Investing General Discussion

ShakyJake said:

Why the market isn't flipping out over the 20Y and rising oil is beyond me. "Don't care!"

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"Apple iPhone sales drop more than forecast, revenue falls for third straight quarter"​

Apple iPhone sales drop more than analysts' estimates, revenue falls for third straight quarter

Apple reported quarterly earnings Thursday after the bell that showed a third straight quarter of revenue declines with iPhone sales missing forecasts.

finance.yahoo.com

sliverstorm said:

Not a financial advisor, but here's one way to look at it:

First, we'll assume that even if your company does go under, your pension will be safe. I would expect that to be true or pretty close to true, but worth confirming.

Let's start with a more modest risk free rate. 20 year treasuries are at something like 4%, so we'll use a 4% interest rate.

Spoiler: Scenario 1 - Treasury bonds only

First, we'll assume that once you hit 65, you want to draw a steady fixed monthly payment until you die 29 years later. So you do nothing but invest until 65, then you draw from your principal + interest at a fixed rate with the goal of making it $0 by 94.
At 65, you can choose from:

Plan	What you start with at 65	What you get monthly from 65 - 94	What's left over when you're dead
A (Pension)	$0 and 953/mo	$953 = 953 + 0	$0
B (Annuity)	$123k and 312/mo	$909 = 312 + 597	$0
C (Lump Sum)	$150k and 0/mo	$731 = 0 + 731	$0

Second, let's assume you live off interest + monthly payment at 65 and leave the nest egg to the kids:

Plan	What you start with at 65	What you get monthly from 65 - 94	What's left over when you're dead
A (Pension)	$0 and 953/mo	$953 = 953 + 0	$0
B (Annuity)	$123k and 312/mo	$722 = 312 + 410	$123,000
C (Lump Sum)	$150k and 0/mo	$501 = 0 + 731	$150,000

Third, let's assume you decide to reinvest everything until you die and leave it all to the kids:

Plan	What you start with at 65	What you get monthly from 65 - 94	What's left over when you're dead
A (Pension)	$0 and 953/mo	$0	$624,000
B (Annuity)	$123k and 312/mo	$0	$596,000
C (Lump Sum)	$150k and 0/mo	$0	$479,000

The pension outperforms in the first and the third scenario, with the middle one depending on how frugal you want to be vs. what you want to leave behind.

But now, let's say you decide to take on additional risk yourself, reinvest in the market instead of in treasury bonds, and keep doing so into retirement. We'll use the 8% rate from your 401k, which is slightly below the historical S&P 500, but I'm also too lazy to change my compounding formula for stocks so it sort of evens out.

Spoiler: Scenario 2 - Market only

Steady fixed monthly payment until you die 29 years later:

Plan	What you start with at 65	What you get monthly from 65 - 94	What's left over when you're dead
A (Pension)	$0 and 953/mo	$953 = 953 + 0	$0
B (Annuity)	$203k and 312/mo	$1,813 = 312 + 1501	$0
C (Lump Sum)	$347k and 0/mo	$2,566 = 0 + 2566	$0

Live off returns + monthly payment at 65 and leave the nest egg to the kids:

Plan	What you start with at 65	What you get monthly from 65 - 94	What's left over when you're dead
A (Pension)	$0 and 953/mo	$953 = 953 + 0	$0
B (Annuity)	$203k and 312/mo	$1,665 = 312 + 1353	$203,000
C (Lump Sum)	$347k and 0/mo	$2,312 = 0 + 2312	$346,000

Reinvest everything until you die and leave it all to the kids:

Plan	What you start with at 65	What you get monthly from 65 - 94	What's left over when you're dead
A (Pension)	$0 and 953/mo	$0	$1,301,000
B (Annuity)	$203k and 312/mo	$0	$2,474,000
C (Lump Sum)	$347k and 0/mo	$0	$3,502,000

If you have the appetite to ride or die in the market, Lump sum grossly outperforms; the more cash you can invest earlier, the better you can take advantage of your high risk tolerance.

Finally, let's look at the most realistic scenario: You invest in the market until you're 65 (8%), and then swap everything over to long-term treasury bonds (4%) so that you don't have to worry about a 'down year' impacting your cash flow:

Spoiler: Scenario 3 - Standard Retirement Mix

Steady fixed monthly payment until you die 29 years later:

Plan	What you start with at 65	What you get monthly from 65 - 94	What's left over when you're dead
A (Pension)	$0 and 953/mo	$953 = 953 + 0	$0
B (Annuity)	$203k and 312/mo	$1,298 = 312 + 986	$0
C (Lump Sum)	$347k and 0/mo	$1,685 = 0 +1685	$0

Live off interest + monthly payment at 65 and leave the nest egg to the kids:

Plan	What you start with at 65	What you get monthly from 65 - 94	What's left over when you're dead
A (Pension)	$0 and 953/mo	$953 = 953 + 0	$0
B (Annuity)	$203k and 312/mo	$988 = 312 + 676	$203,000
C (Lump Sum)	$347k and 0/mo	$1,156 = 0 +1156	$346,000

Reinvest everything until you die and leave it all to the kids:

Plan	What you start with at 65	What you get monthly from 65 - 94	What's left over when you're dead
A (Pension)	$0 and 953/mo	$0	$624,000
B (Annuity)	$203k and 312/mo	$0	$850,000
C (Lump Sum)	$347k and 0/mo	$0	$1,104,000

Again, lump sum outperforms across all categories here--the early benefit you get from having the lump sum sitting in the market for 20 years does get you to a place where risk free interest payments coming in post-retirement outpace the fixed pension.

As you can see, the rates matter a lot in how things model out. I think this scenario probably provides the best 'decision-making' view relative to your options.

TL;DR what would I do? Knowing I was working for 20 years and wanting to keep things simple, I would take the lump sum, direct rollover into an IRA, and purchase an index fund that tracks the market.

Here's the sheet I used to develop this chart if you want to screw around with different rates/longevity (or have someone else check my work. It's been awhile : /):


As a side note, good for you for working through investing in retirement. Put in as much as you're able as early as you can.

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Haus said:

As for doing something good with it. If you don't already own a home, I'd consider that depending on what the cash will get you around where you live. The price/value growth of my home has turned it into the most consistent investment I have honestly. heh And you will need somewhere to live when retired.

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Cutlery said:

Thank you very much for this, this makes things pretty clear that the right thing to do is to grab this cash and do something important with it.

Now I guess I need to find a financial planner guy who doesn't suck ass and can personalize the spreadsheets and get me into the right fund.

And to everyone else that contributed to this discussion, thank you for your opinions as well. Thanks for giving me a direction to pursue to get this ball rolling.

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Sanrith Descartes said:

Do yourself a favor and don't pay a "professional" to pick your index fund/funds.

SPY
QQQ
ITOT

Any of the above or a mix of the three.

You can donate to me OnlyFans to say thanks.

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Cutlery said:

Okay, but I still gotta find an institution to hold said money, and then figure out where it goes.

And then figure out why a spy is crying because it's only on the internet, or something.

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Sanrith Descartes said:

Vanguard, Fidelity, TD Ameritrade are some popular options. All very large institutions. Opening a retirement account is a 3 minute online process or you can call them to set up the account. Create a rollover IRA. Roll the pension fund dollars into it.

The actual account creation and transferring the pension fund limp sum they will do for you for no fees. Onxe the cash is in the account, anyone here can walk you through the process of making a trade ticket to use the cash to buy shares in an index fund.

It sounds complicated but the reality is this process of Goldshire easy.

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Cutlery said:

Got it, thanks guys.

One more maybe dumb question....is this gonna be a Roth or a normal? Kinda thing is confusing when it wasn't my money to begin with, so I dunno if it's classified as pre tax or post tax.

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Gravel said:

Yeah, it's not the 90's anymore. It's super easy and you don't need to pay someone to skim 1% off the top for shittier results.

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