What to do with small retirement fund with now being retired?

bump

Allin on Bitcoin until it hits 100k then cash out.

70k is a really solid rainy day fund so at his age and since he is getting his living expenses taken care of by the pension he should keep it as low risk as possible, cash or interest bearing cash equivalent is as low as it goes in terms of risk.

retiremp1pete wrote:

Friend of mine just retired (57 year's old).

He has a state pension to last him his life. He's also just working a part-time gig to stay busy. Money is not really a concern.

However, he has a small amount ($70K or so) that is currently in a deferred comp retirement fund (low risk...maybe 1-2% year). Should he keep it in there? Cash it out? Transfer to individual fund? I don't think he will pay a penalty since he is retired now (still under 59), but what is best based on tax consequences and future earnings?

There's not enough detail to provide an answer, but generally speaking, 1-2% annual return on a long-term investment is not prudent.

Deferred comp plans cannot be accessed for any reason prior to distribution date so the first step is to determine that date.

The second step would be to look at existing investment options within the deferred comp plan. A balanced ETF portfolio should produce around 6% or better over the long-term without significant downside risk. Samples of diversified ETF portfolios can be found on many websites. I just visited Vanguard's site for a friend. Here's the link. NOTE: The annual returns use 1931 as the worst year with a -41% return. That's unlikely. A better worst case scenario would be 2008 with -33% or 1974 with -27%. Also, these are one-year worst case scenarios. A long term scenario of 10 years would be a better way to assess where the funds should be. I personally would lean towards 80/20 or 90/10 for a ten year window, especially seeing how he has a lifetime pension AND is continuing to work. He could even be setting aside a few grand each year into an IRA.

Appreciate it.

It's a stable income fund. The distribution date is 59.5 years old, but I believe since he retired from his employer, he could technically take it out with no penalty.

But I like your approach on looking at other options within the fund. I think his current fund is giving 1%...maybe less. I suppose my worry would be if he wants to access the funds within 5 years (just a hypothetical), would it make sense to be in a more agressive ETF?

Annuities are really only good for a small segment but this might be one considering obviously a non savvy investor and likely state pension adjusts for inflation. Find a low cost high yield annuity and enjoy an extra 400 a month and smile while everyone's small cap mutual funds tank next year.

Bumping for any other advice

I like the idea of keeping it for a rainy day fund, but you should also consider whatever debt he has. Maybe pay off the debt and re-invest the amount that he would free up back into a rainy day fund, or start passing on to his heirs earlier, so they can get to financial stability earlier.

He will eventually need that money to pay the entry fee for a decent assisted living facility or long term care facility. Interestingly, he will likely make more in retirement from the taxpayers than he did working for the taxpayers.

it's an anonymous message board, you don't have to disguise yourself as 'your friend' bro

Assuming he is in a low tax bracket then he might as well take it out at 59 1/2. 409a rules are fairly rigid in terms of redeferrals. If he has no long term care coverage, there are some products that provide a good monthly LTC benefit and a low death benefit that are 'hybrid' and provide full liquidity after 10 years.

I believe he wants to simply take out and keep as a rainy day fund. However, leaving that sit in his savings account, making no interest seems like the worst decision. He will just be losing money with yearly inflation.

I'm thinking best decision is he keeps in his stable in come fund of 1-2% year and can take out if needed when that time comes. At least then he is keeping up with basic inflation.

retiremp1pete wrote:

Friend of mine just retired (57 year's old).

He has a state pension to last him his life. He's also just working a part-time gig to stay busy. Money is not really a concern.

However, he has a small amount ($70K or so) that is currently in a deferred comp retirement fund (low risk...maybe 1-2% year). Should he keep it in there? Cash it out? Transfer to individual fund? I don't think he will pay a penalty since he is retired now (still under 59), but what is best based on tax consequences and future earnings?

I cashed out an $800 per month retirement plan last year. My choice was get $174k and pay the taxes due that year, or keep the $800 monthly. The trouble with the plan was that is was a fixed amount ... no interest earning, no inflation corrections. It had been fixed since I left that company 25 years before. It was $800 per month in the late 1990s and still $800 per month after 2020.

Here was my simple math analysis that I used to decide to cash out.

Retire at age 62

$800 per month x 23 year life expectance = $221k paid out

Cash out at age 62 $174k

Retire at age 65

$1000 per month x 20 year life expectance = $240k paid out

Cash out at age 65 $147k

Amount of money left on the table by waiting three years to get $200 per month = $800 x 36 = $29k

I cannot say why the cash out was over $27k more for for retiring earlier, but those were my options.

With the cash out I can now avoid taking any money out of a 401k with nearly $2 million in it that actually earns money, and I qualify for nearly free healthcare because I have very low income over the next several years. I also claimed Social Security and because my income will be so low most of it will not be taxable.

They way I see it is that unless a retirement plans offers something extraordinary is to look at the option and cash it out.