Author Topic: Cash out my husband's old retirement plan or wait?  (Read 2495 times)

Merrie

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Cash out my husband's old retirement plan or wait?
« on: May 25, 2015, 12:11:11 PM »
Last year my husband got the boot from his college teaching job. We think it's unlikely he'll return to full-time teaching for a variety of reasons. He might go back part-time in the future. For now he is a stay-at-home dad and I am the breadwinner. We haven't yet divested from the state teachers' pension fund; cashout value is about 48k (this is actually as of last year so there may be a bit more interest accrued now) and he has 6.6 years of service in the system. He is entitled to cash out his own payments (29k), interest (2k), and an additional contribution from the fund of 50% of the total of payments and interest. If he left the money there and didn't work another day as a teacher, he would draw a 4k/year pension at age 60. Obviously if he later works more that pension amount would be greater. Additionally, for 27-30 months after his employment ended, our kids (both under 4) qualify for a survivor benefit if anything happens to him, of about 20k/year between the two of them and then 12k/year once the big one is 18 and the little one is still a minor. As far as I can tell the fund doesn't earn a very good return rate, not more than 3-4% or so (I looked it up but now can't remember) and we can't choose our own investments.

With all this in mind, what do we do with this fund?

1. Cash out now and invest ourselves. We lose the option of the pension and survivor benefits, but my husband is about to be 38 and is pretty healthy; what are the odds he'll kick the bucket in the next year? If he works again later on, nothing stops us from cashing out again at the end of that time period.
2. Wait a year to cash out until we no longer qualify for the survivor benefits. We'd lose out a years' worth of interest (less however much it would have earned in the fund) and the compound interest on that amount for the years to come. Also waiting a year will give us a better sense of when/if/for what workload he might go back to work, and we'd have the option to make a different decision if our situation changes, but I don't think it will.
3. Keep the money invested with them and either draw the pension down the line for whatever amount or cash out when he stops working for good. I don't think this is the best option but I include it for the sake of completeness.

Unless he later works in the private sector, he won't qualify for Social Security except as a spouse. I'm not sure if he'll qualify a medical plan through STRS but he'll qualify for Medicare as a spouse.

I'm on the fence between options 1 and 2. Thoughts?

(When I say "cash out" I obviously mean "reinvest in a tax-deferred fund", not "spend it on something".)

Gin1984

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Re: Cash out my husband's old retirement plan or wait?
« Reply #1 on: May 25, 2015, 12:29:58 PM »
I'd say none of the above.  Keep it in the pension as another level of diversification. 

forummm

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Re: Cash out my husband's old retirement plan or wait?
« Reply #2 on: May 25, 2015, 12:37:04 PM »
Is the pension $4k/year in today's dollars (inflation indexing), or 2037 dollars (no inflation indexing)?

Do you want bonds in your portfolio at this time?

Merrie

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Re: Cash out my husband's old retirement plan or wait?
« Reply #3 on: May 25, 2015, 12:52:56 PM »
Is the pension $4k/year in today's dollars (inflation indexing), or 2037 dollars (no inflation indexing)?
I honestly can't tell. My guess is 2037 dollars because there is another section that talks about retirement scenarios, % of final salary that one can expect to earn, etc. and that section includes an inflation-increased projection for salary at that time in comparison to the projected benefit, with no notes about that projected benefit being in today's dollars.
Quote
Do you want bonds in your portfolio at this time?

Why would I? That's a serious question. I do not see a good reason for it; we are still 20 years or more out from retirement. But if there's a good reason I'd consider it. Currently everything other than this fund is in stocks.

Merrie

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Re: Cash out my husband's old retirement plan or wait?
« Reply #4 on: May 25, 2015, 12:54:03 PM »
I'd say none of the above.  Keep it in the pension as another level of diversification.

What is the rationale for this? It seems to me like a pretty low return (albeit a guaranteed one) given the $ invested. But I'm far from an investment expert and am open to learning more. 

forummm

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Re: Cash out my husband's old retirement plan or wait?
« Reply #5 on: May 25, 2015, 01:37:07 PM »
Is the pension $4k/year in today's dollars (inflation indexing), or 2037 dollars (no inflation indexing)?
I honestly can't tell. My guess is 2037 dollars because there is another section that talks about retirement scenarios, % of final salary that one can expect to earn, etc. and that section includes an inflation-increased projection for salary at that time in comparison to the projected benefit, with no notes about that projected benefit being in today's dollars.
Quote
Do you want bonds in your portfolio at this time?

Why would I? That's a serious question. I do not see a good reason for it; we are still 20 years or more out from retirement. But if there's a good reason I'd consider it. Currently everything other than this fund is in stocks.

If it were 2015 dollars, that would be a pretty nice pension to keep. For diversification, it could be a good idea. But $4k isn't very much in 22 years if it's not adjusted for inflation.

If you wanted to have $50k in bonds right now, this sounds like an idea way to hold those funds. But since you don't that motivation isn't there. Some people like having bonds even 20 years out from retiring. I'm not one of those.

I'm leaning towards keeping it at least a year to continue to have that insurance that comes with it. At that time, maybe you'll have a better sense of whether he'd go back to teaching at any point in the future (say after the kids are 18, or once they are into high school, or whatever). I assume he could teach or sub for a K-12 school and be part of the same pension program too. I have a relative that subbed occasionally. It's a nice flexible job and brings some money and some variety to life.