I have a one-time chance to cash out my pension.

[magical thyme]

The estimated amount is based on interest rates on Sept. 1,2014. The actual amount will be based on interest rates on April 1. I'm guessing they mean prime rate, but will ask them "what interest rates" when I call tomorrow. I'm guessing the pension is in bonds, since they state that if interest rates go up, it's value may go down, and vice versa. I have until March 6 to make my move.

The last I read, Yellen was talking about raising rates in April. But I've also read they don't dare raise them, or the US debt payments will go up too much.

Any thoughts?

I'm thinking of rolling it into a traditional IRA at my client, money market fund for now. If/when market tanks, I can move it into a couple of the better funds --4-star morningstar, no-load, no transaction fees at the client I support. I'll pay down the student loan in chunks, depending in part on what my income taxes will be for the year. At this point about 25% of my loan is interest. I'm hoping to be able to choose how much I pay back is interest versus principal to try to keep my taxes down as much as possible.

I don't want to keep it at Fidelity. I'm not familiar with their funds or their policies. And they lost my identity so I hate their guts.

[msongs]

1. will the feds steal half the money if you cash out? they like to do that sort of thing nt

[magical thyme]

4. I'm going to roll it into a traditional ira, first

which will have zero tax impact.

then I will cash it out a chunk at a time. each distribution will be taxed as ordinary income, so will increase by taxable income. However I will be using it to pay off the student loans, part of which is now interest. the interest on student loans is a tax deduction, so that will lower my taxable income, albeit by less than the payments raise it by. But it will help.

And that if I'm able to put the balance into mutual funds that have some interest and dividend payments, that will boost the earnings in the IRA. Hopefully enough to pay the taxes for the amount that I took out until the loan is paid off. And if I do reeeeally well and get a good return, maybe even pay them off and have something left over...

Anyway, looks like Yellen doesn't plan to raise interest rates until summer. Phew!

[yeoman6987]

5. My thoughts exactly

Why on Earth would someone jeopardize their future like this. I hope they keep it where it is. At 67, they will be thankful they did. So many do this. I hate to see the future. Yieks!!!!!

[magical thyme]

10. you do realize that pensions are no longer protected in bankruptcy?

So if the company goes down, the pension can go down with it.

Also, I'm sure you're aware that in the income-based repayment program, after 25 years of paying without making a dent in the loan, you owe a one-time income tax payment on the "forgiven" loan, which after 25 years is *massive.* After just 4 years, mine has grown by nearly 30%. At the rate that loan is growing, I will lose *everything* and end up in the street. That, of course, assumes that a future administration doesn't make the terms worse than they already are.

Talk about jeopardizing your future

I'm talking about getting out from under that loan completely within a couple years. My take home income will immediately jump because I won't be making loan payments every month for another 20+ years.

[hollysmom]

2. I am fighting a cash out plan the company wants to be out from under, but

unless the market improves a whole heck of a lot I am better off collecting my monthly pension for a fixed amount.I have friends who cashed out and then ended up spending it non-necessities. It really depends on the terms and the person receiving the money, while I would not have spent mine, I certainly would not have gotten enough to last the life time I expect to live. But the company (bank) is really pushing to get out from under - the offer is just not good enough.

[dixiegrrrrl]

3. Treasury bonds are heading for a new low...

even the 30 year bonds are less than 3%. This is NOT a good sign.
In fact, lots of bad signs popping up, so it would be wise to plan as if we are entering another downturn.

The best part of your plan right now is you are moving it from Fidelity.

I always liked Vanguard and was with them for many years, preferring to choose my own funds to invest in.
Their fees are minuscule.

[magical thyme]

6. TIAA-Cref is no load, no transaction fees, no other fees. Zero, zip, nada if you do it right.

the only fees are:

. $15 small account for funds under $2,000
. 2% sales charge for half a dozen of their funds *if* you sell within 60 days of purchase, and none of them are the funds I'm interested in anyway
. $15 to overnight a check

And that's it.

No load. No fees. Very good returns on 4 or 5 of their funds, which also recovered very quickly after 2008/2009 crash.

[dixiegrrrrl]

7. Well, then , go for it. n/t

[TexasProgresive]

8. If it's like our it's based on the GATT rate

This site on gives the rates for 2014 but I think the current rate is 3.04% which is pretty low about the best there is for a lump sum payout.

The GATT Rate

If you have looked into taking your pension paid out as a lump sum then, depending on your company, you have probably come across either the GATT or PBGC Rates. These are both interest rates that are provided by the government, and they affect the amount of your lump sum.

Many companies use one of these monthly interest rates to calculate lump sum distributions from their pension plans. Many plans will automatically defer to the rate that will yield the highest payout. If you would like to know how changes in these rates can affect your pension distribution, please call our office.
http://www.cprp.com/education-center/gatt-rate-pbgc-rates/

[magical thyme]

9. thank you.

good information!

[magical thyme]

17. the rates they gave me this morning for 9/1/14 don't match either the GATT or PBGC rates

I've been spending an inordinate amount of time on hold. while googling I tried "IRS required interest rates pension" and found a table with rates that match theirs, but for August, not Sept, 2014.

they're going to send me a letter telling me exactly where the interest rates come from.

[Sherman A1]

11. The only thoughts I can offer

would be to gather as much information as you can and make your decision not placing all the eggs in one basket.

It sounds as if you are doing just that. It would be a tough choice, best of luck to you.

[mahatmakanejeeves]

12. Investors Shun Stock Pickers

This probably isn't going to tell you something you do not already know.

Investors Shun Stock Pickers

That's the title in the print edition, Monday, January 5, 2015.

There are many threads at DU about the advantages of index funds. Google "Phyllis Borzi" at DU to find them. She is at the Department of Labor, and she tirelessly advocates for them.

Full disclosure: I have money in Vanguard's 500 Index Fund, as well as other investments with Vanguard. I am not making this post for any reason other than to bring the article to your attention.

Vanguard Sets Record Funds Inflow

Investors Gave Stock Pickers a Vote of No Confidence in 2014

By Kirsten Grind
[e-mail]
Jan. 4, 2015 11:04 p.m. ET

Investors gave stock pickers a resounding vote of no confidence in 2014, pouring $216 billion—a record inflow for any mutual-fund firm—into Vanguard Group, the biggest provider of index-tracking products, according to preliminary figures from the mutual-fund group.

Those large inflows accentuate a trend away from fund managers and toward so-called passive investments that mimic indexes and other benchmarks for a fraction of the cost of the typical mutual fund.
Active investments have been hurt by years of subpar performance and high fees. Data through November, the latest available, show investors pulled $12.7 billion in 2014 from actively managed U.S. stock funds while plowing $244 billion into similar passively managed funds, according to fund-research firm Morningstar Inc.
....

The merits of passive investing are becoming conventional wisdom among retail investors. In addition, many financial advisers have incentives to recommend low-cost funds because they can charge their own fees without giving investors sticker shock.
....

John Aravosis, a self-employed writer in Washington, D.C., said he moved his individual retirement account into Vanguard in mid-2014 after he realized he was paying nearly half his yearly savings allotment in fees to a longtime broker. He said the performance of his IRA also suffered, causing him to lose out on thousands of dollars in stock-market gains, and that he felt “utterly cheated and violated” by how much he had paid in the past.

[mahatmakanejeeves]

13. Google "Phyllis Borzi" at DU.

Some helpful links in general.

Google "Borzi," as in Phyllis Borzi, the Assistant Secretary of Labor for the Employee Benefits Security Administration.

If you never do anything else today, watch this video. It was broadcast on April 23, 2013.

Tonight on FRONTLINE: The Retirement Gamble

Phyllis C. Borzi appears in the show.

Please see the article about excessive 401(k) fees in the September 2013 issue of Consumer Reports

There's a ton of information here:

Employee Benefits Security Administration

Understanding Your Retirement Plan Fees

Maximize Your Retirement Savings - Tips on Using the Fee and Investment Information From Your Retirement Plan

Full disclosure: I have money in Vanguard funds.

Vanguard offers funds with active management, Jack Bogle's beliefs notwithstanding. It's like your grocery store. You can buy broccoli there, and you can buy chocolate-covered marshmallows there. They leave the choice up to you.

[magical thyme]

15. I'm putting my money w/TIAA-Cref

they offer 31 managed mutual funds. I don't need to choose between broccoli and marshmallows. I can choose any of the 31 funds the offer, and because I work for them I know which ones are the best.

Because I work for them, I am totally familiar with their policies and procedures, so I *know* there are no fees unless I don't pay any attention at all to what I am doing.

I know which funds are the best and which are the dogs. And I *know* their policies and procedures because it's my job and I have access to the "inside" information as well as how to find everything I need on their website.

Aside from the fact that my cousin became a 1%er with offices in Hong Kong and elsewhere, with a stint as a VP at Vanguard as a major part of his climb, I'm not going with Vanguard. If he hadn't dumped me decades ago, then maybe I'd be comfortable with them. As it is, I'm not.

Miniscule fees are not the same as no fees.

[mahatmakanejeeves]

16. No problem. My brother and SIL have money with TIAA-CREF too. NT

[mahatmakanejeeves]

14. "Where Are the Customers' Yachts?"

"Where Are the Customers' Yachts?"

By Morgan Housel
February 21, 2014

....
{A family friend has} had a financial adviser at one of the nation's largest banks for the past five years. I met him once; he's a nice guy. Smart, able, honest, and competent, he put my friend in a basket of investments -- mostly low-cost index funds, a few individual stocks, and a portfolio of bonds -- keeping her on track to enjoy a comfortable retirement. ... She's happy with her adviser. For the most part, I was, too. ... There's just one problem: He charges an incredible 1.5% of assets as his annual fee. ... I tried to explain to my friend how high this was, but my comments were met with a shoulder shrug. One and a half percent didn't sound like much to her.

But when we added up how much she was paying her adviser every year, it was literally the single largest line item on her budget. More than her mortgage, more than her food bill, more than she spent on travel, clothes, entertainment, gifts, medical care, cars, and tuition for her kids. ... That got her attention. So did this: In the past five years, my friend has spoken to her financial adviser seven times. When you break down how much she's paid him, we figured each meeting cost her $21,000, or nearly $50,000 per hour.

Fifty thousand dollars per hour. To pick a group of index funds and mutual funds. ... This is not a made-up figure. It is how traditional wealth advisers operate.

Six decades ago, Fred Schwed wrote a book called Where Are the Customers' Yachts? The title came from a story about a visitor in New York more than a century ago. After admiring yachts Wall Street bought with money earned giving financial advice to customers, he wondered where the customers' yachts were. Of course, there were none. There is far more money in providing financial advice than there is in receiving financial advice. ... The title is as relevant today as it was back then. There are few industries that pay themselves so much for doing so little as financial services.
....

Contact Morgan Housel at [e-mail] The Motley Fool has a disclosure policy.

[sendero]

18. There is all kinds of chatter..

.... right now about the Fed raising rates later this year. I'll believe it when I see it. I just don't think they can raise rates any substantial amount, the ripple effects would be tremendous.

Of course on the other hand they seem to be boxed in to these low rates and that might make them antsy as where we are now leaves them little wiggle room for effecting policy.

I wish I had me some good tea leaves but if I had to make a call I'd bet rates stay the same or rise a very small amount.

[magical thyme]

19. I found some recent articles last night

couldn't sleep, so I googled instead. Apparently recently Yellen said last week or so, iirc, they will be looking at them in their meeting at the end of April. They expect to raise them in summer.

I agree, I don't think they can. the Fed government is dependent on low rates to pay low interest on its loans.

And even back when she was saying April, that was before christmas sales figures came in. And before europe fell into deflation. and before the oil industry started its crash, which is just only getting underway.

There is zero risk of inflation and if they are stupid enough to believe that the lower unemployment rate means anybody has money to spend, or means anything more than more people falling out of the system and a few more low pay jobs, they're totally delusional. Most of the good paying jobs created in the last few years were courtesy of the fracking scam.

[DemReadingDU]

20. Why put a mutual fund in the IRA?

Wouldn't the safest option be a certificate of deposit in the IRA. Of course, interest rate would be near zero, but that indicates it is safest option. Just go for the shortest term, 6 months or less if available. If/when interest rates rise, easy to roll for a longer term.
The CD would be insured by the bank or credit union too.
Just my opinion, I'm no financial adviser, just a reader.

[magical thyme]

21. funny you should mention that

when I was balancing my checkbook today, I looked into the IRAs at my CU. The interest really is low right now...essentially nothing. But yes, it would be FDIC insured....

So it is something I'm considering as well...

[sendero]

22. Not only that...

.. but I'm pretty sure the Fed has given "rising rates" guidance several times. But it just never happens.

The more I watch the central banks the more I think they intentionally mislead as to their plans and intentions, routinely.

[magical thyme]

23. head fakes.

They head toward the door, investors panick. They walk past the door. Investors relax.

They head toward the door, investors panick. They walk past the door. Investors relax.

They head toward the door, investors look up. They walk past the door. Investors look back down.

They head toward the door, investors snore. They open the door. Investors wake up, stumbling around. One or two investors escape. They close the door on a few investors and crush them. The rest are caught to wait out the next cycle.

Exactly like what I did with my injured horse this morning, in order to get the wheelbarrow out the door without her squeezing through with me.

[roamer65]

24. With the Euro's plummet we will have negative interest rates soon. N/t