Episode Summary: "What to Do With Pension Lump Sum?"

Podcast Information:

• Title: Jill on Money with Jill Schlesinger
• Host/Author: Audacy
• Episode: What to Do With Pension Lump Sum?
• Release Date: February 20, 2025

Introduction

In this episode of Jill on Money with Jill Schlesinger, executive producer Mark Tularsio welcomes listeners and introduces the show's mission to help individuals make informed financial decisions. He emphasizes the availability of resources such as their free weekly newsletter and the premium subscription service, Jill on Money Live, which offers live webinars and exclusive content.

Caller Introduction: Jody from Minnesota (04:20)

Mark Tularsio receives a call from Jody, a 46-year-old professional from Minnesota, seeking advice on managing a pension lump sum she elected a few years ago. Jody is contemplating her retirement plans and wants to ensure she makes the most strategic financial decisions.

Mark Tularsio [05:04]: "What's going on? How can we help you out?"

Jody [05:04]: "I have a pension through my employer, but a couple of years ago, I elected to do the lump sum rather than the monthly payments..."

Financial Assessment (05:04 - 10:28)

Mark delves into Jody's current financial situation to provide tailored advice. He inquires about her income, retirement accounts, and existing savings.

• Current Income: Approximately $101,000 annually.
• Retirement Accounts:
  • 403B: $80,000 with ongoing contributions to secure her employer's match.
  • Roth IRA: $35,000, primarily funded from the proceeds of selling her house a few years prior.
• Savings: Maintains a checking and savings account with a couple thousand dollars for emergencies.
• Expenses: Recently sold a horse, which cost her around $1,200 per month.

Jody [05:04]: "I have a Roth IRA that I have. I have about 35 in it."

Mark Tularsio [07:05]: "I love when people say this, Mark. They're like, ah, just 80 grand. Like it's nothing."

Strategic Financial Advice (10:28 - 14:15)

Mark provides Jody with actionable steps to optimize her retirement savings and prepare for future financial stability.

1. Maximize Roth IRA Contributions:

   • Advice: "I think you should start putting in that money into the Roth."
   • Action Plan: Allocate approximately $550-$580 monthly to fully utilize the Roth IRA's annual contribution limit.

2. Increase 403B Contributions:

   • Current Contribution: 4% to receive employer match.
   • Recommendation: Gradually increase contributions to 6%, then 15%, in manageable increments to enhance retirement savings.

3. Boost Emergency Savings:

   • Advice: "Build up your checking savings a little."
   • Reasoning: Strengthen the emergency fund to cover unexpected expenses without derailing long-term savings goals.

Mark Tularsio [10:28]: "Maybe you could make it like 1500 a month. I don't know."

Jody [09:55]: "I definitely."

Managing the Pension Lump Sum (14:15 - 17:16)

Mark outlines the best practices for handling the pension lump sum, ensuring Jody leverages it effectively for her retirement.

1. IRA Rollover:

   • Suggestion: "Create an IRA rollover account that will receive the funds from both the 403B and the pension."
   • Implementation: Utilize Jody's existing relationship with Fidelity to simplify the rollover process.

2. Investment Strategy:

   • Recommendation: Invest the lump sum in diversified index funds across various asset classes to ensure balanced growth and risk management.

3. Early Retirement Considerations:

   • Discussion: Assessing the viability of retiring early based on current savings, anticipated pension payout (~$275,000 by age 58), and potential reliance on a partner's income.

Mark Tularsio [17:16]: "The easiest thing to do is to create an IRA rollover account that will receive the funds from both the 403B and the pension and then you invest it accordingly."

Jill Schlesinger [17:17]: "That's it. It's not very complicated."

Addressing Potential Future Scenarios (17:16 - 18:25)

Mark emphasizes the importance of flexibility and regular financial check-ins, considering life changes that may impact retirement plans.

• Scenario Planning: Considering the best-case scenario where Jody retires with sufficient funds and the backup plan if she needs to rely solely on her savings.
• Adaptability: Encouraging Jody to continuously assess her financial health and adjust her savings and investment strategies accordingly.

Mark Tularsio [18:23]: "That's it. It's not very complicated."

Jody [18:25]: "Yeah, totally."

Conclusion

Mark wraps up the episode by summarizing the key points discussed with Jody, reiterating the importance of maximizing retirement contributions, building an emergency fund, and strategically managing pension lump sums through IRA rollovers and diversified investments. He encourages listeners to utilize the resources available on their website and consider subscribing to Jill on Money Live for more in-depth financial guidance.

Notable Quotes

• Mark Tularsio [10:28]: "I think you should start putting in that money into the Roth."
• Mark Tularsio [17:16]: "The easiest thing to do is to create an IRA rollover account that will receive the funds from both the 403B and the pension."
• Jody [15:54]: "Definitely."

Key Takeaways

1. Maximize Retirement Contributions: Fully utilizing Roth IRAs and employer-matched 403B accounts can significantly enhance retirement savings over time.
2. Strategic Investment of Lump Sums: Rolling over pension lump sums into IRA accounts and investing in diversified index funds is a straightforward and effective strategy.
3. Build and Maintain Emergency Funds: Ensuring sufficient liquid savings can provide financial security and flexibility in unexpected situations.
4. Regular Financial Reviews: Continuously assessing and adjusting financial plans ensures alignment with evolving life circumstances and goals.

For more personalized financial advice and resources, visit jillonmoney.com.