experience with investing etc, I called T Rowe Price with him as there is a language barrier.

T Rowe presented us with these options. We can keep him in the current 401k plan and there are no fees for managing the account. There is a 20% mandatory tax withholding for every withdrawal and a 25 dollar fee for each distribution. Next we can transfer to their IRA which again will not have any fees as long as there is a minimum 10k in this account. There is no fee for distributions and also they do not withhold any tax. I am worried about them not withholding tax as this my overcomplicate the end of year taxes for them. In this situation, would it be better to remain in the 401k or move to an IRA?

The last part of my question is how to I protect this money as best as I can for him. This is all they have plus social security to live off of. They cannot afford to lose this money as they need it to live off of. My thinking was moving maybe 50% either into a CD or T Rowe's Money Market to ensure stability. Is my thinking wrong? What are the best options to cushion any sort of impact a major fall in the stock market or rise in the fed interest rate?

Thanks for everyones help.

neilpilot
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Re: Retiring in 2 weeks, Traditional 401k

Post by neilpilot » Thu Dec 06, 2018 8:39 pm

reeko0530 wrote:
Thu Dec 06, 2018 7:45 pm
Next we can transfer to their IRA which again will not have any fees as long as there is a minimum 10k in this account. There is no fee for distributions and also they do not withhold any tax.
Of course there's also the option of transferring the 401k into a tIRA at another firm other than T Rowe Price

reeko0530
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Re: Retiring in 2 weeks, Traditional 401k

Post by reeko0530 » Thu Dec 06, 2018 8:40 pm

neilpilot wrote:
Thu Dec 06, 2018 8:39 pm
reeko0530 wrote:
Thu Dec 06, 2018 7:45 pm
Next we can transfer to their IRA which again will not have any fees as long as there is a minimum 10k in this account. There is no fee for distributions and also they do not withhold any tax.
Of course there's also the option of transferring the 401k into a tIRA at another firm other than T Rowe Price
what are the benefits of doing so? Just looking for some guidance as to how to proceed. Thanks

neilpilot
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Re: Retiring in 2 weeks, Traditional 401k

Post by neilpilot » Thu Dec 06, 2018 8:47 pm

reeko0530 wrote:
Thu Dec 06, 2018 8:40 pm
neilpilot wrote:
Thu Dec 06, 2018 8:39 pm
reeko0530 wrote:
Thu Dec 06, 2018 7:45 pm
Next we can transfer to their IRA which again will not have any fees as long as there is a minimum 10k in this account. There is no fee for distributions and also they do not withhold any tax.
Of course there's also the option of transferring the 401k into a tIRA at another firm other than T Rowe Price
what are the benefits of doing so? Just looking for some guidance as to how to proceed. Thanks
I don't know how familiar you are with investments in general, and I'm not familiar with T Rowe Price. Maybe another firm could be better for your particular needs. I was just pointing out that your options were not limited to T Rowe Price.

reeko0530
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Re: Retiring in 2 weeks, Traditional 401k

Post by reeko0530 » Thu Dec 06, 2018 8:51 pm

neilpilot wrote:
Thu Dec 06, 2018 8:47 pm
reeko0530 wrote:
Thu Dec 06, 2018 8:40 pm
neilpilot wrote:
Thu Dec 06, 2018 8:39 pm
reeko0530 wrote:
Thu Dec 06, 2018 7:45 pm
Next we can transfer to their IRA which again will not have any fees as long as there is a minimum 10k in this account. There is no fee for distributions and also they do not withhold any tax.
Of course there's also the option of transferring the 401k into a tIRA at another firm other than T Rowe Price
what are the benefits of doing so? Just looking for some guidance as to how to proceed. Thanks
I don't know how familiar you are with investments in general, and I'm not familiar with T Rowe Price. Maybe another firm could be better for your particular needs. I was just pointing out that your options were not limited to T Rowe Price.
Thanks for letting me know. I have zero experience with investments as I have just begun a 401k myself.

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smarcus3
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Re: Retiring in 2 weeks, Traditional 401k

Post by smarcus3 » Thu Dec 06, 2018 9:19 pm

You could roll over the 401k to any tIRA at any brokerage. My 401k is actually being moved to T Rowe Price (why couldn't it be fidelity) You can call vanguard/fidelity and they're always more than willing to fill out the paperwork. However that's a minor concern compared to your first question around risk and market losses. There is no reason to give up money on any distribution to fees by a broker.

Looking at the allocation for the target date fund it's 60% equities and 40% bonds. Does he have any other pensions/annuities. when is he planning on taking Social security? What's his monthly expenses expected to be? Without knowing what these are it's impossible to determine what the investments need to support.
Last edited by smarcus3 on Thu Dec 06, 2018 9:31 pm, edited 1 time in total.
This is my personal opinion. I'm an engineer not a financial advisor.

billfromct
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Re: Retiring in 2 weeks, Traditional 401k

Post by billfromct » Thu Dec 06, 2018 9:30 pm

Can your father work longer?

His full retirement age for SS is probably between 66 & 67. If he takes SS before his full retirement age, his SS payment will be reduced. If he takes SS after his full retirement age, his monthly payment will be increased by about 8% per year if he waits longer. SS is increased for inflation each year.

TR Price is a high cost investment company compared to Vanguard. I would guess their average mutual fund expenses are .50% (1/2%) or more higher than Vanguard.

It sounds like a balanced fund (40%-60% stocks/60%-40% bonds) would be advisable for someone with potentially 20-30 years of retirement.

You may want to suggest he get a part-time job so he can delay taking money from his 401k/rollover IRA &/or delay taking SS.

You need to do more research so you can advise him properly.

I will start taking SS & IRA required minimum distributions (RMDs) in January at age 70. My retirement asset allocation is about 60% stocks/40% bonds. I have about 10-12 years of RMDs in my retirement accounts so I can ride out any stock market correction or bear market

bill

reeko0530
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Re: Retiring in 2 weeks, Traditional 401k

Post by reeko0530 » Thu Dec 06, 2018 9:32 pm

smarcus3 wrote:
Thu Dec 06, 2018 9:19 pm
You could roll over the 401k to any tIRA at any brokerage. You can call vanguard/fidelity and they're always more than willing to fill out the paperwork. However that's a minor concern compared to your first question around risk and market losses. There is no reason to give up money on any distribution to fees by a broker.

Looking at the allocation for the target date fund it's 60% equities and 40% bonds. Does he have any other pensions/annuities. when is he planning on taking Social security? What's his monthly expenses expected to be? Without knowing what these are it's impossible to determine what the investments need to support.
He will be taking his social security right away at age 65. Right now they live on around 500 weekly as that is his take home. My mom does not work as she was a homemaker, and my dad will need to pay cobra on health insurance since she is only 62. I am guessing they would like to remain around that now. His social security will be near 1k i believe, but I am not sure if that is pre or post tax. Hope that helps give you some information.

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smarcus3
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Re: Retiring in 2 weeks, Traditional 401k

Post by smarcus3 » Thu Dec 06, 2018 9:37 pm

That portfolio can generate around $900/month of income utilizing the imperfect 4% rule. Which is about half his current pay. If SS kicks in another $1k that'll replace his current income approximately however healthcare through cobra will be expensive.

As the investments are just barely enough to provide from them you cannot place the funds in a money market yielding 2%.

I suggest getting a budget of what's going to be spent and what income they can expect to see where they are. I would hate to guess $1k and have it be off by 25% Unless they're comfortable cutting back expenses some I feel they're cutting it too close. However more information will be helpful.
This is my personal opinion. I'm an engineer not a financial advisor.

LilyFleur
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Re: Retiring in 2 weeks, Traditional 401k

Post by LilyFleur » Thu Dec 06, 2018 9:48 pm

Please take your time and consider it very carefully before moving his money from the 401k to an IRA, especially an outside IRA. In many states, a 401k offers greater protection against creditors (including medical bills) than an IRA. A nursing home bill could make it very difficult for the surviving parent to have enough money to live on. My mom's monthly bills towards the end were $15,000 a month. Remember, companies that offer incentives to you to roll a 401k over to their IRA will be making money off your parents. Nothing in life is free.
The market volatility is making me a bit nervous about my own retirement.
I would encourage you to hang out here...it is a great place to learn. There are strategies about how to start pulling money from a 401k depending on current market conditions.
Is it absolutely certain that your father must retire in two weeks? Does he have a savings account to pull from if he needs to? I think taking six months if needed to build up some cash reserves while doing some retirement planning would be prudent. Does he understand that a .04% yearly withdrawal from the 401k is considered safe? Is that enough, with his social security? Has he gone down to the social security office to get an estimate in writing of what to expect if he retires at age 65, 66, 67, 68, and so on? (Do not rely on their telephone customer service people...many errors from those folks.)
Is your father purchasing COBRA only for your mom, or for both of them?
Last edited by LilyFleur on Thu Dec 06, 2018 9:55 pm, edited 1 time in total.

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smarcus3
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Re: Retiring in 2 weeks, Traditional 401k

Post by smarcus3 » Thu Dec 06, 2018 9:50 pm

401k protection from creditors is a very good point. That one slipped my mind at 10 and typing on the stupid phone.
This is my personal opinion. I'm an engineer not a financial advisor.

billfromct
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Re: Retiring in 2 weeks, Traditional 401k

Post by billfromct » Thu Dec 06, 2018 9:51 pm

Your mom should get on to Obamacare. It will probably be less expensive then Cobra.

Also a general rule of thumb is to take 4% from one's retirement accounts. So with about $300k in a 401k or rollover IRA, $12k/year of IRA distributions should make his retirement savings last into his 90s. Taking out 5% or 6%/year from his 401k or rollover IRA will deplete that account sooner.

Your mother can apply for spousal SS benefits, which at age 62 may be 40% (just a guess) of his SS benefit. If she waits until her full retirement age (between 66 & 67) she will get about 50% of your father's SS payment.

bill

reeko0530
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Re: Retiring in 2 weeks, Traditional 401k

Post by reeko0530 » Thu Dec 06, 2018 9:52 pm

smarcus3 wrote:
Thu Dec 06, 2018 9:37 pm
That portfolio can generate around $900/month of income utilizing the imperfect 4% rule. Which is about half his current pay. If SS kicks in another $1k that'll replace his current income approximately however healthcare through cobra will be expensive.

As the investments are just barely enough to provide from them you cannot place the funds in a money market yielding 2%.

I suggest getting a budget of what's going to be spent and what income they can expect to see where they are. I would hate to guess $1k and have it be off by 25% Unless they're comfortable cutting back expenses some I feel they're cutting it too close. However more information will be helpful.
Thanks for helping me put things in perspective a bit. I am already working on cutting the tv/phone/internet back. Luckily the house is paid off and I have to look into to see what the cost for the property taxes will be once he retires. I believe he may qualify for reduced and locked taxes. I have to look into other habits of spending for them to see how I can reduce the cost of living.

In the current target fund, how vulnerable are they if the market were to take a fall and the interest rate is hiked? I believe his allocations are 38% Us Bonds 19% foreign bonds and 38% bonds.

reeko0530
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Re: Retiring in 2 weeks, Traditional 401k

Post by reeko0530 » Thu Dec 06, 2018 9:59 pm

LilyFleur wrote:
Thu Dec 06, 2018 9:48 pm
Please take your time and consider it very carefully before moving his money from the 401k to an IRA, especially an outside IRA. In many states, a 401k offers greater protection against creditors (including medical bills) than an IRA. A nursing home bill could make it very difficult for the surviving parent to have enough money to live on. My mom's monthly bills towards the end were $15,000 a month. Remember, companies that offer incentives to you to roll a 401k over to their IRA will be making money off your parents. Nothing in life is free.
The market volatility is making me a bit nervous about my own retirement.
I would encourage you to hang out here...it is a great place to learn. There are strategies about how to start pulling money from a 401k depending on current market conditions.
Is it absolutely certain that your father must retire in two weeks? Does he have a savings account to pull from if he needs to? I think taking six months if needed to build up some cash reserves while doing some retirement planning would be prudent. Does he understand that a .04% yearly withdrawal from the 401k is considered safe? Is that enough, with his social security? Has he gone down to the social security office to get an estimate in writing of what to expect if he retires at age 65, 66, 67, 68, and so on? (Do not rely on their telephone customer service people...many errors from those folks.)
Yes it is a certainty he will retire. He came to the US when he was 14 and has worked in factories all his life. He has been exposed to many harsh working conditions (chemicals without protection, radiation etc) that can impact his life expectancy. He is aware of this and says he wants to be able to enjoy life before there is no time. They have lived paycheck to paycheck their entire lives as I do right now. I believe he has all the documents you are talking about and signed up for medicare as well. I will definitely stick around to read and inform myself as well.
Last edited by reeko0530 on Thu Dec 06, 2018 10:03 pm, edited 1 time in total.

reeko0530
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Re: Retiring in 2 weeks, Traditional 401k

Post by reeko0530 » Thu Dec 06, 2018 10:01 pm

billfromct wrote:
Thu Dec 06, 2018 9:51 pm
Your mom should get on to Obamacare. It will probably be less expensive then Cobra.

Also a general rule of thumb is to take 4% from one's retirement accounts. So with about $300k in a 401k or rollover IRA, $12k/year of IRA distributions should make his retirement savings last into his 90s. Taking out 5% or 6%/year from his 401k or rollover IRA will deplete that account sooner.

Your mother can apply for spousal SS benefits, which at age 62 may be 40% (just a guess) of his SS benefit. If she waits until her full retirement age (between 66 & 67) she will get about 50% of your father's SS payment.

bill
Thanks Bill, I will look into that as well. She turns 62 in a few months.

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smarcus3
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Re: Retiring in 2 weeks, Traditional 401k

Post by smarcus3 » Thu Dec 06, 2018 10:01 pm

I would be most worried about their required withdrawal rates. If it's 3-4% they're pretty safe. If it's 5-6+% the portfolio probably won't last 30 years.

The fund is balanced between stocks and bonds which is assumed with the 4% rule. This rule was determined with the Trinity study where a success was if the portfolio value at year 30 was >=0. There's issues with the study but it's a good rule of thumb.

Do they have cash reserves currently? (Emergency fund / rainy day fund) it's great that the home is paid off.

If she's in good health I would have one of them delay SS benefits to lock in higher benefits. Locking in higher future guaranteed payouts can allow for higher current returns as well as higher future guaranteed income.
Last edited by smarcus3 on Thu Dec 06, 2018 10:05 pm, edited 1 time in total.
This is my personal opinion. I'm an engineer not a financial advisor.

reeko0530
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Re: Retiring in 2 weeks, Traditional 401k

Post by reeko0530 » Thu Dec 06, 2018 10:04 pm

smarcus3 wrote:
Thu Dec 06, 2018 10:01 pm
I would be most worried about their required withdrawal rates. If it's 3-4% they're pretty safe. If it's 5-6+% the portfolio probably won't last 30 years.

The fund is balanced between stocks and bonds which is assumed with the 4% rule. This rule was determined with the Trinity study where a success was if the portfolio value at year 30 was >=0. There's issues with the study but it's a good rule of thumb.

Do they have cash reserves currently? (Emergency fund / rainy day fund) it's great that the home is paid off.

If she's in good health I would have one of them delay SS benefits to lock in higher benefits
No reserves. They have the 401k and the home.

reeko0530
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Re: Retiring in 2 weeks, Traditional 401k

Post by reeko0530 » Thu Dec 06, 2018 10:04 pm

reeko0530 wrote:
Thu Dec 06, 2018 10:04 pm
smarcus3 wrote:
Thu Dec 06, 2018 10:01 pm
I would be most worried about their required withdrawal rates. If it's 3-4% they're pretty safe. If it's 5-6+% the portfolio probably won't last 30 years.

The fund is balanced between stocks and bonds which is assumed with the 4% rule. This rule was determined with the Trinity study where a success was if the portfolio value at year 30 was >=0. There's issues with the study but it's a good rule of thumb.

Do they have cash reserves currently? (Emergency fund / rainy day fund) it's great that the home is paid off.

If she's in good health I would have one of them delay SS benefits to lock in higher benefits
No reserves. They have the 401k and the home. My mother unfortunately has an immune disorder so she frequents doctors. This is why she has not worked since 2001.

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smarcus3
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Re: Retiring in 2 weeks, Traditional 401k

Post by smarcus3 » Thu Dec 06, 2018 10:13 pm

I'm very sorry to hear that.

I think we need to get the numbers more defined to formulate a plan . Per others suggestions looking at the cost of healthcare and spousal benefits to determine any shortfalls. Then determine the remaining incomes and expenses. Then take it from there. However they're going to need to get some cash on hand to takeover the loss of job income.
This is my personal opinion. I'm an engineer not a financial advisor.

Dottie57
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Re: Retiring in 2 weeks, Traditional 401k

Post by Dottie57 » Thu Dec 06, 2018 10:16 pm

Any possibility of part time work somewhere, so the contents of portfolio are not used as much?

reeko0530
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Re: Retiring in 2 weeks, Traditional 401k

Post by reeko0530 » Thu Dec 06, 2018 10:17 pm

Dottie57 wrote:
Thu Dec 06, 2018 10:16 pm
Any possibility of part time work somewhere, so the contents of portfolio are not used as much?
not even a remote possiblity. we tried talking to him and there is zero chance. His work is having his retirement party on the 14th and then he is taking two weeks vacation until his official retirement date.

reeko0530
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Re: Retiring in 2 weeks, Traditional 401k

Post by reeko0530 » Thu Dec 06, 2018 10:19 pm

smarcus3 wrote:
Thu Dec 06, 2018 10:13 pm
I'm very sorry to hear that.

I think we need to get the numbers more defined to formulate a plan . Per others suggestions looking at the cost of healthcare and spousal benefits to determine any shortfalls. Then determine the remaining incomes and expenses. Then take it from there. However they're going to need to get some cash on hand to takeover the loss of job income.
Yes, I have to find time to take a trip over there and look over all their finances to get hard numbers.

Dottie57
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Re: Retiring in 2 weeks, Traditional 401k

Post by Dottie57 » Thu Dec 06, 2018 10:25 pm

I used Taxcaster. 401k income of 10800 and SS OF 12000 . The result is $0 Federal taxes.

What state are your parents living in? Any state taxes?

What are their property taxes?
Did your mom work for 40 quarters during her life time? If so she has SS on her own work record.
Last edited by Dottie57 on Thu Dec 06, 2018 10:44 pm, edited 2 times in total.

Sweep2nd
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Re: Retiring in 2 weeks, Traditional 401k

Post by Sweep2nd » Thu Dec 06, 2018 10:26 pm

reeko0530 wrote:

"There is no fee for distributions and also they do not withhold any tax. I am worried about them not withholding tax as this my overcomplicate the end of year taxes for them. In this situation, would it be better to remain in the 401k or move to an IRA?"

There might have been some misunderstanding about this; they might have saying that they don't have to take out taxes. I took a quick look at their IRA RMD distribution form and you can select to not withhold, or select how much. The document says that if you don't make a selection it would default to 10%. I did not see any selection for state withholding. Whether your dad is taking just his RMDs, or a fixed amount per month, I'd bet that it could be set up there however you want. Full disclosure, I do not have any experience with T Rowe. Hope that helps you if you decide to roll money to IRA at T-Rowe.

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whodidntante
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Re: Retiring in 2 weeks, Traditional 401k

Post by whodidntante » Thu Dec 06, 2018 10:39 pm

He doesn't have enough money for a comfortable retirement. He will have to be very careful with spending in retirement for the rest of his life. It will be easier to do that if he avoids taking on debt or any financial missteps. A target date 2020 fund provides a rational asset allocation, and you can do something different but it's debatable if you can do "better." Not the answer you hoped for I know.

reeko0530
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Re: Retiring in 2 weeks, Traditional 401k

Post by reeko0530 » Thu Dec 06, 2018 10:40 pm

Sweep2nd wrote:
Thu Dec 06, 2018 10:26 pm
reeko0530 wrote:

"There is no fee for distributions and also they do not withhold any tax. I am worried about them not withholding tax as this my overcomplicate the end of year taxes for them. In this situation, would it be better to remain in the 401k or move to an IRA?"

There might have been some misunderstanding about this; they might have saying that they don't have to take out taxes. I took a quick look at their IRA RMD distribution form and you can select to not withhold, or select how much. The document says that if you don't make a selection it would default to 10%. I did not see any selection for state withholding. Whether your dad is taking just his RMDs, or a fixed amount per month, I'd bet that it could be set up there however you want. Full disclosure, I do not have any experience with T Rowe. Hope that helps you if you decide to roll money to IRA at T-Rowe.
Thanks for the heads up. Do you think he may benefit taking his money so he doesnt have to pay the 25 dollar fee for each distribution. Or would setting up a quarterly lump payment and then having him break it down while only paying 100 a year work better to avoid any possibly vulnerability from creditors or medical bills.

reeko0530
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Re: Retiring in 2 weeks, Traditional 401k

Post by reeko0530 » Thu Dec 06, 2018 10:44 pm

whodidntante wrote:
Thu Dec 06, 2018 10:39 pm
He doesn't have enough money for a comfortable retirement. He will have to be very careful with spending in retirement for the rest of his life. It will be easier to do that if he avoids taking on debt or any financial missteps. A target date 2020 fund provides a rational asset allocation, and you can do something different but it's debatable if you can do "better." Not the answer you hoped for I know.
I know he wont have a comfortable retirement, he will have to make sacrifices like he has his entire life. I am sure he can make do, I just need to learn how to create a budget for them to stay on target with spending. They do not travel, they maybe go out to eat twice a year, never go to the movies, do not spend on electronics etc. Just need enough to pay the bills and food basically.

reeko0530
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Re: Retiring in 2 weeks, Traditional 401k

Post by reeko0530 » Thu Dec 06, 2018 10:47 pm

Dottie57 wrote:
Thu Dec 06, 2018 10:25 pm
I used Taxcaster. 401k income of 10800 and SS OF 12000 . The result is $0 Federal taxes.

What state are your parents living in? Any state taxes?

What are their property taxes?
Did your mom work for 40 quarters during her life time? If so she has SS on her own work record.
They are in Illinois. I believe the property taxes currently are 5700 a year. She worked from 1987-2001 in the same company so I am sure she qualifies. Unfortunately, I think she was making like 3-4 dollars an hour back then and 7 dollars an hour in 2001.

justsomeguy2018
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Re: Retiring in 2 weeks, Traditional 401k

Post by justsomeguy2018 » Thu Dec 06, 2018 11:18 pm

reeko0530 wrote:
Thu Dec 06, 2018 10:47 pm
Dottie57 wrote:
Thu Dec 06, 2018 10:25 pm
I used Taxcaster. 401k income of 10800 and SS OF 12000 . The result is $0 Federal taxes.

What state are your parents living in? Any state taxes?

What are their property taxes?
Did your mom work for 40 quarters during her life time? If so she has SS on her own work record.
They are in Illinois. I believe the property taxes currently are 5700 a year. She worked from 1987-2001 in the same company so I am sure she qualifies. Unfortunately, I think she was making like 3-4 dollars an hour back then and 7 dollars an hour in 2001.
Something you may not be aware of - I'm no expert, but I believe your mom should be entitled to a Social Security spousal benefit equal possibly up to 50% of your Dad's SS (depending on when she begins taking the benefit), even though she has not worked much. This would be another benefit to your Dad delaying taking SS, as her spousal benefit will be higher as well, since it will be a % of his benefit.

Also you should keep in mind there are certain rules around SS benefits getting taxed federally - below a certain annual income limit, and you don't have to pay income taxes on your SS benefits. You can also qualify for $0 taxes on qualified dividends under certain income bands.

Katietsu
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Re: Retiring in 2 weeks, Traditional 401k

Post by Katietsu » Thu Dec 06, 2018 11:23 pm

Based on the numbers you are giving, they do not need to have federal taxes withheld because their taxes will be $0 for the year.

There is no rush to do anything with the 401k. I would make a withdrawal to cover a couple months of expenses for now. You can use that time to decide if and to where you would move it.

See if you have an Agency on Aging or other organization that can see if there are programs to help. For instance, your Dad may qualify for PACE to lower the cost of prescription drugs. What state are they in?

How much is COBRA? Is it Cobra or a retiree plan? Will it be available to her until Medicare plan? Depending on your area, an ACA plan could be very inexpensive for your Mom and a better option. The challenge here is the timing. She might need to sign up for COBRA and get on an ACA plan right away. The best situation, if she wants to go this way, would be to sign up for an ACA plan by December 15. That way it would be in affect on January 1. She could get on later (like before signing up for Cobra or doing it next December). Come back here and post about this if you want to explore this.

reeko0530
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Re: Retiring in 2 weeks, Traditional 401k

Post by reeko0530 » Thu Dec 06, 2018 11:43 pm

Katietsu wrote:
Thu Dec 06, 2018 11:23 pm
Based on the numbers you are giving, they do not need to have federal taxes withheld because their taxes will be $0 for the year.

There is no rush to do anything with the 401k. I would make a withdrawal to cover a couple months of expenses for now. You can use that time to decide if and to where you would move it.

See if you have an Agency on Aging or other organization that can see if there are programs to help. For instance, your Dad may qualify for PACE to lower the cost of prescription drugs. What state are they in?

How much is COBRA? Is it Cobra or a retiree plan? Will it be available to her until Medicare plan? Depending on your area, an ACA plan could be very inexpensive for your Mom and a better option. The challenge here is the timing. She might need to sign up for COBRA and get on an ACA plan right away. The best situation, if she wants to go this way, would be to sign up for an ACA plan by December 15. That way it would be in affect on January 1. She could get on later (like before signing up for Cobra or doing it next December). Come back here and post about this if you want to explore this.
Thats good to know about the federal tax, yes, my dad made 62k this year in salary so retirement will be less as he worked 55-60 hours weeks. I will be sure to advise them to maybe take 3600 a quarter out to begin with and evaluate how that allows them to live. Thanks for the advice about PACE, I will look into it to see if they qualify. They live in Illinois. I believe cobra for my mom only will run 484 a month. I am supposed to be over there during the holidays, so I will be looking at ACA plans with her to get her on that. Cobra is only an option for 6 months, so its just until we find something to get her on.

reeko0530
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Re: Retiring in 2 weeks, Traditional 401k

Post by reeko0530 » Thu Dec 06, 2018 11:44 pm

justsomeguy2018 wrote:
Thu Dec 06, 2018 11:18 pm
reeko0530 wrote:
Thu Dec 06, 2018 10:47 pm
Dottie57 wrote:
Thu Dec 06, 2018 10:25 pm
I used Taxcaster. 401k income of 10800 and SS OF 12000 . The result is $0 Federal taxes.

What state are your parents living in? Any state taxes?

What are their property taxes?
Did your mom work for 40 quarters during her life time? If so she has SS on her own work record.
They are in Illinois. I believe the property taxes currently are 5700 a year. She worked from 1987-2001 in the same company so I am sure she qualifies. Unfortunately, I think she was making like 3-4 dollars an hour back then and 7 dollars an hour in 2001.
Something you may not be aware of - I'm no expert, but I believe your mom should be entitled to a Social Security spousal benefit equal possibly up to 50% of your Dad's SS (depending on when she begins taking the benefit), even though she has not worked much. This would be another benefit to your Dad delaying taking SS, as her spousal benefit will be higher as well, since it will be a % of his benefit.

Also you should keep in mind there are certain rules around SS benefits getting taxed federally - below a certain annual income limit, and you don't have to pay income taxes on your SS benefits. You can also qualify for $0 taxes on qualified dividends under certain income bands.
Thanks, I will inquire about the spousal benefits.

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Re: Retiring in 2 weeks, Traditional 401k

Post by whodidntante » Fri Dec 07, 2018 12:03 am

reeko0530 wrote:
Thu Dec 06, 2018 10:47 pm

They are in Illinois. I believe the property taxes currently are 5700 a year.
Illinois has property tax exemptions for senior citizens and Cook County has special exemptions for long time residents. Also, retirement account distributions are not taxed at the state level.

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Re: Retiring in 2 weeks, Traditional 401k

Post by Ben Mathew » Fri Dec 07, 2018 12:06 am

- Carefully consider when to start taking social security. Don't rush into this. They shouldn't take it now just because they needs the money right away. It might be worth it to fund living expenses from the 401K so they can get more benefits later. The right decision here could make a big impact.

- There is no need to move part of the funds to CDs or a money market fund. Instead shift the overall asset allocation from stocks to bonds to achieve the desired level of safety. Pull all funds out of target retirement accounts, and invest them directly into bonds and stocks according to the desired risk preference. Since your parents can't take on much risk, you could consider 100% bonds. They can go with a diversified bond fund like Vanguard Total Bond Market Fund (VBMFX). There is no need for CDs and money market accounts.

- Consider a SPIA. Most annuities are not good products and you should be wary of them. But a SPIA could make sense in your parents' case. It will be like a pension for your parents till they both die. According to Immediate Annuities for a 65 year old couple in WA, $275K would buy $1320/month. That will insure your parents against longevity risk. The only problem is the $1320 is not indexed to inflation, so that payment will become less and less in real terms over time. I wouldn't spend all $275K on a SPIA because of the lack of inflation indexing, but it might be worth buying some.

- It's great that they have a paid off house. Between the paid off house, social security, and $275K in the 401K, it's not quite an impossible situation, especially given their frugal lifestyles. They could tap into some home equity towards the end if they incur large health related expenses.

- I'd suggest going over their financial situation in more detail and putting in some time and effort to set them up for their retirement (which it sounds like you're doing). A few key decisions can make a big difference in how well their retirement goes. Continue to post your questions here as they come up.

reeko0530
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Re: Retiring in 2 weeks, Traditional 401k

Post by reeko0530 » Fri Dec 07, 2018 2:37 am

Ben Mathew wrote:
Fri Dec 07, 2018 12:06 am
- Carefully consider when to start taking social security. Don't rush into this. They shouldn't take it now just because they needs the money right away. It might be worth it to fund living expenses from the 401K so they can get more benefits later. The right decision here could make a big impact.

- There is no need to move part of the funds to CDs or a money market fund. Instead shift the overall asset allocation from stocks to bonds to achieve the desired level of safety. Pull all funds out of target retirement accounts, and invest them directly into bonds and stocks according to the desired risk preference. Since your parents can't take on much risk, you could consider 100% bonds. They can go with a diversified bond fund like Vanguard Total Bond Market Fund (VBMFX). There is no need for CDs and money market accounts.

- Consider a SPIA. Most annuities are not good products and you should be wary of them. But a SPIA could make sense in your parents' case. It will be like a pension for your parents till they both die. According to Immediate Annuities for a 65 year old couple in WA, $275K would buy $1320/month. That will insure your parents against longevity risk. The only problem is the $1320 is not indexed to inflation, so that payment will become less and less in real terms over time. I wouldn't spend all $275K on a SPIA because of the lack of inflation indexing, but it might be worth buying some.

- It's great that they have a paid off house. Between the paid off house, social security, and $275K in the 401K, it's not quite an impossible situation, especially given their frugal lifestyles. They could tap into some home equity towards the end if they incur large health related expenses.

- I'd suggest going over their financial situation in more detail and putting in some time and effort to set them up for their retirement (which it sounds like you're doing). A few key decisions can make a big difference in how well their retirement goes. Continue to post your questions here as they come up.
Hi and thank you for your contribution. If I want to better insulate his 401k against lets say a 60-70% correction which is rumored to occur within the next year or two, would 20 percent in stocks and 80 percent in bonds insulate them the most? But then I read also that if the fed rate raises, bonds go down so its like a viscous circle with everything i am reading. I am not sure if i should change it to 40/60, 30/70, or 20/80. I know I want to keep some in the stocks to hopefully fight inflation. Then the next question is with T Rowe Price, which bond and stocks do I then shift into? If I stop with the Target 2020, I must make custom selections. I have never chosen stocks so if I chose 30% stocks, do i put 20 percent in US and 10 in foreign? Any good solid stocks to choose from on the list from T Rowe? Thanks for any help. This has been so informative and I have probably spent about 12 hours today alone reading about retirement and stocks. There is just so much to do and learn, and then the difficulty is I am a third party trying to do this for someone else. The fear of making a mistake and then being responsible for my parents possible demise is a tough burden.

reeko0530
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Re: Retiring in 2 weeks, Traditional 401k

Post by reeko0530 » Fri Dec 07, 2018 2:39 am

whodidntante wrote:
Fri Dec 07, 2018 12:03 am
reeko0530 wrote:
Thu Dec 06, 2018 10:47 pm

They are in Illinois. I believe the property taxes currently are 5700 a year.
Illinois has property tax exemptions for senior citizens and Cook County has special exemptions for long time residents. Also, retirement account distributions are not taxed at the state level.
Thank you. I spoke to them just a bit ago when driving home. My suggestion was to hire a real estate attorney to challenge taxes on the next bill. Once lowered, freeze the taxes at that rate. Then apply for the senior tax exemption. I never heard of the long time resident exemption, but will look into that one. Thanks

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Re: Retiring in 2 weeks, Traditional 401k

Post by ruralavalon » Fri Dec 07, 2018 6:17 am

I hope he will consider working a little longer, to increase the Social Security benefit.

What is his full retirement age for Social Security? What is his birthday?


neilpilot wrote:
Thu Dec 06, 2018 8:39 pm
reeko0530 wrote:
Thu Dec 06, 2018 7:45 pm
Next we can transfer to their IRA which again will not have any fees as long as there is a minimum 10k in this account. There is no fee for distributions and also they do not withhold any tax.
Of course there's also the option of transferring the 401k into a tIRA at another firm other than T Rowe Price
In addition to or instead of an IRA at another firm, like Vanguard or Fidelity, he could consider a Single Premium Immediate Annuity (SPIA) for a guaranteed income stream for life to augment the Social Security income. To shop prices see: www.immediateannuities.com.

They should not even consider any other type of annuity, other than a SPIA.


reeko0530 wrote:
Thu Dec 06, 2018 9:32 pm
. . . . .
He will be taking his social security right away at age 65. Right now they live on around 500 weekly as that is his take home. My mom does not work as she was a homemaker, and my dad will need to pay cobra on health insurance since she is only 62. I am guessing they would like to remain around that now. His social security will be near 1k i believe, but I am not sure if that is pre or post tax. Hope that helps give you some information.
That's $2165 per month in living expenses.

Try to get a solid number for living expenses. Check for property tax relief that is available. Shop for health insurance for her through the Affordable Care Act exchange, that will probably be less than COBRA prices. They need a solid number for total expenses in order to plan. A quick review of the check register for their checking account and monthly credit card statements will probably help.


reeko0530 wrote:
Thu Dec 06, 2018 10:47 pm
. . . . . They are in Illinois. I believe the property taxes currently are 5700 a year. She worked from 1987-2001 in the same company so I am sure she qualifies. Unfortunately, I think she was making like 3-4 dollars an hour back then and 7 dollars an hour in 2001.
They can get an age-based reduction in the property tax, and also freeze the property tax against future increases in assessed value. Contact the Collector of Assessments or Supervisor of Assessments in their County or town. There are simple forms they need to fill out and return.

Withdrawals from retirement accounts are not subject to Illinois income tax.

What exactly does Social Security state for their expected monthly benefits? If he retires at his full retirement age then she will be entitled to 1/2 of his benefit amount, in addition to what he collects. They will have received an notice from Social Security stating the Social Security benefit they will receive, and they can also get this from the Social Security website.

I think a SPIA will probably be useful to fill the gap between expenses and their Social Security.

. . . . . .

Here is a general idea of one way to proceed.
1) Get a solid number for total annual expenses.
2) Get the exact number for total Social Security benefits.
3) Subtract #2 from #1, to get the extra amount needed to live on.
4) Price a SPIA, in other words find out how much it costs to buy the extra income calculated in #3.
5) They could consider buying the SPIA and then investing the rest in an IRA at a low cost provider using a single very diversified balanced fund with an asset allocation like 60/40 stocks bonds. If at Vanguard that could be Vanguard LifeStrategy Moderate Growth (VSMGX). The current target retirement fund is a good choice for the extra investment (after the SPIA) if he stays with T. Rowe Price.
Last edited by ruralavalon on Fri Dec 07, 2018 8:13 am, edited 16 times in total.
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zuma
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Re: Retiring in 2 weeks, Traditional 401k

Post by zuma » Fri Dec 07, 2018 6:42 am

reeko0530 wrote:
Fri Dec 07, 2018 2:37 am
Hi and thank you for your contribution. If I want to better insulate his 401k against lets say a 60-70% correction which is rumored to occur within the next year or two, would 20 percent in stocks and 80 percent in bonds insulate them the most? But then I read also that if the fed rate raises, bonds go down so its like a viscous circle with everything i am reading. I am not sure if i should change it to 40/60, 30/70, or 20/80. I know I want to keep some in the stocks to hopefully fight inflation.
Do not try to predict how the market will behave. Instead try to choose an asset allocation that is appropriate for you in ALL market conditions. I think anywhere between 30/70 and 50/50 is reasonable. Any of those portfolios should support a 4% withdrawal rate over 30 years.

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Re: Retiring in 2 weeks, Traditional 401k

Post by Katietsu » Fri Dec 07, 2018 1:07 pm

There are several posts about SPIA’s and about asset allocation. I just wanted to make it clear that these two things affect each other. Let me give you an example. If you choose just to use the 401k/IRA, you might choose an allocation of only 35% stocks with 65% bonds. On the other hand, if $175,000 was used to purchase an SPIA, then the remaining $100,000 could be invested less conservatively. Here, you might choose to use 65% stocks with 35% bonds, for example.

See if you can find out more information on the health insurance. There are very specific rules about when you can sign up for health insurance if you want subsidies and guaranteed accaptance.

GAAP
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Re: Retiring in 2 weeks, Traditional 401k

Post by GAAP » Fri Dec 07, 2018 1:20 pm

reeko0530 wrote:
Thu Dec 06, 2018 8:40 pm
neilpilot wrote:
Thu Dec 06, 2018 8:39 pm
reeko0530 wrote:
Thu Dec 06, 2018 7:45 pm
Next we can transfer to their IRA which again will not have any fees as long as there is a minimum 10k in this account. There is no fee for distributions and also they do not withhold any tax.
Of course there's also the option of transferring the 401k into a tIRA at another firm other than T Rowe Price
what are the benefits of doing so? Just looking for some guidance as to how to proceed. Thanks
Transferring to an IRA is one decision. Choosing the firm to hold an IRA is a second. It may be easier or faster to rollover from the 401(k) at TRP to an IRA at TRP than elsewhere. After that, You could, for example, create an account at Vanguard and do a trustee-to-trustee from there. I've found that rollovers to another firm are in the form of third-party checks, while IRA transfers are direct -- but I'm not using TRP.
“Adapt what is useful, reject what is useless, and add what is specifically your own.” ― Bruce Lee

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Re: Retiring in 2 weeks, Traditional 401k

Post by Ben Mathew » Fri Dec 07, 2018 1:32 pm

reeko0530 wrote:
Fri Dec 07, 2018 2:37 am
If I want to better insulate his 401k against lets say a 60-70% correction which is rumored to occur within the next year or two, would 20 percent in stocks and 80 percent in bonds insulate them the most? But then I read also that if the fed rate raises, bonds go down so its like a viscous circle with everything i am reading. I am not sure if i should change it to 40/60, 30/70, or 20/80. I know I want to keep some in the stocks to hopefully fight inflation.
If they can tolerate some risk, I would strongly encourage including stocks. Let's say you start with 40% now and glide down to 20% at age 100. Assuming 1.5% real bond return and 5% real stock return, they could draw $12,000/year (today's dollars) and be left with $11,862 at age 100. (Here's the spreadsheet I used to calculate this.) The odds that this plan will work out is good. But if returns are lower than expected and the money runs out early, they will need to dip into home equity. The value of their home would determine how much of a cushion they have to tolerate portfolio underperformance.

Once you pick the stock and bond percentages (asset allocation), the only thing left to do is stick with the plan and not second guess yourself or the markets. There's always something going on--market corrections, Fed does something with interest rates, trade wars, real wars, and so on. Neither you nor your parents need to think about any of this stuff. Financial markets are continually listening to news and correcting prices (by the nanosecond!), so there is no need for you to be involved. Your only job is to stick to the plan. Rebalance back to your planned asset allocation once a year or so. If the portfolio underperforms, try to cut costs. There is really nothing else to do. Trying to parse the news and time the market does more harm than good. This is the one area in life where slacking off and not paying attention is good for you.
Then the next question is with T Rowe Price, which bond and stocks do I then shift into? If I stop with the Target 2020, I must make custom selections. I have never chosen stocks so if I chose 30% stocks, do i put 20 percent in US and 10 in foreign? Any good solid stocks to choose from on the list from T Rowe? Thanks for any help. This has been so informative and I have probably spent about 12 hours today alone reading about retirement and stocks. There is just so much to do and learn, and then the difficulty is I am a third party trying to do this for someone else.
I would move the money to a traditional IRA at Vanguard to simplify everything and make it easy to invest in low cost Vanguard index funds. You can create a great portfolio using just three funds (see three fund portfolio on the Bogleheads Wiki):

Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX)
Vanguard Total International Stock Index Fund Admiral Shares (VTIAX)
Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX)

Let's say you decide on 40% stock : 60% bonds. Of the stock portion, you could go with roughly half in international if you want to reflect global market cap. Some like to tilt towards the U.S. more. You don't have to get this exactly right. Let's say you decide to allocate your stocks to 2/3 US and 1/3 international. That means 27% of your portfolio goes into US and 13% into international. So you have:

Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX): 13%
Vanguard Total International Stock Index Fund Admiral Shares (VTIAX): 27%
Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX): 60%

It's really as easy as that.
The fear of making a mistake and then being responsible for my parents possible demise is a tough burden.
Try to approach it differently. Risks are a part of life. If you do your best to help your parents, then you should be at peace with yourself, even if the market tanks. Ajit Jain of Berkshire Hathaway said that one of the things he liked about working for Warren Buffett is that Buffett is really good about decoupling decisions and their outcomes. If Ajit made a good decision, but the outcome was bad because of bad luck, Buffett was alright with it. It's hard to achieve Buffett's level of rationality and equanimity, but it's something we can all aspire to.

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teen persuasion
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Re: Retiring in 2 weeks, Traditional 401k

Post by teen persuasion » Fri Dec 07, 2018 2:35 pm

Katietsu wrote:
Fri Dec 07, 2018 1:07 pm

See if you can find out more information on the health insurance. There are very specific rules about when you can sign up for health insurance if you want subsidies and guaranteed accaptance.
I wanted to emphasize this - to be eligible for ACA coverage on Jan 1, your mother must be approved before December 15. If you wait until after the 15th of any month, the earliest her coverage can begin is the first of the month following the next month.

Right now is open enrollment for coverage in 2019. Please don't miss enrolling her for 2019 by waiting too long. Contact an insurance navigator to help you thru the process, and your options. Compare costs of ACA and Cobra (and length she can be on it, and if she can switch to ACA after it runs out). Also add the costs of Medicare for your father - that will reduce the Social Security he nets.

bearwithbear
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Re: Retiring in 2 weeks, Traditional 401k

Post by bearwithbear » Fri Dec 07, 2018 4:40 pm

reeko0530,

Are you the only child? Have you considered getting term life insurance on your self with your parents as beneficiaries?
If you are or will provide support to them then the insurance proceeds would continue that support.

Bear

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Re: Retiring in 2 weeks, Traditional 401k

Post by dknightd » Fri Dec 07, 2018 5:36 pm

You have already received some very good advice. I'll toss in my 2 cents.
Getting asked for advice in the month he plans to retire is tough!
If they are currently living on $500/week then they should be OK as long as they can keep living on that. Which seems likely since they are used to it.

I second the advise to take it slow, but not too slow.

The big issues to me would be SS and health insurance. I would not worry too much about the 401k for now. Perhaps shift them into a more conservative balanced account. Maybe 30/70 stocks/bonds.

Has you dad already applied for SS? If so find out exactly what the benefit is. After 35+ years of factory work I suspect it would be more than $1000/month. Also look at spousal and survivor benefits if your mom has not filed yet. It maybe be to their benefit to delay at least her claiming till her full retirement age. At that age her spousal and survivor benefits are maximized. Survivor benefits could be very important. You/they need to plan for the possibility that one will die before the other. She is younger, woman typically live longer, especially when the husband worked in a factory for many years. So it might be beneficial for her not to claim SS till she reaches FRA.

I don't know the rules and costs associated with Cobra and ACA. You should probably find out. I think, but am not positive, that if you have Cobra coverage you can sign up for ACA at any time. ACA might be a better deal for them since likely they will have most of it subsidized. Again, something to look into. The most important thing is to make sure they both have coverage.

Good luck. One benefit, what you learn to help them might also be useful for you one day.

Edit. I'd consider taking 4-10% out of their 401k and putting it into money market bank account in January. This will give them a year or two of money that is safe and they do not have to worry about. It is unfortunate that a 20% tax withholding is required, but, likely they will get that all back when they file.
Last edited by dknightd on Fri Dec 07, 2018 5:47 pm, edited 1 time in total.

seadreamer
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Re: Retiring in 2 weeks, Traditional 401k

Post by seadreamer » Fri Dec 07, 2018 5:46 pm

I know my father did the spousal benefits w/social security from 62 or 65 until he was 70. I believe the local social security office was able to estimate different scenarios for him to help him maximize his benefits. This may be helpful for your mother. I found an older usnews article with some general information on this that may be helpful. https://money.usnews.com/money/personal ... l-benefits

You are doing a great job helping out your parents. I wish you (and them) all the best.

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Re: Retiring in 2 weeks, Traditional 401k

Post by GlacierRunner » Fri Dec 07, 2018 6:35 pm

I would recommend that you have a conversation with your parents about the potential of a forgotten pension somewhere. If he has done factory work in Illinois I'm a little surprised none were union shops with a pension plan.

Has your mom considered going back to work? I encouraged my mother to do that when my father retired before she was 65. The goal was just to cover her health insurance. Now that she's 65 she's enjoying the opportunity to earn some fun money (she works in an elementary school).

Regarding COBRA - why is it an option for only 6 months? Typically COBRA would be available for 18 months. And check the rules on COBRA and ACA. A few years ago, the rule was that you couldn't access ACA plans when your COBRA plan ran out; you had to wait until open enrollment, but that may have been fixed.

Your dad's retirement on December 31st will trigger a special enrollment period for your mother; she will be able to select an individual market health plan, but you'll want to read the fine print if you want to make sure she doesn't have any gaps in coverage. of course your parents may also qualify for Medicaid depending on their income (if your mom doesn't work or take spousal SS) so you might look at that possibility too.

reeko0530
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Re: Retiring in 2 weeks, Traditional 401k

Post by reeko0530 » Sat Dec 08, 2018 12:54 pm

Ben Mathew wrote:
Fri Dec 07, 2018 1:32 pm
reeko0530 wrote:
Fri Dec 07, 2018 2:37 am
If I want to better insulate his 401k against lets say a 60-70% correction which is rumored to occur within the next year or two, would 20 percent in stocks and 80 percent in bonds insulate them the most? But then I read also that if the fed rate raises, bonds go down so its like a viscous circle with everything i am reading. I am not sure if i should change it to 40/60, 30/70, or 20/80. I know I want to keep some in the stocks to hopefully fight inflation.
If they can tolerate some risk, I would strongly encourage including stocks. Let's say you start with 40% now and glide down to 20% at age 100. Assuming 1.5% real bond return and 5% real stock return, they could draw $12,000/year (today's dollars) and be left with $11,862 at age 100. (Here's the spreadsheet I used to calculate this.) The odds that this plan will work out is good. But if returns are lower than expected and the money runs out early, they will need to dip into home equity. The value of their home would determine how much of a cushion they have to tolerate portfolio underperformance.

Once you pick the stock and bond percentages (asset allocation), the only thing left to do is stick with the plan and not second guess yourself or the markets. There's always something going on--market corrections, Fed does something with interest rates, trade wars, real wars, and so on. Neither you nor your parents need to think about any of this stuff. Financial markets are continually listening to news and correcting prices (by the nanosecond!), so there is no need for you to be involved. Your only job is to stick to the plan. Rebalance back to your planned asset allocation once a year or so. If the portfolio underperforms, try to cut costs. There is really nothing else to do. Trying to parse the news and time the market does more harm than good. This is the one area in life where slacking off and not paying attention is good for you.
Then the next question is with T Rowe Price, which bond and stocks do I then shift into? If I stop with the Target 2020, I must make custom selections. I have never chosen stocks so if I chose 30% stocks, do i put 20 percent in US and 10 in foreign? Any good solid stocks to choose from on the list from T Rowe? Thanks for any help. This has been so informative and I have probably spent about 12 hours today alone reading about retirement and stocks. There is just so much to do and learn, and then the difficulty is I am a third party trying to do this for someone else.
I would move the money to a traditional IRA at Vanguard to simplify everything and make it easy to invest in low cost Vanguard index funds. You can create a great portfolio using just three funds (see three fund portfolio on the Bogleheads Wiki):

Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX)
Vanguard Total International Stock Index Fund Admiral Shares (VTIAX)
Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX)

Let's say you decide on 40% stock : 60% bonds. Of the stock portion, you could go with roughly half in international if you want to reflect global market cap. Some like to tilt towards the U.S. more. You don't have to get this exactly right. Let's say you decide to allocate your stocks to 2/3 US and 1/3 international. That means 27% of your portfolio goes into US and 13% into international. So you have:

Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX): 13%
Vanguard Total International Stock Index Fund Admiral Shares (VTIAX): 27%
Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX): 60%

It's really as easy as that.
The fear of making a mistake and then being responsible for my parents possible demise is a tough burden.
Try to approach it differently. Risks are a part of life. If you do your best to help your parents, then you should be at peace with yourself, even if the market tanks. Ajit Jain of Berkshire Hathaway said that one of the things he liked about working for Warren Buffett is that Buffett is really good about decoupling decisions and their outcomes. If Ajit made a good decision, but the outcome was bad because of bad luck, Buffett was alright with it. It's hard to achieve Buffett's level of rationality and equanimity, but it's something we can all aspire to.
Thanks. This is gonna sound bad. So all your suggestions about moving to a traditional Ira, is that staying with t Rowe? And then within that choosing the vanguard options? I think I can choose those even with the 401k as well? Sorry still a beginner here.

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Re: Retiring in 2 weeks, Traditional 401k

Post by Ben Mathew » Sat Dec 08, 2018 1:09 pm

reeko0530 wrote:
Sat Dec 08, 2018 12:54 pm
Ben Mathew wrote:
Fri Dec 07, 2018 1:32 pm
reeko0530 wrote:
Fri Dec 07, 2018 2:37 am
If I want to better insulate his 401k against lets say a 60-70% correction which is rumored to occur within the next year or two, would 20 percent in stocks and 80 percent in bonds insulate them the most? But then I read also that if the fed rate raises, bonds go down so its like a viscous circle with everything i am reading. I am not sure if i should change it to 40/60, 30/70, or 20/80. I know I want to keep some in the stocks to hopefully fight inflation.
If they can tolerate some risk, I would strongly encourage including stocks. Let's say you start with 40% now and glide down to 20% at age 100. Assuming 1.5% real bond return and 5% real stock return, they could draw $12,000/year (today's dollars) and be left with $11,862 at age 100. (Here's the spreadsheet I used to calculate this.) The odds that this plan will work out is good. But if returns are lower than expected and the money runs out early, they will need to dip into home equity. The value of their home would determine how much of a cushion they have to tolerate portfolio underperformance.

Once you pick the stock and bond percentages (asset allocation), the only thing left to do is stick with the plan and not second guess yourself or the markets. There's always something going on--market corrections, Fed does something with interest rates, trade wars, real wars, and so on. Neither you nor your parents need to think about any of this stuff. Financial markets are continually listening to news and correcting prices (by the nanosecond!), so there is no need for you to be involved. Your only job is to stick to the plan. Rebalance back to your planned asset allocation once a year or so. If the portfolio underperforms, try to cut costs. There is really nothing else to do. Trying to parse the news and time the market does more harm than good. This is the one area in life where slacking off and not paying attention is good for you.
Then the next question is with T Rowe Price, which bond and stocks do I then shift into? If I stop with the Target 2020, I must make custom selections. I have never chosen stocks so if I chose 30% stocks, do i put 20 percent in US and 10 in foreign? Any good solid stocks to choose from on the list from T Rowe? Thanks for any help. This has been so informative and I have probably spent about 12 hours today alone reading about retirement and stocks. There is just so much to do and learn, and then the difficulty is I am a third party trying to do this for someone else.
I would move the money to a traditional IRA at Vanguard to simplify everything and make it easy to invest in low cost Vanguard index funds. You can create a great portfolio using just three funds (see three fund portfolio on the Bogleheads Wiki):

Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX)
Vanguard Total International Stock Index Fund Admiral Shares (VTIAX)
Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX)

Let's say you decide on 40% stock : 60% bonds. Of the stock portion, you could go with roughly half in international if you want to reflect global market cap. Some like to tilt towards the U.S. more. You don't have to get this exactly right. Let's say you decide to allocate your stocks to 2/3 US and 1/3 international. That means 27% of your portfolio goes into US and 13% into international. So you have:

Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX): 13%
Vanguard Total International Stock Index Fund Admiral Shares (VTIAX): 27%
Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX): 60%

It's really as easy as that.
The fear of making a mistake and then being responsible for my parents possible demise is a tough burden.
Try to approach it differently. Risks are a part of life. If you do your best to help your parents, then you should be at peace with yourself, even if the market tanks. Ajit Jain of Berkshire Hathaway said that one of the things he liked about working for Warren Buffett is that Buffett is really good about decoupling decisions and their outcomes. If Ajit made a good decision, but the outcome was bad because of bad luck, Buffett was alright with it. It's hard to achieve Buffett's level of rationality and equanimity, but it's something we can all aspire to.
Thanks. This is gonna sound bad. So all your suggestions about moving to a traditional Ira, is that staying with t Rowe? And then within that choosing the vanguard options? I think I can choose those even with the 401k as well? Sorry still a beginner here.
I was suggesting moving the funds to Vanguard. But if their 401K at T Rowe Price offers access to these funds or other comparable low cost index funds, they can certainly stay with the 401K at T Rowe. If you are having trouble deciding, you can post the list of the fund options in their 401K and people can let you know if you have good options. Be sure to include the expense ratio for each fund.

reeko0530
Posts: 45
Joined: Thu Dec 06, 2018 7:34 pm

Re: Retiring in 2 weeks, Traditional 401k

Post by reeko0530 » Sat Dec 08, 2018 1:10 pm

GlacierRunner wrote:
Fri Dec 07, 2018 6:35 pm
I would recommend that you have a conversation with your parents about the potential of a forgotten pension somewhere. If he has done factory work in Illinois I'm a little surprised none were union shops with a pension plan.

Has your mom considered going back to work? I encouraged my mother to do that when my father retired before she was 65. The goal was just to cover her health insurance. Now that she's 65 she's enjoying the opportunity to earn some fun money (she works in an elementary school).

Regarding COBRA - why is it an option for only 6 months? Typically COBRA would be available for 18 months. And check the rules on COBRA and ACA. A few years ago, the rule was that you couldn't access ACA plans when your COBRA plan ran out; you had to wait until open enrollment, but that may have been fixed.

Your dad's retirement on December 31st will trigger a special enrollment period for your mother; she will be able to select an individual market health plan, but you'll want to read the fine print if you want to make sure she doesn't have any gaps in coverage. of course your parents may also qualify for Medicaid depending on their income (if your mom doesn't work or take spousal SS) so you might look at that possibility too.
Mom has an immune disorder, she has been unable to work since 2001

reeko0530
Posts: 45
Joined: Thu Dec 06, 2018 7:34 pm

Re: Retiring in 2 weeks, Traditional 401k

Post by reeko0530 » Sat Dec 08, 2018 1:20 pm

Ben Mathew wrote:
Sat Dec 08, 2018 1:09 pm
reeko0530 wrote:
Sat Dec 08, 2018 12:54 pm
Ben Mathew wrote:
Fri Dec 07, 2018 1:32 pm
reeko0530 wrote:
Fri Dec 07, 2018 2:37 am
If I want to better insulate his 401k against lets say a 60-70% correction which is rumored to occur within the next year or two, would 20 percent in stocks and 80 percent in bonds insulate them the most? But then I read also that if the fed rate raises, bonds go down so its like a viscous circle with everything i am reading. I am not sure if i should change it to 40/60, 30/70, or 20/80. I know I want to keep some in the stocks to hopefully fight inflation.
If they can tolerate some risk, I would strongly encourage including stocks. Let's say you start with 40% now and glide down to 20% at age 100. Assuming 1.5% real bond return and 5% real stock return, they could draw $12,000/year (today's dollars) and be left with $11,862 at age 100. (Here's the spreadsheet I used to calculate this.) The odds that this plan will work out is good. But if returns are lower than expected and the money runs out early, they will need to dip into home equity. The value of their home would determine how much of a cushion they have to tolerate portfolio underperformance.

Once you pick the stock and bond percentages (asset allocation), the only thing left to do is stick with the plan and not second guess yourself or the markets. There's always something going on--market corrections, Fed does something with interest rates, trade wars, real wars, and so on. Neither you nor your parents need to think about any of this stuff. Financial markets are continually listening to news and correcting prices (by the nanosecond!), so there is no need for you to be involved. Your only job is to stick to the plan. Rebalance back to your planned asset allocation once a year or so. If the portfolio underperforms, try to cut costs. There is really nothing else to do. Trying to parse the news and time the market does more harm than good. This is the one area in life where slacking off and not paying attention is good for you.
Then the next question is with T Rowe Price, which bond and stocks do I then shift into? If I stop with the Target 2020, I must make custom selections. I have never chosen stocks so if I chose 30% stocks, do i put 20 percent in US and 10 in foreign? Any good solid stocks to choose from on the list from T Rowe? Thanks for any help. This has been so informative and I have probably spent about 12 hours today alone reading about retirement and stocks. There is just so much to do and learn, and then the difficulty is I am a third party trying to do this for someone else.
I would move the money to a traditional IRA at Vanguard to simplify everything and make it easy to invest in low cost Vanguard index funds. You can create a great portfolio using just three funds (see three fund portfolio on the Bogleheads Wiki):

Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX)
Vanguard Total International Stock Index Fund Admiral Shares (VTIAX)
Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX)

Let's say you decide on 40% stock : 60% bonds. Of the stock portion, you could go with roughly half in international if you want to reflect global market cap. Some like to tilt towards the U.S. more. You don't have to get this exactly right. Let's say you decide to allocate your stocks to 2/3 US and 1/3 international. That means 27% of your portfolio goes into US and 13% into international. So you have:

Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX): 13%
Vanguard Total International Stock Index Fund Admiral Shares (VTIAX): 27%
Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX): 60%

It's really as easy as that.
The fear of making a mistake and then being responsible for my parents possible demise is a tough burden.
Try to approach it differently. Risks are a part of life. If you do your best to help your parents, then you should be at peace with yourself, even if the market tanks. Ajit Jain of Berkshire Hathaway said that one of the things he liked about working for Warren Buffett is that Buffett is really good about decoupling decisions and their outcomes. If Ajit made a good decision, but the outcome was bad because of bad luck, Buffett was alright with it. It's hard to achieve Buffett's level of rationality and equanimity, but it's something we can all aspire to.
Thanks. This is gonna sound bad. So all your suggestions about moving to a traditional Ira, is that staying with t Rowe? And then within that choosing the vanguard options? I think I can choose those even with the 401k as well? Sorry still a beginner here.
I was suggesting moving the funds to Vanguard. But if their 401K at T Rowe Price offers access to these funds or other comparable low cost index funds, they can certainly stay with the 401K at T Rowe. If you are having trouble deciding, you can post the list of the fund options in their 401K and people can let you know if you have good options. Be sure to include the expense ratio for each fund.
STOCKS
EMERGING MARKETS STOCK FUND
GROWTH STOCK FUND
MID-CAP GROWTH FUND
MID-CAP VALUE FUND
NEUBERGER BERMAN GENESIS INS
T ROWE PRICE INTL VALUE EQUITY
VALUE FUND
VANGUARD DVLPD MRKTS IND ADM
VANGUARD REIT INDEX ADMIRAL
VANGUARD SMALL CAP INDEX, ADM
VANGUARD TOT STK MKT IND ADM


BONDS
PIMCO TOTAL RETURN INSTL
VANGUARD INF PROTECTED SEC
MONEY MARKET/ STABLE VALUE
TRP STABLE VALUE FUND - N

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