Life change at 55. Financial advice would be helpful.

[milog]

Wife here adding a ton of info under his post! 

Ok here is the situation.  I have worked for a large corporation for the last eighteen years.  In December of 2014 I turned 55.  Due to a short term health excursion I lost my position with the company.  At 55 the next ten years should of been my highest producing years and possibly still could be, but I'm not real optimistic due to age discrimination.  So I have some financial options and here is where I need advice.  At 55 I have the following assets.  360,000.00 in 401k.  A company pension which if taken now would have a cash value of 354,000.  I have around 15,000. cash and around 100,000. equity in a home.  The company granted me severance for one year at 85,000.  I want to move to Florida to take advantage of the weather, Family and no state income tax.  Plus my wife has been accepted to a University to finish her degree.  She will start in August.  If we stay in ATL, she will have to wait a year and that is not an option.  Help, Help, Help.  I want to take either the 401k. cash it out pay the federal tax , avoid the state tax due to Florida and would not encounter the 10% penalty due to the exception of 55 years of age and taking it from the company I left.  I want to use the proceeds to purchase outright a small ranch home in Florida in a good school district as I have one child (age 13) still in school.  I could start taking the pension as an annuity at around $1,600.00 per month.    This has prompted my wife will finish school in 16 months and then earn around $50,000. per year she is in her mid forties.  She is much younger than I.  I only want to work (organized) until I'm 62.  I will then take Social Security.  I'm guessing around $2,000.00 per month.  Some people say leave the 401K intact and just take the interest.  But I do not trust companies, Banks, Financial institution.  CEO's and Wallstreet are the fastest means to an end.  Thoughts as to benefits of Home free and clear.  Sorry for the scattered thoughts.

The wife here posting for Milog.  I've been reading the MMM blog much longer than he has.  He's got a ways to go before he truly understands mustachian, so bear with me here.  I am 44 and he is 55.  We differ a lot on how we think.  I'm a saver and he's a spender.  I subliminally helped him decide that he should sell his Mustang.  Don't get me started here, but he finally sees that he was a clown car addict and he kicked the habit.  We have been a 3 person household (wife, husband, daughter) for the last 13 years and married 20 years.  He has always bought us new cars, trading in a perfectly great car every few years, plus also having a sports car to mess around with for himself.  He's seeing other ways to be happy though and not so much in spending on toys.  Besides the cars, we are pretty frugal and try to live below our means.  We've never had huge mortgage payments nor much credit card debt.  We only have credit card debt now due to his health excursion as he likes to call it.

I think what is going on here is my husband feels he is not going to be able to get a job and is trying to figure out how he can retire now.  That would be the reason for wanting to cash things in our draw a pension.  If he withdrew 4% from the 401k that would be around $1200 per month (not really sure, just a guesstimate) and as of today, the pension would be $1,600 per month.  So $2,800 per month.  Our spending is at around $4k per month.  Our spending habits are at the end of my post.  That leaves me scrambling to finish my degree in 12-16 months, which is great, no problem there.  I will then earn $50k per year.  This would have us incur around $20k in debt though.  This is not too bad, because I have many years I can work.

Here's our story in more detail:

So my husband had a great well paying pharmaceutical sales job for 19 years.  He had some health issues that came up the last year and plus he was just terribly burnt out.  He decided to get out and took his severance.  Because he is leaving the company, he does not have to pay the 10% penalty for his 401k, though he would for his pension.  As of right now, he can withdraw $1,600 per month from his pension (this number already takes the penalty into account - we called to make sure) until he dies and it is transferable to me at the same rate.  It will not transfer to my daughter if something, God forbid, happened to both of us.  That is a little scary and is the only reason he thinks he might should cash it in when he turns 60.  We don't plan on taking the pension until he is 60, we haven't decided which way to do it yet.  It's just an option.  He is pretty adamant that he wants to cash in the 401k though and I am trying to convince him to do the 4% withdrawal like MMM talks about.  Actually, I don't think we should touch it at all.  The 401k should be much higher, but he is not aggressive with investing.  He lets most of the money sit in safe places that do not grow like in money market funds.  Ugh.  We have $20k sitting in our bank account now.  Just sitting and doing nothing.  We should pay off our credit card, but he will not.  I would love to find a way to invest the 401k in a more aggressive way and watch it grow, so wish me luck convincing him.  PLUS, we will have $100k equity when we sell our house in Atlanta!  We live in a hot market with the best schools around.  It will sell in 2 weeks to a month.  The realtor is very sure about this.

We could use his pension to make a house payment if we needed.  Ps: The poster that said my husband was a doomsday type is exactly right!  LOL!  He is very negative and worries about everything, but he's an excellent husband and father, so we keep him around ;).  His salary has been in the $120k with a company car and full benefits for around 16+ years.  I have been a very happy stay at home mom.  Honestly, he is freaking me out with his doomsday mentality.  He is so sure he will not find a job, because there really is a lot of this age discrimination going on.  This has prompted me to go back to school and spend 12-16 months and around $20k to finish my bachelor's degree.  This will get me a very good job in the health care field, plenty of jobs for my field and highly in demand.  The school I got accepted to is in Tampa.  I start this August.  The quickest I could get in here in ATL is in May 2016 and that is too long to wait.  As a new graduate I will make $50k per year plus benefits.  I am 100% positive my husband will find a job at least making $50k per year as well.  Plus, he has 11 months to find a job.  He looks much younger than 55, he's physically fit, attractive, and an incredible salesperson.  He just lacks confidence and a little faith.  I've got enough for both of us though.

We want to move to Tampa Florida, because my family lives there.  We lived there many moons ago and were transferred to Atlanta when I was just 2 months pregnant.  We're so ready to get back to some sun and beach time.  We already know that Florida is more expensive in many ways than Atlanta, but we will find other ways to save.  We know exactly where we want to live and he would rather buy a home now.  There are some great deals for veterans that he qualifies for too.  I thought renting would be a good idea for the first year, but I will probably not win that battle.  Our price range for a home is $250k.  Ideally we would find a foreclosure for $200k or less and he could fix it up.  That is what we did here in ATL.  We got the most run down house in the best area for $160k and my husband did all the work, new bathrooms, kitchen, floors, siding, landscaping, you name it.  He's a little tired of being a fixer upper man and is really wanting a move in ready home next time.  The mortgage in my budget below reflects numbers based on living in Tampa, FL, in a $250k home.

Other info:  ATL is a car centric area.  We live in the suburbs and we can't get around without driving.  It's a must.  Tampa is going to be the same.  We want to live in the best school district and we will both have to drive.  We do love rollerblading, walking, jogging and biking and will do that when we are home in the evenings and weekends.  I can't tell you how excited we are to get back to the beach fun on the weekends too.  The good thing about the area we will move to in Tampa is that nothing will be so far away, but we will still need to drive.  I wish it was more like Longmont, CO, but it just isn't.  Also, I will have a $20k student loan to repay in about a year.  If we both have jobs that pay $50k per year, I estimate we will bring in around $6000k per month.  I don't see how we will need the pension or the 401k right now, unless, like I said, he wants to retire early.  Is it doable for him to take that road?  Thank you in advance for your help!

MiloG family spending (car insurance will probably go up in FL)

Mortgage   1568 includes p&I, taxes, insurance and hoa
Car    343
Both Car Insur.    93
Both Car Gas    70
Garbage   0 included in Mortgage
Cell phone   145
Water   40
TV/Internet   88 includes netflix
Credit cards   350 will be paid off when we sell the house.
Gas/Elec   250
Health Insurance   0  unless he can't find a job
Medical copays   120
Prescriptions   40
Food   700
Entertainment   200
Misc 100
Life Insurance   62
Child Sports   100
Child Allowance   80
Child College   100 (child has $20k in her 529 account for college so far.  she will go to an in state university to save there too)
TOTAL    $4,099 spending per month

[Numbers Man]

Congratulations - By cashing out your pension you will basically have a federal tax bill of $112k, effectively wiping out about a third of your pension pay out. I'm not a tax expert, but I believe you have to be 59 1/2 to avoid the 10% penalty (sorry, I didn't feel like googling that). So your federal tax bill could be almost $150k with the penalty added on.

You're really lucky to get a severance for one year so you don't have to panic. Roll over your pension into an IRA at either a discount brokerage account like TDAmeritrade or a mutual fund such as Vanguard. These companies will do this for you. Just talk to them. You need to start educating yourself about investing as well. Move to Florida and start looking for a job and don't get caught up into buying a house with all cash. People tend to move again after they have relocated because they know the area better and usually find a house that better suits their lifestyle.

It's difficult to give anymore direction than what has been given without any knowledge of your monthly expenses.

[2Birds1Stone]

You might be on the wrong forum. If you want advice that is in line with your thinking maybe a doomsday prepper forum will give you what you want.

I would do some serious reading over on the Bogleheads forum.

For now, don't do anything....you are likely to regret an impulse decision made on an uneducated whim.

[Gone Fishing]

What does your current spending look like?

Have you looked at houses in FL? What do you think you will need to spend?

Whatever you do, do not take the 401(k) all at once, but instead take it over a period of time to reduce your tax expense by managing your tax bracket.  You trusted the banks and Wall Street to this point, trust them a little longer so you don't give 30%+-of it to the IRS.  If you are worried about the economy the best thing you can do right now is make sure your asset allocation is appropriate for your goals and  your personality.   50/50-60/40 stocks and bonds would probably not be a terrible place to start.

If you can make the budget work, I would not sweat taking out a mortgage at today's rates.

You certainly have options but the wildcard in all of this is what type of income you can generate once you get to FL.  If you keep your expenses low enough you could possibly retire on what you have, it just all depends on your spending...   

[ltt]

There are people here who will give you a lot better advice than I will.  I say.....leave your 401k intact and allow for growth.  You are going to get hit with the 10% penalty tax, as well as federal income tax.  If your 401k is in a solid company, I'm not trying to be naïve, but I would think you would be okay.  You have 4-4/12 years before you can start drawing down--I wouldn't take that big of a hit on taxes. 

You have $100k equity in your home.  If you are dead set on paying cash for your home and are planning on moving to Florida, why don't you rent, either there or where you are, until your home sells, and then use the money from the sale of your home to purchase another home.

What are the rules regarding your company's pension??  $354k is a lot.  If you take $1,600 per month, is that guaranteed for the rest of your life, or does that payment, should something happen to you, pass on to your wife??

[Gone Fishing]

Roll over your pension into an IRA at either a discount brokerage account like TDAmeritrade or a mutual fund such as Vanguard.

Hold off on any rollover for now until you decide what you are going to do.  As you pointed out, you  qualify for the 55 exception.  I believe rolling it over would disqualify you.

[Bob W]

Not sure I would buy a house initially.   Plenty of people move to Florida only to decide to move out.   

Take a breath,  take it slow.  Do some reading.   Pay $400 to speak with a CPA/Tax attorney it will be well worth it.   Your 700K net should yield in the area of 40K at least until age 62.   

Besides,  you will probably be employed and your wife will be as well so there is a good chance you may not even touch the investments.

I often council against buying homes.  They are dreadful investments in general and stones around your neck at worst. 

And definitely live within your means.    You may need to downsize you thinking a bit and this may cause a bit of a discussion between you and the wife.   Keep it cordial and positive.   

[2ndTimer]

I want to echo BobW.  Slow down.  You have just experienced that equivalent of a death in your family in terms of stress and   your brain is bound to be a little skewed by that.  Find a good CPA, preferably one recommended by a friend and have a nice long talk.  Then go home and think some more. 

[TexasStash]

Agree with other poster who pointed out a visit to a CPA or tax attorney would be money well spent in your case.

My personal thoughts:

1. Don't cash out the 401k. Even with an exception to the 10% penalty, between the $360k 401k and the $85k severance, you're going to be paying top tax bracket rates on almost all of that 401k (25% to 35% tax rates). Because you're 55, you have less than 5 years of waiting until your 401k would again be not subject to the 10% penalty, and at that time you could benefit from 4 more years of possible growth plus withdraw over time and keep yourself in the 10-15% tax bracket for 401k taxes. Especially if you're using that money for the house, I would rather pay the 4% on the mortgage and save potentially 10% by being in a lower tax bracket than sacrifice the 10% just to avoid the 4% mortgage.

2. Take the $1600 per month annuity on the pension, particularly if you're back to reasonably good health and if there is any benefit to your wife if you die suddenly in the next few years. I am least knowledgeable about pension options, so take this one with a grain of salt.

3. Between $85k severance, $15k in the bank and $1600 per month annuity you ought to be able to manage pretty well for the next 4.5 years till 401k kicks in. Especially if your wife indeed gets a $50k job in 16 months and you have job prospects. Obviously this depends on how much you spend each year as well, but you should be able to make all of that work without touching the 401k or house equity.

4. Use the next couple of months to decide on the Florida move and how it will happen if you do. Don't rush it.

5. You have to trust the banks, financial institutions etc at least a little bit. It's not a perfect system but it's the one we have, and the risk of putting your head in the sand so to speak is not zero either. Hard to keep up with inflation by sticking money in the "safest possible" places. Diversify yourself, stick to FDIC-insured accounts for your cash, go with trusted names like Vanguard, and don't buy into individual stocks or isolated, unique investments and you should be fine.

6. Consider using your 401k to delay your SS as much as possible. Wait at least till the full retirement date (66?). The difference in monthly income will be worth it.

[GizmoTX]

Agree with other poster who pointed out a visit to a CPA or tax attorney would be money well spent in your case.

My personal thoughts:

1. Don't cash out the 401k. Even with an exception to the 10% penalty, between the $360k 401k and the $85k severance, you're going to be paying top tax bracket rates on almost all of that 401k (25% to 35% tax rates). Because you're 55, you have less than 5 years of waiting until your 401k would again be not subject to the 10% penalty, and at that time you could benefit from 4 more years of possible growth plus withdraw over time and keep yourself in the 10-15% tax bracket for 401k taxes. Especially if you're using that money for the house, I would rather pay the 4% on the mortgage and save potentially 10% by being in a lower tax bracket than sacrifice the 10% just to avoid the 4% mortgage.

2. Take the $1600 per month annuity on the pension, particularly if you're back to reasonably good health and if there is any benefit to your wife if you die suddenly in the next few years. I am least knowledgeable about pension options, so take this one with a grain of salt.

3. Between $85k severance, $15k in the bank and $1600 per month annuity you ought to be able to manage pretty well for the next 4.5 years till 401k kicks in. Especially if your wife indeed gets a $50k job in 16 months and you have job prospects. Obviously this depends on how much you spend each year as well, but you should be able to make all of that work without touching the 401k or house equity.

4. Use the next couple of months to decide on the Florida move and how it will happen if you do. Don't rush it.

5. You have to trust the banks, financial institutions etc at least a little bit. It's not a perfect system but it's the one we have, and the risk of putting your head in the sand so to speak is not zero either. Hard to keep up with inflation by sticking money in the "safest possible" places. Diversify yourself, stick to FDIC-insured accounts for your cash, go with trusted names like Vanguard, and don't buy into individual stocks or isolated, unique investments and you should be fine.

6. Consider using your 401k to delay your SS as much as possible. Wait at least till the full retirement date (66?). The difference in monthly income will be worth it.

+1

Also, in 4.5 years, your child should be moving out part or full time. The house & location you choose now may not be what will work for you as an empty nester, which is another argument for renting first. If your child will be attending a state university, it may make sense to locate in a state that provides the best university choices (to qualify for in-state tuition), or plan on having your child do deferred enrollment & then live & work there for a year.

[Gone Fishing]

Thanks for all the extra info Mrs. Milog!

This is what I would do:

Leave the 401(k) where it is.  If hubby doesn't like the market, going in 50-80% stocks right now is likely to give him heartburn, maybe try for an income fund or target date fund in the 2020 range.  Should yield a little better than a money market without the swings of a stock heavy allocation.  Baby steps.   
Trim Budget where appropriate.  (food, cable and cell phone are easy targets)
Use severance for living expenses.
Sit tight in ATL until you are done with school.
Find some temp/part time work or even volunteer work for hubby in the meantime to prevent grief spending and to bring in a little cash.
After graduation, find a job in Tampa.
Don't get too hung up on school district.  Second or third best would probably be just fine-Read this http://rootofgood.com/bad-schools-are-okay/
Rent apartment in desired school district on 6 or 12 month lease
Find Milog a job
Buy desired home after having time to shop around and relearn the area.

Severance and cash on hand should be enough to get you close to 24 months down the road.  If nothing has panned out by then, start the pension (monthly payment should be a bit more by then) and draw 5-6% off of the 401(k) to make ends meet (should be bigger by then as well) which while not preferable would probably be okay until hubby can start SS. When SS starts, drop back to 3-4% withdrawals if needed.

Sounds like you have a pretty good handle on things, good luck!   

[Zamboni]

Egad, don't cash out your 401k!!!  Losing a job is traumatic at any time but especially if it coincides with a health issue.  Go ahead and plan some different options on paper, but don't pull the trigger on anything yet.

Seriously, milog, it sounds like you've got a great shot at getting another good job if you want one.  Take your graduation years off of your resume and no one will even realize your age, especially with you having a 13 year old child.  The question is, do you want one?  Take some time right now for yourself to relax, spiff up the current homestead, work on a hobby or project, etc. At some point you might feel ready to go back to work, but heck you've got nearly a year to figure that out before you need to do anything.

[RexualChocolate]

Drop the doomsday mentality. "Not trusting corporations and wall street" is letting ignorance determine your investing path.

http://www.mrmoneymustache.com/2012/10/03/the-practical-benefits-of-outrageous-optimism/

You can decide to think the world is going to end (hey, it might), but isn't life better when you don't? For all of modernity's faults, we are living in the best time in human history.

Slow down a bit and work out a plan. If you guys keep your spending to 4k/month and SS + pension is 3600, you can relax. There are plenty of jobs available for a good salesman at 55 all over the country, with his good track record he'll get something in no time. Especially if he uses the network he built over 16 years.

[teacherwithamustache]

I think the big problem/issue here is getting the husband to go get a job.  Be supportive and tell him a job does not have to equal 120K a year.  With you going back to work (my guess is you are going to be a teacher) he can just make 50K and you should be alright.  The other big expense down the road is college for your daughter.

Wait as long as you can on pension and withdraw from 401K.  30 percent growth over next 5 years will go a long way in supporting your retirement.  If husband can bring in 40-50K a year you should be fine with you bringing in 50K as well.

[fields]

Following. Hope you'll continue to post as you make decisions.

[milog]

I first want to thank all that have replied.  Yes I'm fucking depressed.  In 2014 I had to endure two surgeries and our family was involved in two automobile accidents of which we were not at fault.
The surgeries and time off for over a year at home and with nothing to do but take an injured wife and daughter to doctor visits, including my own and putting out nearly a $1,000.00 a MONTH in copay's for deductibles and such really really sucked the money and the life out of me.  Not to mention two law suits just to try and get our medical bills paid.  did I fucking mention I lost my position and territory with the company.  Ok God is great and I'm thankful that I have a 401K and pension and some assets, but juggling the loss of steady income is and has been trying.  Yes I have been paid with short and long term disability and now will receive a severance but it will only last so long.  I do need to get a job and get active and productive as a member of society.  As far as not trusting the great money machine, are you serious?  I work for a company whose CEO makes more than god and even though I have been blessed and fortunate to make a good living, with hard work and dedication, blah blah blah. The economic balance in this country is for shit.  Go ahead call me a liberal,  my friend did the other day and wanted to throw me out of his truck.  I think of myself as a liberal conservative.   I heard a story the other day when looking at some property. The development was called Cumberland Harbor, in Saint Marys, Ga.  Beautiful but belly up. I was told that Duke energy took excess money and during the boom bought land and started housing communities.  When the economy hit the shit, they the board of directors said lets get rid of the unprofitable ventures and keep the strong stuff.  Well now the little town of Saint Marys, Ga may file chapter 8. They can not pay for the new development, infrastructure, fire station and all the other expenses a small town would face when the big guy pulls out.  Now what money was Duke energy playing with, you got it yours and mine, the profits from electricity bills.  So yes when the housing bubble hit the fan and 401ks went to 201Ks it will happen again.  The new one to watch out for is the college debt fiasco.   Trillions waiting for the hit.  Colleges started coming up with bogus degrees so kids could say they went to college.  But poor Johnny and Sally can not pay anything back, because all the jobs at McDonald's are taken and nobody else is hiring.   

Ok,  I will slow down,  Talk with a CPA, try and get a job and possibly rent for a while.  God bless and thanks a million.

Uh, er well that was a fun read...Mrs Milog here.  I apologize in advance for all my husband's TMI and ranting.  Well, as I said, he's not the most confident and positive person around....LOL!  I don't worry about all the stuff he does.  Hint - he watches the news and I do not.  He makes some points, but I have to think positive.  He's a great guy and not all doom and gloom.  We'll be fine, he'll get a job, I will too after school, my little daughter will get a degree and do the same.  It's all good.  He'll get out of this funk, partially at least, though we have had a tough run, he always has a little doomsday in him.  Haha!  God Bless America!  Maybe I will change his screen name to MR Dooms?  MR FML?  MR Life Sucks?  MR Screw it all? :-)

[Zamboni]

:-)  Love how you are calling it like you see it.

You two are definitely yin and yang; balance in all things.

[DanielleS]

Hi both of you, you're making me lol with your posts!!!

To the wife: good luck with your schooling and career! I hope you have a great time in your last year of college.

To the husband: hey, I had some major stresses with the similar type of job a while ago. I understand where you're coming from.... You had some major stresses in the past year, plus now you're at loose ends with perhaps too much time on your hands to worry :) My best advice is: slow down! Don't make any more major life decisions right now!

1. you're moving, which is great as you can cash out your equity. I 100% agree you should rent. Rent someplace nice enough that you are not feeling like you're sitting in a dungeon, but it doesn't have to have everything you've ever wanted because it will be temporary.
2. you're going back to school (wife :) ) and so you should just put all your energy into that. Perhaps both of you should think of this next year as a sabbatical for the husband. Then again, if he is just going crazy with stress because of no income, it may be better for him to take a job sooner rather than later.
3. you have plenty to live on for the next year with the severance. Don't do anything rash like cash out money for which you HAVE NO NEED!! Just get yourselves together after the move, go to school, get accustomed to your new lives, then move on. Even with only one of you having a job, you'll be able to live off the salary. With both of you having jobs, you'll be able to save so much $$.

As someone who wishes she would have had this advice about 6 years ago: don't do anything spur-of-the-moment, or as a reaction to stress. You both admit it's been a stressful year, so now is the time to give yourselves a break and let yourselves destress. Stress does crazy things to our brains. If you let yourselves get back to a more sane lifestyle and relax, another option that you may not have thought about will occur to you.

[RexualChocolate]

As far as not trusting the great money machine, are you serious?  I work for a company whose CEO makes more than god and even though I have been blessed and fortunate to make a good living, with hard work and dedication, blah blah blah. The economic balance in this country is for shit.  Go ahead call me a liberal,  my friend did the other day and wanted to throw me out of his truck.  I think of myself as a liberal conservative.   I heard a story the other day when looking at some property. The development was called Cumberland Harbor, in Saint Marys, Ga.  Beautiful but belly up. I was told that Duke energy took excess money and during the boom bought land and started housing communities.  When the economy hit the shit, they the board of directors said lets get rid of the unprofitable ventures and keep the strong stuff.  Well now the little town of Saint Marys, Ga may file chapter 8. They can not pay for the new development, infrastructure, fire station and all the other expenses a small town would face when the big guy pulls out.  Now what money was Duke energy playing with, you got it yours and mine, the profits from electricity bills.  So yes when the housing bubble hit the fan and 401ks went to 201Ks it will happen again.  The new one to watch out for is the college debt fiasco.   Trillions waiting for the hit.  Colleges started coming up with bogus degrees so kids could say they went to college.  But poor Johnny and Sally can not pay anything back, because all the jobs at McDonald's are taken and nobody else is hiring.   

Ok,  I will slow down,  Talk with a CPA, try and get a job and possibly rent for a while.  God bless and thanks a million.

I don't disagree with some of the points you've made. There are absolutely bubbles being blown by the fed and the government (I saw an article announcing the rebirth of 0 down loans, here we go again). There are risks.

However, this is a very disjointed view of the economy. Yes- tectonic shifts are coming but there's also an unbelievable potential in this economy. Over a retirement horizon, who cares about the 401k? They only became '201ks' if you sold at the bottom. Sticking to an asset allocation means you would've been buying at the bottom, and seeing a >200% return over the last 5 years on your stock allocation. You can't focus on the downside risks and ignore upward potential. Staying all cash has a massive opportunity cost.