A MAN has sought help from a financial expert as he decides what kind of payout to take from his current job.
The staffer is nearing closer to retirement and could get a $61,000 lump sum distribution or $350 monthly for life.
1
At least, that’s what he told MarketWatch’s Quentin Fottrell recently.
“I’m 49 and have no debt except for a mortgage with $56,000,” the man explained to Fottrell.
He also noted that he’s still working full-time and receives a $2,400 monthly military pension.
“My current net worth (assets minus liabilities) is $350,000,” the man added.
“My S&P 500 investments have roughly doubled every seven years.”
After hearing everything, the money expert said that the 49-year-old had a favorable portfolio.
Additionally, given that he wasn’t currently living paycheck to paycheck with is income streams and net worth, he certainly wouldn’t be living paycheck to paycheck in retirement.
Concerning the $61,000 one-time distribution or $355 monthly payments, Fottrell noted either option “won’t make or break” him.
“Your savings, pension and nearly paid-off home will give you a lot of financial freedom in your 60s and beyond,” the expert emphasized.
“For some people, $355 a month would mean the ability to put food on the table, [and] for others it’s merely the cost of a high-end gym in Manhattan.”
“Given your savings and $2,400-per-month military pension, you probably belong to the latter category,” Fottrell noted.
WHAT’S THE VERDICT?
Overall, then, the expert advised that he take the $61,000 lump sum and invest it, as his financial positioning was already so solid.
“For your $61,000 to double in seven years, you would need to generate returns of 10% on your investment,” Fottrell explained.
“That is the average annual return for the S&P 500 over 30 years.”
Where to save your retirement money
There are several different places where you can put the money you save for retirement. Each has different tax advantages, but not all of them are available to everyone.
401(k) – an employer-sponsored retirement account. Contributions are made pre-tax and many employers will match a certain percentage of your contributions. Taxes are paid when the funds are withdrawn in retirement.
Roth IRA – an individual retirement account. Contributions are made post-tax but withdrawals in retirement are not taxed.
TSP (thrift savings plan) – a retirement savings and investment plan for Federal employees and members of the uniformed services. They work similarly to 401(k)s but may have more limited investment options.
Pension – an employee benefit that commits the employer to make payments to the employee in retirement. Pensions are becoming increasingly rare.
Some quick calculations showed that taking the $61,000 at 65 would mean $122,000 by 72 and $244,000 by 79.
CAN’T KEEP UP
With the $355 monthly payment, it would take over 14 years for monthly payments to reach $61,000 without interest, according to Fottrell.
Not to mention, the monthly distributions would remain the same amid rising inflation and cost of living.
“So you’re really better off taking the lump sum when you leave the company and investing it, whether you do it now or at age 65,” Fottrell emphasized.
“It’s a case of the tortoise (compounding) beating the hare (monthly income).
Still, the money expert emphasized that markets can be unpredictable and there are no guarantees that the 10% rate will happen exactly as planned.
Fortunately, with the portfolio the man already had, and maximum Social Security benefits on the way at age 70 (if he waits to take it until then), he’d be alright either way.
A 65-year-old couple looking to retire with $2.5 million saved also sought the help of financial guru Dave Ramsey recently, who told them some crucial habits needed to be “assessed.”
Ramsey also helped a “late bloomer” retiree with $200,000 in student loan debt navigate their “hiding” move.
