Q. I’m a single, 58-year-old teacher. I will have a guaranteed pension of $65,000 annually upon retirement in about eight years.
I contribute 13.6 percent of my $75,000 gross income to my 403(b) plan, which has a balance of $58,000. I also have a variable annuity with a balance of $66,000.
My other savings is only about $10,000, as I have a secure job, am prepaying my mortgage and am trying to save for home energy and kitchen/bath improvements.
Should I continue to contribute the same percentage to my 403(b) or reallocate some to my savings account?
J.M.
A. You have an enviable retirement outlook, but there are some caveats.
The pension covers your current gross income after taking out your 403(b) contribution, and you have some other savings as a cushion.
You also indicated you’ll be eligible to receive Social Security benefits, but remember those could be reduced because you are receiving a teacher’s pension. (Check out www.ssa.gov/pubs/10045.html.)
You’d have to accumulate about $1.6 million in a lump sum to comfortably withdraw $65,000 a year from a portfolio of stocks and bonds, and you still wouldn’t have the guarantee of a pension.
Even so, there are some red flags between you and the retirement finish line, said Robert Friedland, a pension expert and founder of Friedland Financial Planning in Rockville, Md.
In the short run, you need a bigger emergency fund, he said, because you don’t have much cash on hand for big-ticket emergencies.
Don’t cut back on retirement savings to fund it, though, because you’ll need that money to stay ahead of inflation (assuming your pension doesn’t include cost-of-living adjustments).
Adjust living expenses to tuck away a little more each month in your non-retirement savings account, he said. If you can’t do that right now, plan to start once your mortgage is paid off.
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Finally, consider how all the accounts are invested and the role of the variable annuity in your retirement plan. With a rich pension, Friedland wondered why you chose another insured product for the money.
At any rate, he said, money you’ll want to access right away in retirement shouldn’t be in stocks.
Q. Our company recently stopped our 401(k) plan without notice. At the time, I had an outstanding loan from the plan with $2,540 left to pay. Our owners told me they would pay the loan off and deduct it out of my check at an agreed term. Should I have received notice, and will this put my 401(k) in default?
R.K.
A. Though there is no statutory requirement that you receive notice of a plan closure, your company’s plan may require it, Labor Department officials said. You have a right to view those documents, and you also should check the fine print on any loan documents you received when you borrowed from your 401(k).
You need to go back to the owners immediately to get more detail on how this was handled. The outstanding loan and the side arrangement for payoff could create a rules violation for the overall plan, an IRS official said, and it may be classified as an early distribution, meaning you’ll owe taxes and penalties.
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