Retirement Start to Finish

 
Poor lady!  If she weren't confused before her call, there is no doubt she was bewildered and frantic after it was over.  She telephoned one of the nationally syndicated and wildly popular radio shows. 

Her situation:

• Husband is retiring from his big corporation
• Their ages 60 (old enough to draw from their qualified plans, but too young to tap social security)
• They were offered a lump sum pension distribution or a monthly pay-out for life
• Which should they choose? *
• Decision deadline was looming on the horizon.

Very smart radio host defended the corporation/employer.  That company, in order to concentrate on its business, was off-loading its in-house, financial services activities by selling its pension assets and responsibilities to Prudential.
 
The program host said, "Your situation is very complicated.  You need lots of advice."  He emphasized a few times how complex her situation is, and told her to consult with a national, fee-based financial services syndicate.  Before going to the next caller he offered a foreboding, "Good Luck."
 
Raising anxiety is a poor first-step to making sound financial decisions.  In fact, I believe too often our financial decisions are primarily emotional.  The environment I seek to create includes calming down, becoming as objective as possible and gathering as many facts as practical in the time available.  And it's doubly true when working with so-called senior citizens.  I must complete CE courses every two years that address directly the special care financial professionals like me must observe when we work with people who are in their retirement years.
 
There is nothing wrong with the national syndicate the radio host recommended; although I was surprised he named a specific firm.  On the other hand, I wondered if the caller might not find equally reliable and professional help locally.  In addition, I was shocked that host did not recommend that the lady contact Prudential.  I have no relationship with that company, but they are good at what they do and, in this case, have a clear fiduciary responsibility to exercise faithfully.
 
The most significant problem the lady and her husband have is, like the rest of us, they do not own a functioning crystal ball to see the future.  Therefore, (refer back two paragraphs) calm down, gather facts and be as rational as possible.
 
Among many questions I would seek answers to are:

1. What other assets are in their nest egg?
2. What are their projected Social Security benefits?
3. Is the monthly-for-life-pay-out adjusted for inflation and, if so, by what factor and how often?
4. If the husband were to pre-decease his wife how much of the monthly pay-out option is she entitled to?
5. What is their current indebtedness?
6. What is their current rate of savings?
7. What would they like to see happen, ideally?
8. Project the lump sum option and the monthly pay-out option.  How do they compare over 30 years?

 
*NOTE -- I suspect this story relates to the Class Action suite recently granted by a Federal Court in Dallas, TX.  The suit claims irreparable harm done to retirees of Verizon Corp who lose their ERISA protections upon the transfer of assets to Prudential. That is a matter of significance, but does not materially change the issues raised in my article.