Today’s Prep:

As you near the final months or years before taking the plunge into retirement, there are always a few details to work out and questions to ask. Eric answers a few questions from the mailbag about pensions, paying taxes in retirement, and deciding when to walk away from a retention bonus and just retire already.

Equipping Points:

0:48 Pensions: Lump sum or payout?

• You need to look at what the payout of the pension is.
• How many years will it take you to break even on the payout?
• Eric talks about clients locally who had the option for the pension payout.
• Having a guaranteed payoff is comforting, but you don’t have the control of it if something happened to you early.
• How many months will it take to get the lump sum back?

4:28 Mailbag: Taxes in retirement

• Kathy in Clive says her income will be very different once she retires. What should she do about taxes?
• First, pay your taxes.
• Right now, your taxes are automatically withheld at your job. In retirement, you can choose if you want your taxes withheld or not.
• If you have a pension or Social Security or even IRA distributions, you can choose to have it withheld automatically. Or, you can get the full check and send in the quarterly estimated taxes.
• In retirement you have more tax control than you’ve had in the past.

7:46 Retention bonus or retiring?

• James in Grimes has been frustrated and stressed with his job, but he receives a sizable retention bonus along with stock options each year. When can he walk away without feeling bad about it?
• The job probably provides this bonus because they know it is grinding.
• If you went through a planning process, you could determine whether or not you could retire today.
• If you know you can retire, it may make going to work more palatable or give you the feeling of control.
• Life’s too short to work somewhere that you don’t like.
• Sometimes if you modify your lifestyle or take a part-time job you can retire and do what you want to do.

Today’s Takeaway:

“Instead of your job causing you stress–you don’t want that. Come to a financial analysis and see if you can retire now or need to do something else. – Eric Peterson“