Managing Lump Sum Payout

Summary

Podcast Summary: Managing Lump Sum Payout Jill on Money with Jill Schlesinger | December 7, 2024

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Introduction

In the December 7, 2024 episode of Jill on Money with Jill Schlesinger, host Jill Schlesinger, CFP®, delves into the complexities surrounding managing a lump sum payout from an early retirement package. The episode features a detailed conversation with Anthony, a 61-year-old caller from New York, who navigates the challenges of transitioning into retirement earlier than anticipated.

Caller Profile: Anthony’s Financial Landscape

Anthony reached out to Jill with concerns about managing a significant lump sum payout received from his early retirement package. After 33 years of service, Anthony felt unprepared for retirement but accepted the package as the financial numbers seemed favorable. His financial portfolio includes:

• IRA Rollover: $1,361,000
  • Pension Lump Sum: $926,000
  • Deferred Compensation & Severance: $435,000
• 401(k): $871,000
• Wife’s TDA: $340,000
• Wife’s Pension: $60,000 annually
• Cash & Money Market: Approximately $1.271 million

Anthony’s wife, a retired schoolteacher from New York City, benefits from a secured TDA with a 7% guaranteed return and comprehensive health care, adding stability to their financial situation.

Key Discussion Points

1. Readiness and Emotional Preparedness

Anthony expressed uncertainty about his readiness for retirement despite the favorable financial figures. He mentioned:

“I wasn't actually ready to retire, but the numbers seem to have worked.” [03:02]

This sentiment highlights the emotional and psychological challenges that accompany financial readiness.

2. Investment Hesitancy and Strategy

Anthony admitted a shift towards conservative investments over time, leading to his current hesitation:

“Somewhere along the line, I became very conservative and kind of just moved it all over and never went back in again.” [06:39]

Jill emphasized the importance of developing a comprehensive investment strategy to transform the lump sum into a sustainable income stream.

3. Financial Needs and Living Expenses

Anthony outlined their monthly living expenses, primarily driven by housing costs:

“Total monthly living expenses, total somewhere around maybe a little over $8,000... the half of that $8,000 or even more is actually just housing costs.” [07:11]

This breakdown underscores the necessity of a robust financial plan to cover essential expenses.

4. Housing Considerations

The discussion touched on the potential downsizing of their home to alleviate financial pressures:

“If you could find something, you know, for 600 grand that you would be happy in.” [08:22]

However, Anthony expressed challenges in finding a suitable new residence within the desired budget.

5. Health Concerns Influencing Financial Decisions

Anthony revealed a personal health concern that influenced his decision to take the lump sum:

“I inherited in finger quotes, a mutant gene that just predisposes me to cancer...I thought that was what made me take the retirement package.” [10:07]

This factor adds urgency to his need for a solid financial plan to ensure his family's security.

Insights and Recommendations

Engaging a Fiduciary Advisor

Jill strongly recommended that Anthony consider working with a fiduciary advisor to develop a tailored investment strategy:

“Having a fiduciary advisor would be helpful for you...for having some game plan that you guys can execute and that you feel comfortable with.” [12:05]

The advisor would assist in cash management, investment allocation, and overall financial strategy, providing both technical guidance and psychological support.

Developing a Cash Management Strategy

Jill emphasized the necessity of a robust cash management strategy to ensure liquidity for living expenses while growing the investment portfolio:

“You have to consider...you really need to have some strategy with that.” [13:00]

Psychological Confidence in Investing

Acknowledging Anthony’s emotional hesitancy, Jill highlighted the importance of building confidence through a well-structured plan:

“It could be a situation where having a fiduciary advisor would...give you the most comfort than anything else.” [12:30]

Conclusion

The episode concluded with Jill reiterating the importance of strategic planning and professional guidance when managing a substantial lump sum payout. Anthony’s case serves as a compelling example of how financial readiness is not solely about the numbers but also about emotional preparedness and having a clear, actionable plan.

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Notable Quotes:

• Anthony on Readiness: “I wasn't actually ready to retire, but the numbers seem to have worked.” [03:02]
• Anthony on Conservative Investing: “Somewhere along the line, I became very conservative and kind of just moved it all over and never went back in again.” [06:39]
• Jill on Fiduciary Advisors: “Having a fiduciary advisor would be helpful for you...for having some game plan that you guys can execute and that you feel comfortable with.” [12:05]
• Anthony on Health Concerns: “I inherited in finger quotes, a mutant gene that just predisposes me to cancer...I thought that was what made me take the retirement package.” [10:07]

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This episode provides valuable insights into the multifaceted nature of managing a lump sum payout, emphasizing the balance between financial strategy and emotional well-being. For listeners facing similar situations, the discussion underscores the importance of seeking professional advice and developing a comprehensive plan tailored to individual circumstances.

Transcript

[Jill Schlesinger]

Well, here it is. It is the holiday season. I know it snuck up on you and I know that there are a lot of competing forces for your dollars during the holidays. Which is why you may want to check out Klarna. Klarna is your smarter everyday spending partner for the holiday season. You can use Klarna's Pay in for product to split your purchase into four interest free payments. They've also got a new cash back feature that makes it easier for you to spend smarter and other products like the Klarna Card, the Klarna and new Klarna Balance. Choose Klarna at your favorite retailers or shop [e-mail] see a resident loans made or arranged pursuant to a California Finance Law License NMLS number 1353190 Klarna balance account required. Klarna may get a commission Limitations, Terms and Conditions Apply Here at Jill on Money, we're all about helping you get more for less. So here's a life hack that can automatically put some extra cash in your pocket. Discover will automatically double all the cash back you've earned on your credit card at the end of your first year with Cash Back Match so you could get some money for this holiday season and get more next holiday season. It pays to Discover. See [e-mail] creditcard welcome to the Jill on Money Show. It's Saturday, December 7th and we are here trying to help you make better or less bad or more considered financial decisions. If there's something going on in your life, a big change, then get in touch with us. By the way, maybe it doesn't have to be a big change. Maybe it's a small change. Maybe it's a little thing that's been nagging at you. Let us know. Go to jillonmoney.com click the contact us button. Write us that note. That's the email we receive. If you would like to join us on the air live, check the box and Mark will do everything else. It's really easy and we love having you on the air with us live. Now while you're on the website, don't forget, sign up for the free weekly newsletter. It comes out every single Friday and I'm making a big push. I think that for the holiday season it is time for you to either buy a gift for yourself or buy a gift for someone else. Let's start with you. Why don't you subscribe to the Jill on Money live service for $35? That's about the smallest gift you're going to buy yourself this season, you will have access to four quarterly live webinars over the next 12 months, as well as the back catalog of the webinars we have conducted to date. Now, you want to buy something for someone else? How about the Great Money Reset? You know, that's my book, and it's a perfect gift for somebody who is looking at making some changes in their own lives. So all that is on our website, jillonmoney.com right now. Let's talk to Anthony, who's on the line from New York. Hello, Anthony. How are you?

[Anthony]

I'm fine, Jill. How are you?

[Jill Schlesinger]

Great. What can we do for you, sir?

[Anthony]

Well, I had taken a early retirement package that was offered to me. They call it early retirement, but after 33 years, I don't know how early that actually is, but I wasn't actually ready to retire. But the numbers seem to have worked. And so I took the package and I also took a lump sum pension option. And now I'm responsible for obviously growing that and turning that into maybe a monthly income at some point. And I'm a bit worried.

[Jill Schlesinger]

It's, it's, you know, it's a. The weird thing about the pension option is one of the reasons that often I'll say to people like, well, you know, do you feel comfortable managing the money? Because it is a pressure point. Right. Of creating that stream of income. What was the lump sum pension amount, Anthony?

[Anthony]

Well, the actual pension amount that I received was, was $926,000.

[Jill Schlesinger]

Wow. And so is that now in an IRA rollover account?

[Anthony]

Yes.

[Jill Schlesinger]

Okay. And is there anything else in that IRA rollover now?

[Anthony]

Yes, I also received some deferred comp and some severance money, which totaled an additional 435,000.

[Jill Schlesinger]

But that's not in retirement assets, right?

[Anthony]

Well, they, they, they had given it to me as a deferred compensation. So I did roll it over. I was told I could roll it over into that same.

[Jill Schlesinger]

Oh, so the 926 now has 400 something thousand as well?

[Anthony]

Correct.

[Jill Schlesinger]

Okay, so what's the total amount in the IRA rollover?

[Anthony]

1,361,000.

[Jill Schlesinger]

I like that you gave me the extra 1,000. Thank you very much. I appreciate that. How about. Okay, so what's in cash in terms of just cash on hand for you?

[Anthony]

Okay, well, as far as the rest of the. I have some more deferred money.

[Jenna Fisher]

Oh, let's hear it.

[Jill Schlesinger]

Let's hear it, man.

[Anthony]

So I have a 4,401K. My 401K has about 871,000. And my wife has a TDA. She's retired school teacher. She has a TDA of approximately 340,000.

[Jill Schlesinger]

And does she receive a pension? Because you said she's. You said she was a schoolteacher.

[Anthony]

Yes. Yeah. Her pension is 60,000.

[Jill Schlesinger]

Wow, that's good. She was a New York State teacher.

[Anthony]

Well, she worked in New York City. Yes.

[Jill Schlesinger]

So she gets health care also, right?

[Anthony]

They're correct. Yeah.

[Jill Schlesinger]

Yeah. Beautiful. That's great. That's a big piece. Right. Okay, so now we have the 1.361 in your IRA rollover, your old 401k, 871, wife's tax, deferred annuity, 340,000. What other assets do you have out there?

[Anthony]

Okay, so that's all the deferred money, and then just in cash, which is really basically cash as far as money markets say things like that. 1.271.

[Jill Schlesinger]

That's a ton of money. So you have cash and you have the rollover money. Is the rollover invested yet or not?

[Anthony]

No, I rolled it over in somewhere in mid January, and it's just sitting there.

[Jill Schlesinger]

But your 401k and your wife's TDA are both invested, right?

[Anthony]

401K is somewhat invested in the market. There is a cash component of that, too, or government securities, I guess you would call it. The TDA she earns 7% guaranteed on.

[Jill Schlesinger]

It's the New York City plan. It's amazing. It's the guarantee. Okay, so that's good. So you've got that. What's with you guys? You got total wimps. Like, you don't like to invest. What's going on?

[Anthony]

No, I actually had built most of it up from the market over the years, but somewhere along the line, I can't really pinpoint where, became very conservative and kind of just moved it all over and never went back in again. So now, like I said, I have to. My idea is to grow the deferred money because I really don't have to touch it for another 10, 11 years, whatever.

[Jill Schlesinger]

Yeah. At this point, how much do you guys need to live on? I mean, you've got this 60 grand from your wife's pension. What else do you need?

[Anthony]

Total monthly living expenses, total somewhere around maybe a little over $8,000. I try to budget 10 just, you know, to have a cushion and. But the. The half of that $8,000 or even more is actually just housing costs. So we're also considering maybe downsizing at some point.

[Jill Schlesinger]

How much is your house worth?

[Anthony]

Depends on which way you look. But I would say about 1.1 million.

[Jill Schlesinger]

How much of a mortgage remains on it?

[Anthony]

537,000.

[Jill Schlesinger]

Ah, but if you sold it, where would you go? I mean, do you have kids or grown kids or, you know.

[Anthony]

Yes, I have kids and grandkids, two adult children with grandkids, and I have a 21 year old that's still living with us working full time. So, yeah, I do have to basically stay in the area to be around the children and grandchildren. I don't want to.

[Jill Schlesinger]

Could you actually downsize if you really wanted to? In other words, if you said, hey, you know what, I'm done with this house. I'm sick of like taking care of it, blowing it out. Could you find something, you know, for 600 grand that you would be happy in?

[Anthony]

I've been searching around and that was the plan to do something along those lines. I haven't really seen anything that seems interesting that I would be happy in. So I don't have to get out of here, did any set point in time so I can continue to look. And who knows what the market's going to do and maybe it'll be in a better position at some point.

[Jill Schlesinger]

So what's the game plan right now? Is. Is it that you've got the pension, you pull money out of cash to support you guys, and then when you're both eligible for Social Security, or you wait till you're 70, I don't know what, and then you grab your Social Security and then you'll be. Will that be enough for you? It seems like it would be pretty close, right?

[Anthony]

Yeah, I think so. But right now I wasn't really ready to take that retirement package, but I did because the numbers seem to work in my favor. So I'm still trying to do some work between now and whenever.

[Jill Schlesinger]

Yeah, but like, I mean, but theoretically, just so, like, let's say you don't find work. This money that's in cash has already been taxed. So to some extent there's like this beautiful moment where I look at the numbers and it's like, well, if you pulled 60 grand out of that every year for 10 years, you're all set. Like, how old are you? You said 61.

[Anthony]

61.

[Jill Schlesinger]

61. So for nine years, if you did nine times 60 grand a year, you don't even. Like half of it's gone, maybe not even. And then you claim Social Security and you're done and you're good. There's another component to the story which you wrote to us about, and I want to just Want you to share that with the listeners because I think they're. That's important.

[Anthony]

Absolutely. Yeah. About 10 years ago, I found out that I inherited in finger quotes, a mutant gene that just predisposes me to cancer, gives me a higher risk than somebody my age normally. Now I'm very healthy right now and doesn't mean I'm going to get cancer, but just raises my risk substantially. So my thought that that's what made me take the retirement package and take the lump sum. The theory being that if I had taken a regular pension and if I had died, my wife would get half. At least this way if we invest it wisely and if something happens to me, then I do die before, you know, not too distant future. At least she gets the benefit of the entire amount. Plus.

[Jill Schlesinger]

Right.

[Anthony]

It's grown.

[Jill Schlesinger]

I think that that makes a lot of sense. I really do. And I'm sorry you have that. It's sort of like a weird cloud that's hanging over, but it's not like a thing this minute. But you have to consider it. So I think you made the right decision on the lump sum. Do you feel like you need some help? Do you feel like you would, you would benefit from working with someone to kind of help you get this money invested or do you want to do it yourself? It's really. And no judgment anyway, because I feel like there's a lot going on for you guys.

[Anthony]

I think I need somebody just for a psychological push to be comfortable investing it. But yeah, I think I could probably, if it's just going to be in various mutual funds, I could do that myself. But I think I need psychological confidence to do it.

[Jill Schlesinger]

Yeah, I mean, it's hard to do it, especially when there's other stuff going on. And like you said, like you feeling a little bit skittish and that's okay because there's a whole host of reasons why people like you would feel skittish. Skittish and you know, you know how to accumulate. It's hard to now like be on the hook for this. So I think this could be a situation where having a, a fiduciary advisor would be helpful for you in just like so in a few different ways. Number one, like having a real cash management strategy where you might just say like, well, you know, I am going to need some of this money in cash. I do need it to live my life for the next however many years. You know, I know that I have the tax deferred annuity that is set at 7%, but other monies that's, you know, more than, you know, $2 million that you, you really need to have some strategy with that. And probably you're never going to use it all, you know, and thank God, right. But there's a responsibility that I know you must feel to you and your wife and your kids to like get this done the right way. So, Mark, I think that we should give Anthony a name or two of someone who can help him and the family out and be willing to pay the price for that. Like, it's going to cost you some money, but I think it's for you, it's peace of mind more than anything else. And you need someone who's going to kind of hold your hand through this period and give you the strategy. And I think it'll make you feel better to have the strategy. I think that will give you the most comfort than anything else. It's not just like, oh, I want to pull the trigger and get this money invested, but it's that like, okay, wait, I have a strategy and I'm executing the strategy. Whether it's monthly, whether it's half of it is, goes in right now, or whether we build a short term bond ladder with the cash or whatever. But that you have the ability to have some game plan that you guys can execute and that you feel comfortable with that. Does that make sense to you?

[Anthony]

Absolutely.

[Jill Schlesinger]

All right now, of course, because I'm a complete frickin nudge. Do you have your estate documents done?

[Anthony]

Yes. Yes.

[Jill Schlesinger]

All right. If you'd like to come on the air with us, it's so easy. Just go to jillonmoney.com and click the contact us button. You can subscribe to us on the Auto Odyssey app or wherever you find your favorite podcasts. Please leave a rating and review wherever you listen and of course lift someone up. Change your work, change your wealth, change your life. Thank you for listening and we'll talk to you tomorrow.

[Jenna Fisher]

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[Jill Schlesinger]

Arranged pursuant to a California Finance Law License MLS Number 1353190 Klarna Balance Account required Karna make a commission. Limitations. Terms and conditions apply.

[Jenna Fisher]

I'm Jenna Fisher and I'm Angela Kinsey. We are best friends and together we have the podcast Office Ladies where we rewatched every single episode of the Office with insane behind the scenes stories, hilarious guests, and lots of laughs. Guess who's sitting next to me? Steve Carell in the studio. Every Wednesday, we'll be sharing even more exclusive stories from the Office and our friendship with brand new guests. And we'll be digging into our mailbag to answer your questions and comments. So join us for brand new Office Ladies 6.0 episodes every Wednesday. Plus on Mondays we are taking a second drink. You can revisit all the Office Ladies rewatch episodes every Monday with new bonus tidbits before every episode. Well, we can't wait to see you there. Follow and listen to Office Ladies on the free Odyssey app and wherever you get your podcasts.