For those of you like me who have retired from Chevron , how are you investing your retirement dollars ?With CD's or even AAA Bonds yielding close to nothing, stock markets going up and down and somewhat risky, how is one to earn at least 5 % with minimal risk, is that even possible in this low rate environment ?
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Sounds like a good plan, 4zpm. The IRS raped me when I completed my 2015 tax return. There was very little I could do to reduce my taxes further. I just had to bend over and take it.
@4zyl - Thanks for the info. I'm thinking I'll wait until 2017 to do one because I had a lot of severance and bonus income this year, so the tax rate on the stock basis should be less.
@3dcv--Vanguard has your information on cost basis and present value of the stock. My financial adviser at Vanguard sent this information to my tax adviser (CPA) who helped me with the process and my overall taxes for 2016. Your financial adviser will not recommend using the NUA so you have to have a discussion with your tax adviser based on your income and financial situation. When you move your stock from your IRA to a brokerage account you have to pay in the quarter you made the transfer. If you do not you will be penalized by the IRS. I had to do this by a quarterly payment to the IRS. My capital gain was significant so the NUA worked well for me. Now taxes have been paid for all the stock in the brokerage account. The only thing I now have to report are the dividends for future tax years. I am also withdrawing monthly from the brokerage account but do not have to report this as taxable income. This reduces your tax bracket for the future.
@3cky - I've been considering doing an NUA, but I haven't run across anyone at Chevron who did one. You're the first person I know of who did. Any advise on doing it? Did you need a financial advisor to help out or were you able to do it yourself? Did you get advice from Vanguard? I haven't touched my 401K since I retired, so I should be eligible.
Congratulations also @3rog on your retirement. I also am with Vanguard and moved my ESIP to a Vanguard IRA. I use their Flagship services which includes a financial adviser who is salaried and does not work on a commission. The rates are the lowest in the financial industry. I have quarterly reviews with Vanguard to readjust the portfolio if necessary. I too am conservative and currently have a 60% bonds, mutual funds and 40% stock. Both stocks, bonds, and mutual funds are diversified. I thought about personally managing my portfolio in the ESIP account with financial engines but opted for the Vanguard IRA after comparison. I also have a good CPA that has been a great help with the taxes especially in the first year of retirement. I think your plans are in line with a successful retirement.
Congratulations, @3cky on a successful retirement. Your strategy is much like mine, although mine is at around half the amount. The Chevron annuity, social security and positive cash flow from rental property together provide my wife and I a secure retirement income. My ESIP of $1.15MM is intact at Vanguard and conservatively managed by me and my wife. We don't need a wealth management company to take 1% in fees for moving it elsewhere and not providing any real help. Best to you in retirement.
Guaranteed Income
I decided to take the pension with 100% survivor for my wife if I pass ($1.1mm with a return of $75K per year for life for both of us) . Taxes and medical costs are taken out by the company. I was 100% vested in the medical plan, however you have to apply for medicare A and B when you reach 65 years old. There was too much risk with the lump sum for my situation. You have to weigh the trade offs for your particular situation.
Social Security brings in $44 K per year for both of us.
The ESIP amounted to $3.1MM. I took $1mm and purchased a variable annuity with TransAmerica which brings in $53K per year.
Guaranteed income is $172K per year.
IRA and Brokerage accounts Income
I moved approx $270K of stock from the IRA into a brokerage account to take advantage of the net unrealized appreciation. There is a huge tax advantage if your capital gain was significant from your cost basis. However you have to pay taxes on this in the year you withdraw from the IRA. I saved approx $30K in taxes. I now have approx $200K which taxes have been paid.
@3hxv - I think we're all agreeing here, except I wouldn't go as far as to venture a guess as to what proportion of Chevron retirees would benefit from one or the other. A lot of it depends on uncontrollable future events like your investment returns, inflation, your lifespan, etc. There's really no wrong decision, except in hindsight.
3lpb and 3btp... Life is a gamble, true. Another truism is inflation is a concern for annuities, just as market downturns or outliving your lump sum is a concern for investing. One pension choice is not necessarily better than the other. I'd say half the Chevron retirees would benefit from the annuity and the other half by the lump sum. Each person needs to carefully choose which way is best for them.
@3btp - You are correct. A lot of the people who push the annuity on this site don't seem to consider the effect that inflation can have over many years, probably because we've been living in a low inflation environment for so long. For example, 20 years of 5% inflation or 10 years of 10% will turn a $100000 pension into something like a $38000 pension (in terms of purchasing power). There is no risk-free strategy.
It's a gamble either way. If you take the lump sum, you need to invest it in the stock market to support taking 4% SWR, inflation-adjusted for 30 years. If you take the annuity or put the lump sum in some safe investment so you can take out 6% uninflated for 30 years, you are GAMBLING on inflation staying low. That's a big gamble and you are ruined if you are wrong. 35 years ago inflation was 15% a year. Look at what oil has done in just two years. Cuidado!
"The lump sum is computed to be actuarially equivalent to the annuity, so neither is clearly better than the other." - That is a true statement.
It's a matter of deciding how risk averse you are and if you think either one of you (husband and wife) will live longer than 30 years. If the answer to either question is "Yes", go with the Chevron annuity.
@2roh - No. If you can earn 4.42% annually (net after expenses of course) on your investment then you can take out 6% of the original lump sum each year and your money won't run out for 30 years. That's a fact. If you die sooner then your heirs get some money, if you die later you'll have to live off of something else. Currently you can't get close to 4.42% without some risk, so if you are risk averse and want to put it all in CDs and T-Bills, then the Chevron annuity is almost certainly the way to go. If your willing to take some risk, then it's just a matter of what your more comfortable with. The lump sum is computed to be actuarially equivalent to the annuity so neither is clearly better than the other.
@2pkr, that premise is false. Just divide the calculated annuity amount into the lump sum amount to see how many months the lump sum will last if kept in cash (maybe 17 years or so?). Based on your statistical mortality age, you will need to invest your lump sum amount and NET an estimated 6% per year consistently for the rest of your life, just to match the guaranteed monthly annuity payments. To net 6% on your investment, you will actually have to earn more to cover investment expenses. It's not as easy as you think. Is this what you want to worry about in your retirement years? Consider if it's in your best interest to get your pension as a guaranteed cash flow to compliment with Social Security. You can invest your 401k balance and keep that part for a possible inheritance to your children.
You don't need to get a 6% return on your lump sum to match getting 6% of your lump sum as an annuity each year, unless you plan on living forever, because in the case of the lump sum, your heirs will get the lump sum when you die. For example, if you live 30 years, then 6% of your lump sum each year is equivalent to 4.42% return on your investment. In other words, if you earn 4.42% each year for 30 years, you can take out the 6% of the initial lump sum amount each year, and your money will last 30 years. Think of it like a mortgage in reverse.
I much prefer the annuity vs. the lump sum (Mine is approx. 2.5mm) since there is no way I have been able to get 6% returns consistently. Not for every year, maybe for some. I must just be a poor investor or simply have no interest. Also Wifey has nothing to worry about if I go first and I can live comfortably knowing that she will after I'm gone. Most prospective retirees do not take that piece of mind element into consideration. The same thing goes for taking SS at 70. All those years that you live without the SS until 70, are in expectation of that sweet payout that you waited for, you are full of satisfaction and anticipation. All you have if you start it early or even at FRA for SS, is regret that perhaps if you would have waited you could have gotten more when you needed it most. Now it is totally different if you desperately need it to live on, but I don't think that applies to most CVX employees.
Nice analysis, @Hj8aBIO-1njp, your PSG and years must be almost identical to mine because my numbers came out virtually identical, maybe a tad higher. Nice to have that confirmation on the figures. Thanks for giving out your details, most on this site only spout vitriol and petulant arrogance.
@Hj8aBIO-1etc, Again, I repeat, we sadly regret your deteriorating mental condition which has been clearly revealed in earlier posts. Perhaps you can see a specialist about you losing mental coherence in light of your petulant arrogance and incessant tendency to speak braggadociously about your pathetic circumstances. Hang in there old dude and God Bless. There is always hope.
P Yappington - Your analysis looks reasonably sound. One point I'd make is that it's not quite fair to compare the level payments of the annuity with the increasing withdrawals of the lump sum. You could try to see what would happen if you took the difference between the annuity payments and your hypothetical withdrawals from the lump sum and invested it rather than spent it, then use that money to supplement your annuity later to match the withdrawal pattern you modeled for the lump sum to take into account inflation. (Don't know if I explained that intelligibly). However, I don't think it would change your analysis much.
Since you have a large pension, you might also have Chevron RRP and/or Chevron stock options. One advantage of the lump sum is that it allows you to control how much income you get each year, so you can cut back withdrawals during years you receive the RRP payments or cash in stock options. This way you might be able to prevent yourself from being pushed into higher tax brackets.
In the end you have to weigh the convenience of (virtually) guaranteed monthly payments for yourself and spouse vs the risk of inflation, unlucky investment outcomes, and how much you are interested in leaving something to your heirs or charity.
When I run the calculator, it offers me a lump sum of $2.3MM or an annual annuity payment of $156K/yr. That is 6.6% withdrawal the first year. No inflation indexing is offered with our annuities.
If I were take the lump sum and invest it on indexed stock and bond funds, it would have a high (>90%) chance of lasting 30 years if my starting withdrawal rate were 4%, or $94K/year, increased annually for inflation. Because the starting rate is low, the chance of it lasting 30 year is high. The chance is also high I am left with a large leftover amount, which is nice for my heirs or chosen charity but does nothing for me.
It would take about 20 years for the lump sum annual spending to reach $156K/yr and about 30 years for the total paid out to equal the annuity totals. The NPV of the annuity is always higher.
So, depending on your circumstances, the annuity could make a lot more sense financially. For example, I expect to be retired 30 years or more and I expect inflation to be under 4% or so. I can do a survivor annuity so my spouse has income if I croak first, which also helps if the spouse might not be so adroit at managing investments. The annuity has higher guaranteed income, but no high side if you get lucky with the stock market investing the lump sum.
More dribble from the moron of @1pjn.
@Hj8aBIO-1gxf, It has been established by many on this site that you don't know math and were a burden to Chevron. Chevron is much better off since they $hit-canned you(or encouraged your severance, either way), and you are really bored in your old age because otherwise you would not be trolling the layoffs site trying to seek self-validation(which you never had in real life). You have been spewing arrogance hatred and vitriol and revealing your absence of basic math skills. Don't they have some shuffleboard or something to occupy the last few brains cells that you have left which can no longer do math at your retirement home? You are obviously bored with nothing else to do but fill this board with arrogance and hate. Find a hobby, dear. I heard checkers is fun and therapeutic.
1ide is an obvious loser, constantly ranting from his foaming mouth. You should take a break for an hour or so after writing and before hitting the send button. All that effort forcing that weak mind to get your thoughts out all goes to waste as soon as you post. Next time, take a break, cool down, review, then rewrite your dribble. If anything, even if the readers look past what you've written, you can conserve a little self respect.
@Hj8aBIO-1shj, It's good that you have been cut from Chevron, they need to clean out all the useless deadwood. Particularly those who don't know math and claim that they do. I seem to recall you being the one who cannot do math even using online calculators which determine the ROR of a lifetime joint and survivor annuity versus investing the lump sum. There are either two reasons:
1- You cannot do math and have lost some mental ability in your old age( most likely)
2 - Your pension is smaller than most, making you a "butthurt loser", as one poster noted, those are not my words. This could be attributed to many things, most likely your poor performance.
Either way, We offer our condolences to either your loss of mental aptitude or the small pension. You just have to tighten up a little bit and live more frugally. That may be hard for a person all full of himself as you sound, however. Good luck living with you petulant arrogance and yourself. You need all the luck that you can get. God Bless!
@1cdp - I'm already comfortably retired, thank you. And I didn't bring up options to impress people, but because it was part of my Chevron compensation package that I'm using in retirement. That was the context, if you bothered to follow the thread. I'm not trying to impress anyone, I was just responding to the poster who claimed that I was jealous that my pension was small. And don't worry about my math skills, I've forgotten more math than you'll ever know.
You have done a pretty good job. You can certainly afford vacations !
How am I investing my retirement Dollars? Very carefully, that's how. I'm sure everyone else too.
Some retirees who "can" afford to retire will not invest their nest egg too aggressively. How can you make up a loss if not working? Sadly to say, retirement for me is not what I had imagined it to be. I'm close to, but not yet 60. I have a few years to wait to get social security and yet too old to be hired again at a decent job. I'm lucky enough to have saved and invested well enough to live without working again, but there will be no frequent vacations in my future. My home is mine and so are my cars and furniture. I live off my $3150 Chevron annuity and small cash flow from a small rental property I own. I should do fine. I have an affordable Obamacare healthcare plan, $150,000 in the bank for emergency expenses and over $1MM in my Vanguard 401k, the product of 26 years working at Chevron. Hopefully, I don't need to dip into my 401k until after 65 and collecting Social Security, if it's still around. The message here is retirement is not easy when you are living it. Each person will face their future one day. Try to save and invest while working, pay down debts, have a plan and cross your fingers. We all will retire one day, on our own schedule or someone else's. One way or another, we'll make it. Best of luck to all.
@-1cdp, Maybe then they will hopefully cut you and there will be one less self-important little man dimwit who can't do math at Chevron. At that point your options will be worth a little more. Then you can go somewhere else and try again to convince others that you are important and are such a genius and can slip in little terms out of context into your posts to try to make yourself seem like an investor type like "options" etc. etc. Maybe it will work with some idiots if you can find some really naive ones. It will be pretty hard.
@1hbq - And what do you think I'll use the options for? My retirement. Now was that so hard? Of course, with dimwits running the company into the ground, they might not be worth much, so there's that.
@1kpg - You're the one's who is misguided in your assessment and math. Don't lead the readers astray. Convincing argument isn't it? Say something meaningful or shut up.
@Hj8aBIO-1hkh, Uh, No, Douche-Bag, the topic, as clearly stated at the top of the thread is "Retirement Dollars." not your other assets that you mention, like options, to make yourself falsely appear to others that you are some hot-dog investor, or whatever. You are a pathetic little idiot with a small pecker who needs to validate himself online since you get no respect in real life. Don't make it so obvious and people won't call you out on it.
@1zkt - All the assets are related to the topic at hand, since they are all part of my Chevron compensation. In any case, you're obviously a troll, just trying to get me riled up. Hope you got some laughs.
@Hj8aBIO-1pos, No, we do't, but we do know that you have an inferiority complex and need to brag about things online, and make it out like you know more and have more than others. You need to be self-important anonymously online since you are not important to others in real life. Why would you mention that extremely weak, short and pathetic list of your assets not related to the conversation at hand at all in any way? That is in many cases associated with a man with a small pecker who desires self-validation both physically and mentally. You need to find other ways to validate your existence other than money and material goods. You are destined to live the rest of your life and die unhappy. Money will not make you a man, or give you a normal sized pecker. You should just be happy with what you have (small pension) and small pecker.
@1lxe - You have no idea how big my pension is, how much is in my 401K, how much is in my Chevron RRP, or how many CVX options I cashed in and how many I have left. But thanks anyway for insight you have given us into your personality.
@Hj8aBIO-1xms, It's simple and obvious, you are a butthurt loser and you are not getting as big of a pension as @-1bbg and @-1xpl . What part of that don't you understand? You can run your calculators day and night and it won't make your little wimpy pension grow. I know conclusively that the annuity payout for exceptional employees is better than that of those for losers. They consider those people deadwood and on the chopping block so they don't want them receiving money from Chevrons annuity program, one of the best in the industry, so they make it less attractive. It is better for the megacorp to cut loose and pay off(lump sum) deadbeat employees than keep them hanging around. They want to cut loose the rotten, filthy deadwood permanently.
@1xms, Apples and Oranges. You're misguided in your assessment and math. Don't lead the readers astray.
@1xpl - "Computing the equivalent % rate of return of an annuity vs lump sum payout has nothing to do with "segment rates"." The (averaged) segment rates are used as input for computing the lump sum from the single life annuity (pre-2008 retirement plan). The equivalent % rate of return cannot exceed all these rates. It's simple math. You obviously don't know much for a finance major. Still waiting for you to explain how you compute your equivalent rate of return and provide your numbers so anyone here can verify your reasoning. I already posted how I computed it using the BankRate annuity calculator so people can check my work. Just repeating that you know what you're talking about and other people don't won't resolve anything. In the meantime, shut up and stop feeding people with false information.
Most younger folks with a lot more years to work and save take the lump sum. It's more common for older folks of retirement age to look into a steady income and therefore are more likely to consider the annuity. However, it is extremely common for lump sum recipients to blow it all too quickly, which adds argument for all to consider that risk and act/invest accordingly. That's just history, nothing more. We should learn from history, not ignore it.
Actually, the annuity is closer to a 6% return every year. You will need to get a consistent higher return with the lump sum just to keep up. If market ups and downs are not worrisome enough, investing the lump sum also costs you money in trade commissions, fund expense ratios, and management fees.
Everyone's situation is different. If you are in your mid 60's or your health is below average, the lump sum may be your best choice. Always seek professional financial advise. Vanguard offers a free 1-hour consultation with a Certified Financial Advisor for employees 50+ age.
HA! i'd be happy to get a risk free 3 or 4% ROR. Tell me where and I will jump on that right now!