Can we talk about 401Ks?

[tikilyn]

Can we talk about 401Ks or TSP (in our case). My husband is nearing retirement. His MRA (mandatory retirement age) is 57, although he can retire right now at 50. He's planning to wait until he's 55 and will only stay until 57 if he feels our TSP balance isn't enough. Is it really ever enough, LOL? We are on a waiting list with his department to take a retirement class. The TSP wont be our only income as dh has a 6c pension and will receive a Social Security supplement until he turns 62.

My question is what to do with our 401/TSP after retirement? Should we just leave it and ride the market or take it out and buy an annuity? If you have already retired with a 401/TSP what did you do and how is it working out for you? And if you bought an annuity what happens to it when you pass away? Does your spouse keep receiving it?

 

[rangerxenos]

Can we talk about 401Ks or TSP (in our case). My husband is nearing retirement. His MRA (mandatory retirement age) is 57, although he can retire right now at 50. He's planning to wait until he's 55 and will only stay until 57 if he feels our TSP balance isn't enough. Is it really ever enough, LOL? We are on a waiting list with his department to take a retirement class. The TSP wont be our only income as dh has a 6c pension and will receive a Social Security supplement until he turns 62.

My question is what to do with our 401/TSP after retirement? Should we just leave it and ride the market or take it out and buy an annuity? If you have already retired with a 401/TSP what did you do and how is it working out for you? And if you bought an annuity what happens to it when you pass away? Does your spouse keep receiving it?

If you don't have one, I recommend finding a financial planner who can help you answer your questions based on your situation. We went and got one in advance of my husband's retirement back a decade plus ago. What makes sense for one person's situation might not make sense for someone else.

If you do have one, contact them.

 

[Anthony1971]

Leaving your 401k in the market can always be risky as you near retirement much less after it however this also depends on your financial situation outside of a 401k. each person is different so you would either need to disclose all of your financial information on the internet and hope you find someone to answer you or ask an advisor in private if you are not sure what to do. An annuity is nothing more than Payments to you rather then you making payment think Mortgage as it is just the exact reverse. The formula for an Annuity exits in Excel as do an Annuity due aka Mortgage. The only issue you will have is the interest rate and compounding but you can get a good idea of how much your payments will be and how long based on X initial investment when you make that investment and when your first payment starts. Also understand the Pros and Cons of an Annuity as you only get X a month period if you don't need and you save it or not but if you need more you can not get it.... In that respect a 401K can be more flexiable and you can have this in an interest bearing account as well.

 

[georgina]

We rolled about 2/3 of DH’s 401k into an IRA. There is a special rule for company stock that he got from matching, I think it is net unrealized appreciation? That we used on the stock part. I agree with talking to a financial planner, we had put the other 1/3 in an annuity several years before he retired, because his pension is small, this type will continue to pay if he dies, and if we both go any leftover would go to the beneficiaries.

 

[DLgal]

We have a TSP as an active duty military family. We have never gotten any matching on it, but we have a generous military pension starting in a couple months.

I would ask you to assess how much you will depend on the TSP funds in retirement? That should help with deciding how aggressive or conservative you want to be. I would NOT suggest purchasing an annuity. That's usually the worst option, in terms of leveraging the money. There are options to pass it onto a surviving spouse.

FWIW, my parents retired like 9 years ago and my dad left his 401k balances invested in the stock market. Other than last year, it has done well for him. He is still only taking out the RMD at age 76 and they don't actually NEED the money. They are doing fine on just Social Security and a small pension.

For us, the TSP will be 100% fun money. We won't need it at all. We will have the military pension, VA disability, and social security. We can maintain our current standard of living with just the pension and VA disability. We are still young though, at only 44. Once my husband retires from the military, we plan to just leave the TSP and let it ride the markets for the next 25-30 years. Hopefully it will grow nicely. We will likely spend several years doing Roth conversions so that when our kids eventually inherit that money, it will be tax free for them.

My husband plans to work until age 60 and will likely be utilizing 401k accounts going forward in his career, so I am hoping we can roll some of those into the TSP account (which I believe is the only way to continue making contributions to the TSP after separation).

 

[QueenIsabella]

I second the idea of a financial planner. A good one will help you consider your options--there may be some that never occurred to you. He'll help you decide how much risk you're comfortable with, and what future goals are important to (money to heirs? money to charity? Heck with them, live large and die broke? It's totally your call!)

Annuities can be good for some people--if you don't want to leave money to heirs, if you're more comfortable with a set income stream, if you aren't interested in managing investments. That said, I wouldn't get one--you have the pension and SS, which act like annuities (set monthly payments). I also have no issue with managing my investments--it's okay if you don't feel comfortable managing them, I'm just telling you what I would do.

You can leave your 401k where it is, but it might make sense to invest it elsewhere (this is where the financial planner comes in). An outside investment strategy allows, generally, for more choices and lower fees. Vanguard and Schwab are both recommended highly. But again--it depends on how "hands-on" you want to be with your retirement funds.

 

[tvguy]

Yup, you need the services of a Financial Advisor.
We rolled all 401ks into IRAs. Within the IRAS are a balanced mix of investments, but heavy on annuities. Our annunities are all set up to pay a set amount for the rest of both our lives with a guaranteed locked in value, so if that amount is not paid out when we both die, the balance goes to our kids.
I'll take Social Security when I reach full retirement age of 66 1/2 in December, and my wife in April 2024.
Right now we are living off monthy withdrawals from my IRA account which are in stock funds. Of course there are no guarantees with stock investments, but we gave been retired 20 months, and so far our investments in those funds have gained more than we withdraw. Our plan is to not touch my wife's former 401k money, now IRA money until mandatory minimum distributions kick in in a little over 6 years, but we can start that earlier if need me. She put 15% of her pay plus a 3% company match for 40 years into the 401k, so that is a nice nest egg even though she opted out of the stock market 10 years ago. She missed out on a lot of stock gains.
But to be honest, we were putting so much money into 401ks over our working lives, our Social Security benefits will be slightly more than we took home when we were working. While Social Security is designed to be a supplement to retirement, those benefits are pretty darn generous.

 

[amylevan]

He's planning to wait until he's 55 and will only stay until 57 if he feels our TSP balance isn't enough. Is it really ever enough, LOL?

A discussion with a financial advisor can help with the “is it enough” question. Ours takes all our personal income/expense/savings info and runs a Monte Carlo simulation to see if we have enough. It runs something like 1000 scenarios and determines when/if you run out of money in the different scenarios. It’s very eye opening.
We’re still about 10-12 years from our anticipated retirement date, so we haven’t discussed in depth what our 401k, or potentially a rolled over IRA, will look like yet, but I envision less stocks and risk as time goes on. But don’t forget, if you retire at 57, you need that money to last possibly 30 years, so keeping some stock to continue growth over the long run will likely be needed.

 

[hoffse]

If you get an advisor look for a fee only planner. The ones who charge based on assets under management (AUM) end up costing a small fortune.

If you want to DIY (and potentially save yourself enough in fees per year to take an extra Disney vacation), check out the Bogleheads guides and forums. They are excellent and the best source on the internet for self managing retirement.

Annuities are usually not a good deal, and most of the time you can come out ahead by setting up a simple portfolio yourself. Since you have a TSP you probably have access to the G fund, which is arguably the best stable value fund out there and only available to government employees. There is no private sector equivalent.

Learning about things like taxes, retirement, and personal finance in general can be some of the best use of your personal time dollar for dollar. It’s worth it.

**I am only 36, but I have been saving for retirement (Roth IRA) since middle school.**

 

[amylevan]

If you get an advisor look for a fee only planner. The ones who charge based on assets under management (AUM) end up costing a small fortune.

The ones who charge a percent based on your assets ARE fee only. It’s either fee or commission. Avoid the ones who charge a commission or fee+commission. Fees can be hourly or a percentage of your assets, but either way it’s still a fee only planner.

 

[hoffse]

The ones who charge a percent based on your assets ARE fee only. It’s either fee or commission. Avoid the ones who charge a commission or fee+commission. Fees can be hourly or a percentage of your assets, but either way it’s still a fee only planner.

Yes, thank you. I meant to say **hourly** fee only planner. I was typing too fast.

Avoid AUM at all costs.

That being said, anybody who is capable of planning an enjoyable Disney vacation without help is more than capable of planning their own retirement without a financial planner. Disney is significantly harder IMO.

 

[Keacc]

Thanks to Obama Care, you can look forward to spending a lot of money on health insurance until you reach the age of 65. Make sure you include a plan for that.

 

[MillauFr]

Agree on avoiding a planner that charges you a % of your assets every year. 1% per year is absolutely outrageous.

 

[_19disnA]

A financial planner of some sort is good advice since there are so many options on where to invest your money and can answer some of the very basic questions you are asking. Even if you leave it in your 401k, most companies provide a range of different investment options. Some are more risky/conservative then others. As you near retirement you generally want to have your portfolio on the more conservative side to avoid issues with the ups/downs of markets. There is less time to recover from a significant downturn compared to when you were younger and perhaps investing with the idea of seeking higher returns.

Even the decision of when to start collecting from Social Security is part of that plan. No one on here can tell you exactly what to do since it depends on your financial situation, health, retirement plans, lifestyle, etc. which you really shouldn't discuss in detail with strangers on the internet.

 

[DisArmyWife215]

Can we talk about 401Ks or TSP (in our case). My husband is nearing retirement. His MRA (mandatory retirement age) is 57, although he can retire right now at 50. He's planning to wait until he's 55 and will only stay until 57 if he feels our TSP balance isn't enough. Is it really ever enough, LOL? We are on a waiting list with his department to take a retirement class. The TSP wont be our only income as dh has a 6c pension and will receive a Social Security supplement until he turns 62.

My question is what to do with our 401/TSP after retirement? Should we just leave it and ride the market or take it out and buy an annuity? If you have already retired with a 401/TSP what did you do and how is it working out for you? And if you bought an annuity what happens to it when you pass away? Does your spouse keep receiving it?

TSP has a new retirement modeler calculator. This uses your actual balances from SSA, TSP and others retirement balances you can plug in to give you various estimates. TSP has an annuity buy out option as well so you wouldn't have to buy a new plan to have an annuity if you choose that route. An annuity would have beneficiaries assigned as well so the account would pass to them. I'd search the forms area of TSP to review which work best for your situation. I've never heard of a mandatory retirement age, do you mean his minimum retirement age?

 

[danceintherain]

If you like message boards, I highly recommend the Family Finances group on BabyCenter. They've walked me through our plans multiple times. Most people don't need a financial planner.
Another good resources is the Bogleheads Guide to Retirement book, or the Bogleheads wiki page.
I've also learned how to run our numbers on the Firecalc website. I haven't done it recently, but in 2020, we were on target for a 100% success rate with our then balances, and continuing to contribute the max amount to 1 401K and 2 Roth IRAs. They use historical data in order to predict how investments will perform over time, and give you a success rate based on your contributions and other sources of income.

The TSP is one of the lowest cost retirement vehicles out there. You'll rarely find better expense ratios anywhere. So a lot of the boilerplate advice doesn't apply to you. We've kept ours since DH retired from the military, and plan to roll future retirement contributions back into as needed. This will open up other options for us in the future, like backdoor Roth IRA.
We do target date funds for retirement across the board. These are designed to automatically adjust to be less risky as we get closer to retirement. I have them set for dates around when we hit 65, because I'd rather reap the benefits of the higher risk for longer. Yeah, the last couple years have sucked, but we do have enough working years left to recover from a few low years, so I'm not worried about it.

 

[Dakota731]

I second the idea of a financial planner. A good one will help you consider your options--there may be some that never occurred to you. He'll help you decide how much risk you're comfortable with, and what future goals are important to (money to heirs? money to charity? Heck with them, live large and die broke? It's totally your call!)

Annuities can be good for some people--if you don't want to leave money to heirs, if you're more comfortable with a set income stream, if you aren't interested in managing investments. That said, I wouldn't get one--you have the pension and SS, which act like annuities (set monthly payments). I also have no issue with managing my investments--it's okay if you don't feel comfortable managing them, I'm just telling you what I would do.

You can leave your 401k where it is, but it might make sense to invest it elsewhere (this is where the financial planner comes in). An outside investment strategy allows, generally, for more choices and lower fees. Vanguard and Schwab are both recommended highly. But again--it depends on how "hands-on" you want to be with your retirement funds.

We switched some of our 401k to an annuity since we lost so much money the past two years, and the annuity we chose CAN be passed on to our heirs.

 

[QueenIsabella]

We switched some of our 401k to an annuity since we lost so much money the past two years, and the annuity we chose CAN be passed on to our heirs.

I'm glad that you have something that works for you, but we'll NEVER, EVER buy an annuity. For one thing, we're active investors. For another, we have 5 pensions and 2 Social Security checks that will be coming in when DH retires. We simply won't need the monthly cash that an annuity would provide. I also realize that we're in a weird spot--many people have no pension, and a lot of people don't feel comfortable managing their own investments. That's perfectly fine.

OTOH, we have a couple million in retirement accounts, and we STILL max out DH's 401k contribution (up to the company match). Because, hey--free money!

 

[_19disnA]

There are a number of different types of annuities and one reason to talk to a financial advisors is to understand the differences and if they have a place in your total financial picture. They make sense for certain situations. With the higher interest rates lately, CD's and other similar investments may also be a fit for you. You get a fixed return with none of the risk associated with the stock market.

 

[tvguy]

I'm glad that you have something that works for you, but we'll NEVER, EVER buy an annuity. For one thing, we're active investors. For another, we have 5 pensions and 2 Social Security checks that will be coming in when DH retires. We simply won't need the monthly cash that an annuity would provide. I also realize that we're in a weird spot--many people have no pension, and a lot of people don't feel comfortable managing their own investments. That's perfectly fine.

OTOH, we have a couple million in retirement accounts, and we STILL max out DH's 401k contribution (up to the company match). Because, hey--free money!

I guess we have been passive investors. The bulk of our financial plan was laid out 37 years ago. Now that we are retired that last thing we want to do is start spend time managing investments. For now we are living off savings. Within the next 12 months we too will have two Social Security checks coming in and that should handle all our needs. But we don't have to start taking the annuities until we are 70, and then, the distributions can remain within the IRA system, or we can start taking the money and have some fun.