Financial planning with a pension

[futureapppsy2]

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Hi all,

Anyone have any tips for financial planning with a pension in the mix (VA folks?)? I still have three years to vest, but I am hitting my mid/late 30s and realizing that I have too little knowledge of if I'm where I should be financially. Anyone use a retirement/investment consultant? Was it worth it?

 

[Sanman]

Do you have an emergency fund? $1-5k if renting. $10k of you own a home.

Pension, like SS security I would consider the fixed income/ portion of your portfolio. In all likelihood, if they don't fix SS, your pension will simply bring you back up current levels.

1. Fund TSP to federal match (5%IIRC). Consider Roth TSP if your income is not too high.

2. Fund Roth IRA

3.Max out traditional TSP and IRA

4. Consider S&P 500, VTI /VTSAX, or VT for funds.

5. For TSP C, I, and S funds. Or you can consider date funds that will handle everything for you.

6. Rule of thumb, every $1 million you have will throw off about $40k for at least 30 years if not more.


Federal pension is years of service × high 3 salary × .01.

 

[WisNeuro]

If you're not all that financially savvy, and have no desire to be (nothing wrong with that) I do think it's a good idea to run your current assets and savings plan by a financial planner. Get a good one that works off hourly or project basis, you don't want a firm "managing" your assets and mostly just doing what you can easily do via Vanguard for a hefty percentage every year. Instead, have someone look at what you have, what you're doing, and let then come up with advice about what to do in the near and intermediate future. As long as things stay relatively stable, have someone re-evaluate in 5-10 years.

 

[Therapist4Chnge]

You'll likely want to find a fiduciary and not just a financial planner, as the former is legally required to do what is in your best financial interest, the latter can sell you whatever financial vehicles they want (read: make THEM the most money, not necessarily YOU the most money). One of my parents managed high net-worth clients with large trusts and the difference between that and financial planners was night and day.

Fiduciaries tend to be more expensive in that they usually charge hourly and are paid at time of service, but financial planners can just park your $$ in the best funds for them and they just siphon off a % for usually doing next to nothing.

 

[SchoolPsycho]

Echoing the above, the vast majority of people do not need to use an advisor that takes a percentage of any kind.

I have a pension (not VA). Sanman's plan is very good and basically what I do. If you want to learn more or want to manage it yourself (most people can), start at bogleheads and learn about the three fund portfolio. Get a sense of your risk tolerance and balance VTI, VXUS, and BND (or similar funds) accordingly. That's what goes in your accounts. I check mine a few times a year and otherwise don't pay any attention to it and let it grow.

 

[PsyDr]

This is fun:

1) envision your retired life IN DETAIL. Are you living in a house, apartment, RV? What specific state, and their tax rate? How are you spending your leisure time? Are you traveling, taking classes, sitting on the couch, golfing, staying involved in some hobby? What are your social supports? Are you married, single, a grandparent? Is your spouse working, retired, contributing to the situation, etc? How many trips are you taking? How likely are you to need a nursing home, and at what age? Who is taking care of the household when you’re 85, because you’re not mowing the lawn at that age. Where are you being interred, or cremated. Get some real numbers associated with those expenses, then calculate the cost with inflation. Hint: out of pocket medical expenses were $225k…. 10 years ago.

2) Read the actual terms of your pension. Every single line. What are the terms? Are there any catches? Do you pay income tax on it? What are the fees? Does it end? If you “pre-decease” your spouse, does he get anything? Will your pension F up Medicare, ala IRMA?

3) Go get your estimated ssa retirement numbers from the ssa website.

4) get your life expectancy from the cdc.

5) what are your goals for money? Do you want your kids to get something? Do you just like thinking of yourself as someone with money? Do you want to leave a private island to someone? Do the entire thought exercise of “if I received $10MM, what would I do with it?”.

That should give you a way to quantify what you’ll need, what you’ll have, and for how long. A general rule of thumb is that you should have one year's income in retirement at age 30 or 40 or something. Another rule of thumb is that money doubles every 7 years, when you're making 7% interest.

I'd also look into Warren Buffet's recommendations to his "wife". IIRC, he recommended that she convert everything to Vanguard index funds.
I'd also look into "Boglehead lazy portfolio".
Read about capital gain taxes, and think about how that could affect things like an IRA.
Stay away from options, and margins. Especially uncovered options.
Crypto is a literal pyramid scheme, limited to 21MM coins ever.
Personally, I would not touch the bond market right now.

Right now I'm long gold.

 

[AcronymAllergy]

Second/third the recommendations for a financial planner (e.g., CFP). Some of them are also financial advisors. I wouldn't say you need to universally avoid planners/advisors who earn commissions, and even many of those who earn commissions are also fiduciaries, but at the very least you need to consider their fees when evaluating your portfolio's performance. Just having a meeting or two with a financial planner could help. The commissions come into play more if they're the ones investing and managing your portfolio. If they're charging hourly, it's probably okay, but they also should always tell you what their fees are if you ask (and if they have any).

Also second everything PsyDr said, depending on how involved you want to get.

Personally, although I usually include SS in my calculations, I also run it without. Because government. If it's not "my" money, I don't want to fully plan on having it. But I also don't realistically think SS is going to totally disappear regardless; they may just reduce the benefit and extend the full retirement age further. And keep in mind that the SS benefit you get from their website is an estimate based on you continuing to work (and contribute) at your current salary until retiring, not based on what you would get if you retired today. However, I do think the estimated disability benefit is based on if you began drawing that immediately.

The VA pension is pretty easy to calculate on a rough level. It's basically 1% of your "high three" salary years (unless they've changed it to high five) for every year of service. So if you work 20 years and your high three average is $100k, that's $20k/year. I think it bumps up to 1.1% per year once you hit 30 years. That can give you an idea of how much you'll get each month so you can plan what your monthly income will be vs. what it needs to be (e.g., how much you'll have with the pension + maybe a 4% withdrawal from anticipated retirement accounts + SS vs. what your anticipated expenses will be).

It's an annuity, so it's paid until death I believe. I think you can specify survivorship or not once you prepare to start drawing (i.e., take a lower payment for yourself to allow a portion, maybe 50%, to pass to your spouse upon your death). If you separate from VA before drawing the pension, you can decide if you want to take the portion you've invested with you (e.g., to roll into a traditional or Roth IRA), or if you want to leave it with VA and start drawing it when you reach retirement age.

Edit to add: I'm no expert, and most of the other people in this thread know much more about this than me.

 

[WisNeuro]

Second/third the recommendations for a financial planner (e.g., CFP). Some of them are also financial advisors. I wouldn't say you need to universally avoid planners/advisors who earn commissions, and even many of those who earn commissions are also fiduciaries, but at the very least you need to consider their fees when evaluating your portfolio's performance. Just having a meeting or two with a financial planner could help. The commissions come into play more if they're the ones investing and managing your portfolio. If they're charging hourly, it's probably okay, but they also should always tell you what their fees are if you ask (and if they have any).

Also second everything PsyDr said, depending on how involved you want to get.

Personally, although I usually include SS in my calculations, I also run it without as well. Because government. If it's not "my" money, I don't want to fully plan on having it. But I also don't realistically think SS is going to totally disappear regardless; they may just reduce the benefit and extend the full retirement age further. And keep in mind that the SS benefit you get from their website is an estimate based on you continuing to work (and contribute) at your current salary until retiring, not based on what you would get if you retired today. However, I do think the estimated disability benefit is based on if you began drawing that immediately.

The VA pension is pretty easy to calculate on a rough level. It's basically 1% of your "high three" salary years (unless they've changed it to high five) for every year of service. So if you work 20 years and your high three average is $100k, that's $20k/year. I think it bumps up to 1.1% per year once you hit 30 years. That can give you an idea of how much you'll get each month so you can plan what your monthly income will be vs. what it needs to be (e.g., how much you'll have with the pension + maybe a 4% withdrawal from anticipated retirement accounts + SS vs. what your anticipated expenses will be).

It's an annuity, so it's paid until death I believe. I think you can specify survivorship or not once you prepare to start drawing (i.e., take a lower payment for yourself to allow a portion, maybe 50%, to pass to your spouse upon your death). If you separate from VA before drawing the pension, you can decide if you want to take the portion you've invested with you (e.g., to roll into a traditional or Roth IRA), or if you want to leave it with VA and start drawing it when you reach retirement age.

Edit to add: I'm no expert, and most of the other people in this thread know much more about this than me.

Personally, I'm only using 50% of what my SS says I'll get when I make my future financial planning decisions and plans. I also think it'll be around in some capacity, but I think it's a near guarantee that it will not pay out near 100% of benefits by the time we retire.

 

[Sanman]

Second/third the recommendations for a financial planner (e.g., CFP). Some of them are also financial advisors. I wouldn't say you need to universally avoid planners/advisors who earn commissions, and even many of those who earn commissions are also fiduciaries, but at the very least you need to consider their fees when evaluating your portfolio's performance. Just having a meeting or two with a financial planner could help. The commissions come into play more if they're the ones investing and managing your portfolio. If they're charging hourly, it's probably okay, but they also should always tell you what their fees are if you ask (and if they have any).

Also second everything PsyDr said, depending on how involved you want to get.

Personally, although I usually include SS in my calculations, I also run it without as well. Because government. If it's not "my" money, I don't want to fully plan on having it. But I also don't realistically think SS is going to totally disappear regardless; they may just reduce the benefit and extend the full retirement age further. And keep in mind that the SS benefit you get from their website is an estimate based on you continuing to work (and contribute) at your current salary until retiring, not based on what you would get if you retired today. However, I do think the estimated disability benefit is based on if you began drawing that immediately.

The VA pension is pretty easy to calculate on a rough level. It's basically 1% of your "high three" salary years (unless they've changed it to high five) for every year of service. So if you work 20 years and your high three average is $100k, that's $20k/year. I think it bumps up to 1.1% per year once you hit 30 years. That can give you an idea of how much you'll get each month so you can plan what your monthly income will be vs. what it needs to be (e.g., how much you'll have with the pension + maybe a 4% withdrawal from anticipated retirement accounts + SS vs. what your anticipated expenses will be).

It's an annuity, so it's paid until death I believe. I think you can specify survivorship or not once you prepare to start drawing (i.e., take a lower payment for yourself to allow a portion, maybe 50%, to pass to your spouse upon your death). If you separate from VA before drawing the pension, you can decide if you want to take the portion you've invested with you (e.g., to roll into a traditional or Roth IRA), or if you want to leave it with VA and start drawing it when you reach retirement age.

Edit to add: I'm no expert, and most of the other people in this thread know much more about this than me.

FERS pension does not have an ongoing spousal benefit until you have 10 yrs of service. Until then, spouses get a lump sum death benefit payment (50% annual salary + $ 43,800). After 10 years, options are 50% survivorship for 10% reduction in payout and 25% for a 5% reduction).

 

[Sanman]

Personally, I'm only using 50% of what my SS says I'll get when I make my future financial planning decisions and plans. I also think it'll be around in some capacity, but I think it's a near guarantee that it will not pay out near 100% of benefits by the time we retire.

I think the calculations said 81% starting in 2033 based on taxes. At that point, we will have to see. We have another 20+ years with a decreasing population and tax base before most of us will collect.

 

[WisNeuro]

I think the calculations said 81% starting in 2033 based on taxes. At that point, we will have to see. We habeanother 20+ years with a decreasing population and tax base before most of us will collect.

What are you talking about? Trump accounts and possible laughably small incentives that won't even pay for the hospital stay are going to totally reverse the birth rate decline! It doesn't matter that these things like this have been tried before and didn't work, it'll work this time!

 

[PsyDr]

Also, look at the other side of the equation: Understand and stabilize your expenditures. You can run through $50MM in savings, just as easily as running through $50k. If the USD loses value, you'll be thankful to have your expenses "locked in".