Two years to retire, how do I find the best financial planner? (55, pension)
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I am one of the very lucky ones. I will soon be able to retire from public sector with a defined benefit pension and minimal debt. I have about $150K in an annuity and will have about $100K in a bank CD's that expire this month (1.5%). Like so many others, I was burned by the downturn in the stock market, and my annuity is now in a fixed interest account of 3% through AXA. I know that I have no real plan (other than to avoid being burned again and losing significant amounts of money), but realize that this plan is really no plan, at all. Any thoughts of the best way to develop a reasonable financial plan, and how to determine the best route/person to help us? I am a true novice in terms of understanding and responding to the financial markets. Thanks for any input or experiences that you might be able to offer!
It's a short book that is an easy to understand primer about investment and investment allocation. When you say burned, I'm assuming you got out somewhere near the bottom of the market. If you had stuck with it, you would have recovered a good deal of your portfolio. For instance, I lost about 40% in my portfolio value during the downturn. Currently, I've recovered all of it while also reallocating the portfolio for retirement (increasing fixed income).
For the most part, fixed income alone, will likely not provide you with a large enough return to meet your needs. You're looking at returns of less than 3% for the most part. You'll need to consider an equity allocation in order to get a livable return.
Before you do anything, do you know what your expenses will be once you retire? If not, you need to get to work on it right away. You're close enough to retirement that you can use your current expenses as an estimate, adjusted for things you'll be paying in retirement (health insurance, etc.). Likewise, you can reduce any work related expenses.
With your expenses in hand, you can determine what income sources you'll be receiving. If your pension system has a website, look to see if they have any calculators of benefits. Run your numbers through it to determine your monthly benefit. If you qualify for SS, include their estimates, base on when you'll receive them. Add the annuity to the income numbers. Subtract your expenses from this number and the remainder is what you'll need from your investments.
If it's positive, you're in good shape. If it's negative and less than 4% of your investment value, you're probably still in good shape. If the need is greater than 4%, you'll need to change something, either increase income or decrease expenses.
Many public pension funds provide retirement seminars. They suggest you attend one, 2-3 years before retirement, so you'll have some time to make adjustments. One strategy to try is to live on what your retirement income now, placing any excess income in a deferred comp account and/or just saving it. This way you'll have an idea if you can make it on the income and you'll be saving even more for retirement.
This should get you started and if you have any further questions, just ask.
It's a short book that is an easy to understand primer about investment and investment allocation. When you say burned, I'm assuming you got out somewhere near the bottom of the market. If you had stuck with it, you would have recovered a good deal of your portfolio. For instance, I lost about 40% in my portfolio value during the downturn. Currently, I've recovered all of it while also reallocating the portfolio for retirement (increasing fixed income).
For the most part, fixed income alone, will likely not provide you with a large enough return to meet your needs. You're looking at returns of less than 3% for the most part. You'll need to consider an equity allocation in order to get a livable return.
Before you do anything, do you know what your expenses will be once you retire? If not, you need to get to work on it right away. You're close enough to retirement that you can use your current expenses as an estimate, adjusted for things you'll be paying in retirement (health insurance, etc.). Likewise, you can reduce any work related expenses.
With your expenses in hand, you can determine what income sources you'll be receiving. If your pension system has a website, look to see if they have any calculators of benefits. Run your numbers through it to determine your monthly benefit. If you qualify for SS, include their estimates, base on when you'll receive them. Add the annuity to the income numbers. Subtract your expenses from this number and the remainder is what you'll need from your investments.
If it's positive, you're in good shape. If it's negative and less than 4% of your investment value, you're probably still in good shape. If the need is greater than 4%, you'll need to change something, either increase income or decrease expenses.
Many public pension funds provide retirement seminars. They suggest you attend one, 2-3 years before retirement, so you'll have some time to make adjustments. One strategy to try is to live on what your retirement income now, placing any excess income in a deferred comp account and/or just saving it. This way you'll have an idea if you can make it on the income and you'll be saving even more for retirement.
This should get you started and if you have any further questions, just ask.
After they attend the seminar they may find out they need to work a few more years as they are not yet able to retire. I wouldn't bet the money the OP is really financially able to. They may be eligible but that doesn't equal able.
I am one of the very lucky ones. I will soon be able to retire from public sector with a defined benefit pension and minimal debt. I have about $150K in an annuity and will have about $100K in a bank CD's that expire this month (1.5%). Like so many others, I was burned by the downturn in the stock market, and my annuity is now in a fixed interest account of 3% through AXA. I know that I have no real plan (other than to avoid being burned again and losing significant amounts of money), but realize that this plan is really no plan, at all. Any thoughts of the best way to develop a reasonable financial plan, and how to determine the best route/person to help us? I am a true novice in terms of understanding and responding to the financial markets. Thanks for any input or experiences that you might be able to offer!
Without being cynical I need to point out to you that you allowed yourself to be burned by the downturn and sat out the rebound. Stocks are at their highest valuations since August 08 and it appears you missed that run. The averages closed today at:
Dow-11,755
S&P-1286
Nasdaq-2737
Russell 2000-801
What were they at when you got your CD's?
Also over the time since the meltdown Bonds have had a great run.
What were the conditions like when you locked in your losses? I say this only to highlight that you need to sit back and make sure you really are close to being able to retire. Cash flow is critical at any time and even more so in retirement. You need to crunch numbers using a planning calculator and the information from your retirement system. Remember once you stop working what is your plan on how to grow your money? No more raises or promotions and perhaps no COLA and thats a real perhaps.
In hindsight it may be that the market didn't burn you but that by pulling out you burned yourself.
The only thing I might add is that it would be wise to consider the personal financial gains that a financial planner might gain by adding you as a customer. They are also trying to sell certain products that benefit themselves as opposed to you based on the fees that they receive and the more complex it is to the consumer the more likely it is to benefit the planner who's doing this as a business. My Mother and StepFather, like millions of other retired people, trusted their financial planner but my StepFather had to angrilly express his anger over the financial losses that they had endured several years ago. I left my money in my company's 401k and even though I've taken out tens of thousands of dollars in about three years I still have more money in that account than I did four years ago. This is completely due to the improvement in the stock market.
After they attend the seminar they may find out they need to work a few more years as they are not yet able to retire. I wouldn't bet the money the OP is really financially able to. They may be eligible but that doesn't equal able.
Those were my thoughts too, but only the OP has all the information that will determine when they can retire.
Those were my thoughts too, but only the OP has all the information that will determine when they can retire.
I have known to many folks who had the information and couldn't interpret/apply it to a functional retirement. All they knew was pension eligibility. They were then angry and blamed their employer when their pension wasn't enough. Many didn't know that SS was calculated on their highest 35 years and if they worked less prior to retiring it was calculated as a zero for each year under 35.
The only thing I might add is that it would be wise to consider the personal financial gains that a financial planner might gain by adding you as a customer. They are also trying to sell certain products that benefit themselves as opposed to you based on the fees that they receive and the more complex it is to the consumer the more likely it is to benefit the planner who's doing this as a business. My Mother and StepFather, like millions of other retired people, trusted their financial planner but my StepFather had to angrilly express his anger over the financial losses that they had endured several years ago. I left my money in my company's 401k and even though I've taken out tens of thousands of dollars in about three years I still have more money in that account than I did four years ago. This is completely due to the improvement in the stock market.
And as you revisit and revise your retirement plan it gets better and better. I have trigger points with built in cash flow increases. In addition as the portfolio increases the required eventual draw downs get bigger. My taxable accounts are growing for both contributions and investment growth. I also am getting older and the number of out years is decreasing. I am old school and planned to 94 with a contingency that one of us will live to 104. I am in a better position now than a few years ago because we are actually in retirement and the cash flow needs are no long projection but real. Congrats to you.
I so appreciate your experiences, recommendations and thoughts of getting myself on track to retirement. For me, the decision to retire now is a financial decision, as my employer will pay for my family's health insurance through me reaching Medicare (almost 7 years). There is a very good chance that this "perk" will disappear in 2012. I realize that I need to better educate myself. Any additional recommendations will certainly help.... any thoughts of what you might do with the $100000 in CD's now matured?
I have no intent of hijacking this thread, but I just want to say I am also in the exact same boat as Coach. Because of that I will actively follow this thread.
I am also a public servant union employee who will be eligible to retire in 173 more days. My pension amount looks like it will be roughly 10k above my post retirement expenses.....so it looks like I should be able to live comfortably on my pension.
The reason I am considering retiring within the next year or so is that our current contract allows me to continue our family medical and dental coverage for a cost of about $600/year......until I am eligible for medicare. I am 52 years old. I'm pretty sure we might lose this benefit in our next contract. From what I've been told, it is a valuable benefit. If true, I could not make up for that benefit even if I stayed another 15 years.....
I plan on starting a private business once I retire to add to our income. I'm told that it would benefit me to do this and keep paying SS, so I do not have years of zeros. I have yet to learn much about this.
I am actually attending a full day seminar for public employee retirement tomorrow. I have no debt and about 125-150k in my deferred comp that I do not plan on touching.
As I said before, I do not want to hijack this thread at all. I have followed and enjoyed many of Coach's posts, and we seem to be kind of in the same boat. I"ve always been a bit leery about posting this type of personal stuff, but if Coach feels ok with it, so can I.....
Hopefully I'll be a bit smarter after tomorrow's seminar....
Frank
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