Checkman, that's not a "no brainer" so here are some things to consider: a pension at least guarantees you a certain amount of income - but it does not go up by inflation, and it goes away at your death (unless you have a spouse who can continue the benefit) - so, for example your kids won't get the balance. Taking the lump sum (and rolling it into an IRA) then means that you are responsible for investing it for the long term - and you have more flexibility with occasional withdrawals if needed from time to time. So, you might want to consider leaving some of the money in the pension, and investing the rest - to have some guaranteed income, and also a pool of money that will keep up with inflation and can be passed to heirs or your spouse.
Checkman: Usually it's better to take the pension instead of a lump sum. If you take the lump sum decide whether you will invest, not spend immediately the money. Will your investment do better than the pension over time.
Checkman, I agree with Katherine. I've seen too many clients blow through a lump sum if they can't control their spending, or because of emergency needs.
Checkman: Can you buy an annuity in the private marketplace with a higher payout than the pension? You can check that by getting quotes for immediate annuities. If not, will the pension be subject to the credit of your employer? Are you OK with that? If the answer is "maybe", a compromise is to take the lump sum and leave it very conservatively invested. You can always buy an annuity or a series of annuities over time.
Tannon: You are pretty diversified with those funds. I do find some folks just like to follow and buy certain stocks; if you feel you want to have a stock fund it certainly is ok. You will have to watch the stocks closer than the mutual funds and that's what many people don't want to be bothered with.
Tannon: if you want to buy individual stocks, you might put them in a separate account and consider them to be your "science experiment." I feel that adding individual stocks to a mutual fund portfolio adds concentration, not diversification, so be careful out there!
Tannon, It sounds like you have a great start. You have your stock exposure through funds, there is no need to buy individual stocks as an investment strategy. The Total Stock Market funds generally are dominated by Large Cap stocks. Over time, you can consider adding US and Intl. Small Cap companies. Within bonds, it would be wise to dradually diversify into Intl Bonds and TIPS over time. Vanguard is the king of low-cost investing and now has funds in all the areas I mentioned. There are lots of other options as well.
Just want to make sure everyone saw checkman's follow up below
Tannon: Before you add an international bond fund to the mix look at the break out of types of bonds in the total bond fund. It's possible you already hold international bonds.
Here's another from wreckon:
Checkman, check out the expense ratios at Vanguard. They are as low as is available but give you an idea of what is possible.
Checkman, Adam makes a good point. But actively managed funds will be more expensive than index funds such as many of those at Vanguard.
Though that is an option I wouldn't necessarily recommend it. You could increase your contribution to the Roth 401k.
Wreckon, consider this: are you willing to pay taxes out of current resources to cover the income tax on the conversion? And the conversion will increase your taxable income for that year.
Judi, we have a real dilemma due to our current economic situation: the rates on "safe" savings (liquid and insured) are practically zero right now. To do even slightly better (such as , in a short term bond fund) requires taking more risk than you would want to incur for liquid savings. If and when interest rates rise, you are better off in your low paying liquid account, as the rate will go up but your balance won't be affected. A bond fund will likely experience a decrease in value if interest rates go up rapidly. So, we just have to hang in there and live with these low returns.
Adam had to duck out. Pat, Katherine or Delia, any thoughts for Judi?
You could look at www.bankrate.com to see if there are higher yielding savings accounts.
Judi, I agree with Pat. There are other online FDIC-insured savings accounts that pay up to 0.90%, but that's the best you're going to find right now. Try Barclays savings US or Sallie Mae.
Pebble, I prefer to roll over the 401k so you can have more investment options with lower fees. Remember that there are expenses involved in a 401k that employers often pass along to their employees.
Pebble, I agree with Delia. Firms like Vanguard and T. Rowe Price will be happy to help you make the rollover.
What about rolling 401(k)s from previous employers into those of one's current employer. Any pros or cons you guys can think of there?
It would be good to review the investment options and let that be the guide. Some 401k plans have a good selection of investment choices with low fees.
K - this would depend on the quality of the current employer's plan - and wow, they can vary wildly.
Craig, if you have other investments, I sometimes like to keep those older annuities at great interest rates. You won't find them anymore. Of course, the insurance company hopes you transfer it out...
Craig, then I would keep the money there earning 4% until interest rates come back up to offer you a competitive rate outside of the annuity. Take advantage of that legacy high interest rate.
Checkman, that's not a "no brainer" so here are some things to consider: a pension at least guarantees you a certain amount of income - but it does not go up by inflation, and it goes away at your death (unless you have a spouse who can continue the benefit) - so, for example your kids won't get the balance. Taking the lump sum (and rolling it into an IRA) then means that you are responsible for investing it for the long term - and you have more flexibility with occasional withdrawals if needed from time to time. So, you might want to consider leaving some of the money in the pension, and investing the rest - to have some guaranteed income, and also a pool of money that will keep up with inflation and can be passed to heirs or your spouse.
Checkman: Can you buy an annuity in the private marketplace with a higher payout than the pension? You can check that by getting quotes for immediate annuities. If not, will the pension be subject to the credit of your employer? Are you OK with that? If the answer is "maybe", a compromise is to take the lump sum and leave it very conservatively invested. You can always buy an annuity or a series of annuities over time.
