Part of pension money can be used to pay down debt

A laid-off worker wonders what to do with his pension — he thinks of using it to pay off his debt; 64-year-old thinks he might be too conservative with his wallet.


Q:I was fired at 58 with six months severance pay. My 401(k) is at $46,000. I am looking for another job.

I was offered the chance to continue as planned with a company retreat. It would start at age 65 at $1,300 per month. I could also start now at around $900 per month. Or I could take a lump sum that could range from $140,000 to $170,000.

Six months ago, I set up a debt consolidation loan for about $24,000 of consumer debt at an interest rate of about 20 years. This translates to a monthly payment of $750. I would like to pay it back as soon as possible. I also have a debt of around $15,000 which I would also like to pay off. I would like to withdraw $40,000 plus penalty from the pension money and pay off all my debt, then transfer the remaining $100,000 into an IRA.

If the actual pension amount is $170,000, I would like to save about $20,000 to have $10,000 for emergencies and $10,000 for a down payment on a house in town. I may not be able to get an income close to what I was earning.

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A:Under better circumstances, you wouldn’t collect the pension until you were 65, and reluctantly redeemed the $46,000 from your 401(k) account and used the net money to pay off your loan. of consolidation of $24,000. Then you would work to pay everything else from new income. But you’re stretched dangerously thin. It is therefore reasonable to take part of the pension money to cover expenses until you return to work. One thing you shouldn’t do is set aside money for the down payment on a townhouse – the last thing you need is new long-term debt. And nothing in the pension decision will interfere with unemployment benefits. Finally, it would be difficult to overstate how extremely important it is to find a new job.

Q: I have amassed a portfolio of $2.4 million. I recently became a curator. I’m 64 years old and my portfolio is about 30% equities, with the rest mostly fixed income and some cash. This year, I plan to withdraw $3,000 a month from investments to cover the mortgage and my girlfriend’s money. And with what I know of the 4% rule, I should never run out of money, right?

I also have $8,000 a month in government and airline pensions until I die.

Am I too conservative? Or am I fit?

A: One way to familiarize yourself with the question of portfolio survival is to visit the Monte Carlo analysis section of the Portfolio Viewer website. There you can test its ability to survive different withdrawal rates.

Your withdrawal rate is so low, even taking into account future inflation adjustment, that you have a 100% chance of surviving the portfolio for 30 years using a typical 60/40 stock/bond portfolio.

Indeed, you would need to increase the annual inflation-adjusted withdrawal to $72,000 per year before the odds of survival drop by 100-99%.

This suggests that you are a big underspender. So, I say go for it – spend more on your girlfriend if you’re having trouble spending it on yourself.