Matt (3:32)

I'm doing just fine. How about yourselves?

Jill Schlesinger (3:34)

Doing great. What can we do for you?

Matt (3:37)

Well, I called to see if you guys had any advice on how to deal with my wife's upcoming partial lump sum of pension, which is a year from now.

Jill Schlesinger (3:47)

Okay, so why is she getting a partial lump sum?

Matt (3:49)

It's an option.

Jill Schlesinger (3:51)

Oh, okay.

Matt (3:51)

She could take the straight up. And then if within Ohio, they give you an absolutely absurd number of options in terms of how you can take your pension over time, we'll do 100% survivorship, which is what I have through Kentucky. But then they give you this partial lump sum where you can take a portion of the total amount they gave you or you put in over time out as an ira, direct rollover to an IRA before you start getting monthly payments and it reduces your monthly payment accordingly to how much you take out. As a plop.

Jill Schlesinger (4:24)

Let's talk a little bit about you guys and then let's work backwards because I know sometimes I've looked at these pension options as well, and you're right. They're always like, well, we do this, we get the partial lump sum, we have a hundred percent survivors, 75%, 50% survivorship, 25%, then a zero percent. And so it's a lot. It's dizzying. Maybe we can work backwards about who you guys are, where you are in your lives and then we'll reverse engineer what you need to do so first of all, Matt, how old are you?

Matt (4:52)

I'll be 57 in a couple months.

Jill Schlesinger (4:54)

Are you retired? Because you just said you had a pension.

Matt (4:57)

I retired from my day job a couple years ago, but I still have to work because it's not a full pension.

Jill Schlesinger (5:02)

Okay, what's your pension amount?

Matt (5:04)

53,580Amonth for life. 100% survivorship.

Jill Schlesinger (5:10)

Okay. And how much are you earning in your job? Job?

Matt (5:13)

It's between 60 and 90 to 90k.

Jill Schlesinger (5:16)

That's a big range.

Matt (5:17)

Yeah, it's really not something I have a whole lot of control over. Private employment, contract work, that kind of thing.

Jill Schlesinger (5:25)

Okay.

Matt (5:25)

Another 15k from a part time job.

Jill Schlesinger (5:28)

So essentially this $3,600 a month pension, are you just banking that right now?

Matt (5:34)

That's going to the daily stuff. I'm banking the other income.

Jill Schlesinger (5:38)

Okay, so the pension. And your wife is how old?

Matt (5:41)

She's 55.

Jill Schlesinger (5:42)

And is she still working?

Matt (5:44)

She'll work for another year. Yeah.

Jill Schlesinger (5:46)

And she's. So we're talking about her pension. What does she earn right now?

Matt (5:51)

About $110,000.

Jill Schlesinger (5:53)

So you make whatever $225,000 ish. Right. Does a pension pays most of your bills. Are you telling me that you spend $3,600 a month?

Matt (6:01)

No, we spend quite a bit more than that.

Jill Schlesinger (6:04)

How much do you spend? I like that. No, I'm sorry. Thank you very much. We spend a lot more.

Matt (6:09)

We're rolling around ten grand a month at this point.

Jill Schlesinger (6:12)

Okay.

Matt (6:12)

And. And we've got one adult kid that we're still supporting to some level for a bit longer.

Jill Schlesinger (6:20)

Okay.

Matt (6:20)

Hoping that ends soon.

Jill Schlesinger (6:22)

Okay. She'll leave in a year and then she'll have a pension amount. I know she's got lots of options, but if we were to just look at her pension amount and it was just a 100% survivor benefit, what would that amount be for her?

Matt (6:38)

6,138Amonth.

Jill Schlesinger (6:40)

And would you continue to work?

Matt (6:42)

I will work as long as I can. I don't know that I'll work, you know, 100% as I am now until I my. I need my hands, my eyes and my head. Once one of those, I'm done.

Jill Schlesinger (6:54)

I like that. Well, I mean if she retires, it seems to me that, I mean, I know, you know, it's not exact, but it's about, it's what I just did a rough like 9,700 bucks a month. So that's pre tax. I understand, but like that's pretty good. You're pretty close. Just Two pension checks kind of reach your needs. What about again, not doing the partial lump sum of the pension right now, but what other money have you set aside in terms of other retirement savings together?

Matt (7:26)

When she retires she will have around 300,000 primarily in traditional. It's a 403B now, but roll that into a traditional and oh, I'd say 10% of that is Roth.

Jill Schlesinger (7:39)

Okay.

Matt (7:40)

And what about you right now? About 250,000 in Roth and traditional and that's 150. That is Roth.

Jill Schlesinger (7:52)

Okay. Any money in just plain old like brokerage accounts?

Matt (7:57)

310 in brokerages and then 115 in inherited IRA and Roth. We've got seven and a half years to on that clock.

Jill Schlesinger (8:07)

Okay, got it. You own your home?

Matt (8:10)

Yes.

Jill Schlesinger (8:10)

How much is it worth?

Matt (8:12)

About, about $350,000 at this time.

Jill Schlesinger (8:14)

Do you owe any money on it?

Matt (8:16)

Yes, We've got a 15 year mortgage at 2 and 7/8. We owe $72,000 on it.

Jill Schlesinger (8:24)

Any other real estate now the adult kid.

Matt (8:28)

Yep.

Jill Schlesinger (8:28)

When you said about 10 grand a month, is that with helping the adult kid?

Matt (8:32)

Yes. I'm hoping that, that in the next year we will be stabilized at around 8, $500 a month.

Jill Schlesinger (8:40)

But let's say it's 10. That's why, why not? Right.

Matt (8:43)

Because the more, the higher, the more we can travel.

Jill Schlesinger (8:46)

Exactly right. So what about health care? Will you receive that because she is an educator? Will you have health care until you reach your Medicare years?

Matt (8:55)

I am covered completely by my retirement out of the Kentucky. She has to pay for it out of her pension. So it's, we just figured that up. It's about 350amonth.

Jill Schlesinger (9:05)

Oh, that's cheap though.

Matt (9:07)

Until Medicare.

Jill Schlesinger (9:09)

Okay, so I'm like working through the numbers. So when you said the 61 38amonth for your wife, is that the amount that would be reduced if you did this partial lump sum?

Matt (9:21)

No, that's before the plop and the plop has arranged to make things more confusing, the minimum, if we did the minimum plop, it would drop her down to 58, 70amonth. Okay, that's a $41,000 plop. The maximum she could do is a $235,000 plop. This drops the monthly down to 4,600.

Jill Schlesinger (9:46)

Okay. How do you feel about having this most. I mean it's just weird because the actual two pension amounts kind of COVID your needs as you outline them.

Matt (9:55)

Yeah.

Jill Schlesinger (9:55)

And so the only difference is, I mean I'm sure that someone can interpret the math better than I on the slot, on the fly. But the big difference is that you would take a haircut to this amount. You'd get some money out, you know, just some lump sum that you would add to your pile of other money. The 300 in your deferred. In her deferred comp, the 250 that you have, you know, you would have instead of, you know, 3, 6, 7, 8. Instead of having like 950,000, maybe you'd have a million. But under the, the way that you just outlined it to begin with, it sounds like all your needs are met. Basically.

Matt (10:34)

Yes. Agreed. The concern that she has, and this is with a fair number of retirees out of the Ohio system, is that their system is not sustainable. At some point, they're not going to be able to cover this. I personally don't worry about that. It's too big of a question for me to address. Yeah, it's a legitimate concern and I understand where she's coming from. So she, she preferred to take a larger amount of a plop. She's definitely going to take something.

Jill Schlesinger (11:01)

Okay.

Matt (11:01)

There's no question about that. How much is the. Is a real question. And at the extreme end, the way I figured it out, it could potentially, if we take the biggest plop, it drops our monthly income down to around or just under the 15% federal tax rate. So we'd go from 22 to 15.

Jill Schlesinger (11:21)

Yeah, but you'd have more money that you have invested that would create income anyway. And you need to create some income. Right? You would need to do that. I mean, look, my feeling about that is that it's not usually the issue with someone who's retired. The pension problems are often the younger people's problem. I think it would be highly unlikely that she would retire. And then they'd say, ah, just kidding. You don't get your 6100amonth, we're going to make it 4100. That's not usually how these pension plans work. They pay out the existing benefits and the young people get penalized. That's usually. But let's just pretend she wants this.

Matt (11:57)

Yep.

Jill Schlesinger (11:57)

She wants some money. So if you said the maximum would be that she gets 235,000 upfront. Right. And then the, the more that, say the mortgage. Huh. The pension amount drops to 4,600. Right. That's where we end up.

Matt (12:15)

Correct.

Jill Schlesinger (12:15)

Okay, so now we have her 46, your 36. And now we have a bunch of money that's coming in your seven grand, 7200amonth. Right. You have the money that is in the inherited IRA that you will be pulling out over time. Cause you have seven years to get that out. So maybe you would use that also. Right. Cause a little bit at a time, and that gets you close to, you know, for at least for the next few years. Gets you the money you need to fund your cash flow. Then after that, what's the next thing that we would have to do is we'd have to bridge you to Social Security. And then we would say, well, let's pull some money out of your traditional retirement accounts, both of you, or the deferred comp. And whatever traditional accounts you have, again, pulling that out slowly but surely over those years until you claim Social Security. And I think all the numbers work. I think that what you're saying to me is it doesn't matter what's mathematically better. Your wife wants to feel like she has some of her money out of that system. That is the risk she's scared of, right?

Matt (13:19)

Yes.

Jill Schlesinger (13:21)

So let's do it.

Matt (13:21)

Okay.

Jill Schlesinger (13:22)

Why. Why are we messing around with it? Why. Why shouldn't we make her happy? Isn't she entitled to be made happy? It's probably. It's probably an overthinking of it. But again, you have other assets. You'll be able to do this. What's your Social Security benefit look like at your. So at your full retirement ages, she.

Matt (13:41)

Will not be eligible because of Ohio's goofy system.

Jill Schlesinger (13:45)

What's yours?

Matt (13:47)

Mine is 3200 at 7.

Jill Schlesinger (13:52)

Okay. I think you'll be fine.

Matt (13:53)

Okay.

Jill Schlesinger (13:54)

I really do. And also, if she really is all freaked out about this pension system, she can, if she'd like, just keep working.

Matt (14:01)

True. Yeah. I think she probably is going to say, give it a year and say, I need to do something.

Jill Schlesinger (14:06)

Okay.

Matt (14:06)

And that's fair. I think you may not ever want to go back into doing what she's doing now, which I. Yeah, yeah, I get that.

Jill Schlesinger (14:12)

But it sounds like you're really okay. I think that, like, we've overestimated your expenses just with the kids stuff, but. Which will go away, but let's presume it doesn't for the first few years. Fine. So what. So what if it doesn't go away? Right? Then you know, you can do it because we know that you guys have some assets to tap. You are. You yourself are also still working when you work and you're sucking your money away. Where are you putting that money? In a brokerage account?

Matt (14:39)

My. My plan is I fund my wife. My wife's Roth out of my mother's inherited money.

Jill Schlesinger (14:45)

Yeah, but you have to pay tax on it, of course.

Matt (14:47)

Yes, I'm taking it out.

Jill Schlesinger (14:48)

Yes.

Matt (14:49)

And I put that right into her. Roth. As much as she'll work, if she doesn't work, $8,000 a year, it'll be less. Whatever sample me Roth is first. And after that it's going into a brokerage and I'm a pretty active investor. Got a pretty good handle on how to kind of sustainably keep it going. I look at a million dollars down the line as around $4,000 a month if we need it.

Jill Schlesinger (15:10)

That's perfect. Yeah. And also. Yeah, and I'm not sure you're going to need it, but I do think because you're going to have income that you've got like, so you pull the money out of the inherited ira, that's fine. So you put her seven in. But when you're ready to pull money out of accounts to fund this lower amount of pension that she is choosing, her lower plop. Right?

Matt (15:31)

Yeah.

Jill Schlesinger (15:31)

So meaning higher, higher upfront, but lower payment amount that you're pulling from the pre tax, the traditional accounts first. That's what we want to do, right?

Matt (15:43)

Yeah.

Jill Schlesinger (15:44)

So you pull that out and all that other money that you are earning, that 60 to 90 grand, your 15,000 of, you know, whatever part time, it'll start to go down over time, but that by the time you are getting towards, you know, if you do that for 10 years, if you do that for five years, you're really going to be in good shape and you're going to keep building up your brokerage account and you're not spending that much money. And even if the kid takes three more years to launch, you're okay, you're okay. I mean, everyone listening. When you have these pension conversations, the question is a good one, which is, can the state, can the municipality, can the organization afford to actually pay out the promised benefits? If the answer is no, then what you're forced to do is say, well, okay, what would that do to me? So again, like I said, it usually does not impact the people who have already received benefits. I think the state of Rhode island did something once that really like they had a little city or municipality that was like, hey firemen, we're cutting your pension. But like that's a very rare instance. But if she's wigged out by it, why not grab that money? She'll get her $235,000, you'll add it to your brokerage account. Now you got a half a million dollars and you're still working and you're adding money to it. So I think the plan works. I really do.

Matt (17:06)

Either way.

Jill Schlesinger (17:07)

Yeah.

Matt (17:07)

All right, fair enough.

Jill Schlesinger (17:08)

When it works either way, then we do. Peace of mind comes first.

Matt (17:11)

Okay, good answer. I appreciate it.

Jill Schlesinger (17:13)

All right.

Matt (17:14)

That's spot on.

Jill Schlesinger (17:15)

We wish you the very best. Keep us posted. And if you are given some options about how to receive funds or you're just thinking about the future, or you're a young person and you're just starting out, you don't know whether you know a lot of plans. They are now allowing you to choose whether or not to participate. Participate in a pension plan. Give us a Holler. Go to jillonmoney.com, click the contact us button, write us a note, and if you'd like to join us live, check the box. We'll do everything else. Mark does it all. He's the best. While you're on the website, don't forget to sign up for the free weekly newsletter. You can subscribe to us on the Odyssey app or wherever you listen to your favorite podcast. Try to do something nice for someone else today. Change your work. Change your wealth, change your life. Thank you for listening. We'll talk to you tomorrow.

Jill Schlesinger (18:05)

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Matt (19:23)

Can I get you a refill?

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