Boeing Pension and Lump Sum Comparison – Should I Retire Early?

Boeing Pension and Lump Sum Comparison – Should I Retire Early?

 

Boeing Employee – Should I Retire Early?

Boeing employees nearing retirement age are facing a financial decision that will need to be made by November 30—one that could have a significant impact on their lifestyle in retirement.

 

Higher Interest Rates and the Lump Sum Pension Benefit

Boeing offers many employees the option at retirement to either receive a pension, providing monthly income for life, or to have a single lump sum deposited into a retirement account that can be invested and withdrawn as desired.

The amount of the pension benefit is based on several factors, including years of service with Boeing and average salary while employed.

When determining the lump sum benefit, the underlying interest rates are an additional factor to take into consideration. Higher interest rates will create a lower lump sum benefit, and lower interest rates will create a higher lump sum benefit. Boeing resets the interest rate used in the calculation once per year in November.

With the significantly higher interest rates we’ve seen in 2022, an engineer who may currently qualify to choose either a $5,000 monthly pension or a $1 million lump sum benefit may be looking at only $800,000 in lump sum benefit if they retire after November 30, 2022. The exact numbers will vary for each employee.

That $200,000 reduced benefit can be a significant incentive for employees who are planning to retire in the next few years to adjust their plans and retire early.

 

To Whom Does This Apply?

Not all Boeing employees have a pension as part of their benefits. Also, some employees are covered by unions that only offer the monthly pension and do not have a lump sum option.

Boeing engineers who are members of the SPEEA (Society of Professional Engineering Employees in Aerospace) union usually have a generous lump sum benefit compared with the monthly pension and may benefit significantly from comparing their options.

 

Financial Planning to Compare Options

The decision to take either the lump sum in retirement or the monthly pension is a significant one, and both contain risks.

With the lump sum, the employee is accepting the risk of the market and managing the money.

With the monthly pension, the guaranteed income provided to the employee will not increase with inflation. This year has been a good reminder that inflation can significantly reduce the purchasing power of that income.

Also, does it make sense for an employee who originally planned to retire in two years to give up on the years of additional earnings and savings? Can the employee afford to do so?

We help employees compare how a monthly pension or lump sum benefit will interact with other resources (Social Security, retirement accounts, real estate) to determine the ability to meet goals in retirement. We can also compare retiring in 2022 with delaying retirement and possibly receiving a reduced benefit in the future.

 

Deadline and Next Steps

Boeing employees wanting to claim the lump sum before rising interest rates potentially reduce benefits will have to retire and submit the request for a lump sum benefit by November 30, 2022.

If you’re feeling overwhelmed by assessing the pros and cons of this decision, reach out to us for your complementary personalized analysis. We can help you determine whether retiring now would provide you with a sustainable retirement that meets your lifestyle needs.

 

 

 

Disclosure: All opinions expressed in this article are for general informational purposes and constitute the judgment of the author(s) as of the date of the report. These opinions are subject to change without notice and are not intended to provide specific advice or recommendations for any individual or on any specific security. The material has been gathered from sources believed to be reliable, however Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source.  Merriman does not provide tax, legal or accounting advice, and nothing contained in these materials should be taken as such. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. As always please remember investing involves risk and possible loss of principal capital and past performance does not guarantee future returns; please seek advice from a licensed professional.

 

 

 

 

Common Investor Mistakes During Market Corrections

Common Investor Mistakes During Market Corrections

 

When it comes to investing, market corrections are inevitable. Since 1950, there have been 37 declines in the S&P 500 of 10% or more—or approximately one every two years. Enduring these corrections is the price we pay as long-term investors striving to meet our financial goals. How we act during these time periods is what separates the rookies from the professionals and can dramatically alter how successful we are in achieving those goals.

We all tend to have a higher risk tolerance when markets are performing well. During a review with our financial advisor in the comforts of a home or office, we can easily imagine a world where stocks might be 10% to 20% cheaper on paper and how that may impact our financial goals. However, when we think about future risks in the markets, we tend to underestimate how we will feel in the moment. We lose sight of what else is happening in the world that is causing the markets to decline and how that might impact us personally. This year is no different, and the laundry list of reasons is long:

  • The war in Ukraine is costly
  • Inflation is the highest in 40 years
  • The Federal Reserve is tightening monetary policy
  • The supply chain is a mess
  • Mortgage rates are rising at the same time housing prices are at all-time highs
  • The pandemic is not over
  • Market valuations are too expensive, and we are overdue for a reset

The bottom line is, there is always a reason for why we experience market volatility, and how that impacts us personally can create stress, fear, and anxiety. When we let our emotions take over, we naturally have an urge to do something about it. These emotional reactions can lead to mistakes that can reduce the probability of meeting our finance and investment goals. Below are common mistakes investors make during market corrections and steps we can take to help mitigate costly errors.

 

Mistake #1: Looking at the market daily

When headlines are scary, the daily moves in the stock market are volatile and unpredictable. Checking the market or your portfolio frequently will only heighten any fear and anxiety and may result in poor investing decisions. During difficult markets, it is important to remember that you have an entire team working for you at Merriman. We have designed your portfolio using decades of academic research to weather all types of market environments so you can have peace of mind. We are also here to take on any blame for when things do not go as planned. You should take advantage of the resources at Merriman and schedule a time with your advisor to help refocus on your long-term plan.

 

Mistake #2: Deviating from an investment plan or not having a plan at all

Another reason you have an advisor at Merriman is to create an investment plan that aligns with your goals, return expectations, and risk profile. The plan is a customized, long-term strategy meant to withstand multiple market cycles. If you have the urge to change your plan during a market correction, then have a conversation with your advisor and ask the following questions: Have my long-term goals changed? Am I still on track to meet those goals? If I deviate from my investment plan, how will that impact the probability of successfully meeting my goals? These questions will help reduce any reactionary emotions and shift your mindset back to the big picture.

 

Mistake #3: Trading more frequently or trying to time the bottom

Day trading and market timing strategies are automated systems that utilize algorithms and programmed rules designed to execute trades in milliseconds. This places the human day trader at a significant disadvantage. While the data supports that day trading or attempts to time the market are not additive to long-term returns, market corrections can be an excellent time to be a buyer.
However, it is vital to have an investment plan in place so you are prepared to execute in the moment. As an example, a rebalancing strategy is one method that is highly effective for long-term results. This removes emotions from the equation and allows for a disciplined plan of attack during market downturns.

 

While your feelings play a vital role in determining the right long-term strategy for you, we cannot let emotions dictate our investing decisions, particularly during market corrections. This can lead to short-term mistakes that, left unchecked, can have negative impacts on your retirement goals. A disciplined investing approach based on facts, not emotions, is the winning formula.

 

 

 

Disclosure: All opinions expressed in this article are for general informational purposes and constitute the judgment of the author(s) as of the date of the report. These opinions are subject to change without notice and are not intended to provide specific advice or recommendations for any individual or on any specific security. The material has been gathered from sources believed to be reliable, however Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source.  Merriman does not provide tax, legal or accounting advice, and nothing contained in these materials should be taken as such. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. As always please remember investing involves risk and possible loss of principal capital and past performance does not guarantee future returns; please seek advice from a licensed professional.

Let’s Talk About Living with Student Loans

Let’s Talk About Living with Student Loans

 

Let’s Talk About Living with Student Loans

I have more student loan debt than I care to admit. But it was my decision, and I own it.

 

There’s been a lot of chatter in the news lately about student loan debt. With the total U.S. student loan debt reaching $1.75 million (mine included), the calls to forgive student loan debt have reached a crescendo—as if, if we scream it loud enough, the debt will just disappear into the ether. Removing the prospect of a presidential magic wand making it go away, the real question now is this: how do you save for the future, pay down your debt, and live fully?

I often read news articles detailing the hardship new graduates face when they struggle to pay down their loans and subsidize their lifestyles. I see a lot of finger-pointing toward a rigged system, corporations underpaying, or the predatory nature of lending. This isn’t to dismiss legitimate concerns of these institutions, but too often, I see a lack of personal agency. Behind some news articles, you find the subject of the article owns a Mercedes or rents an apartment that their social status dictates they should have but not the one their wallet demands. Take a step back.

Can you answer “yes” to these questions?

  • I know exactly how much money I’ll have at the end of the month.
  • I do not live paycheck to paycheck.
  • I can pay my bills and still save for wish list items.

If you answered “no” to any of those questions, it’s time to look at your current lifestyle. There’s an emotional component to finance that we often overlook. For many of us, our relationship with money becomes a reflection of who we are as a person. No one proudly admits they spend $150 on brunch a month. And no one boasts about their tendency to avoid their bank accounts out of fear of what the balance will be. After college, I had a coming-to-Jesus moment when I decided that to live my life fully, I needed to be the one who dictated where each and every dollar went. Enter zero-based budgeting.

If you’re not familiar with it, zero-based budgeting requires you to assign each and every dollar of your paycheck to a job. By assigning each dollar, it exposes your spending habits and tallies all the dollars and cents that have a sneaking tendency to add up well beyond your expectation. You must decide, “Do I need to budget $100 on Uber rides? I’d rather apply it to something else more important.” There is a mental calculation and trade off that must occur for you to affirm how your money is spent. There are several apps you can find to assist with this, such as You Need a Budget (YNAB) and EveryDollar. Having done this myself for a while now, I have found significant savings that I use to apply toward next month’s bills, thus providing me a safe buffer should I run into emergency expenses. I cook meals at home, and now suddenly I have $150 to allocate how I want (hello, Hawaii fund!).

Here’s the point: budgeting every dollar sets you free. It sounds counter-intuitive, but it’s not. I’ve been able to tell every dollar what to do. I can set goals for myself, make trade-offs, and avoid incurring more debt. That constant fear of not knowing if I’ll make it to the next paycheck has vanished. It’s also worth noting that while it may feel difficult at first to adjust, your income is likely to increase as you pay down your loans. Luckily, your spending habits will stick even as you increase your wealth.

How do you save for the future, pay your debt, and live fully? You take control of your financial situation—warts and all.

 

 

 

Disclosure: All opinions expressed in this article are for general informational purposes and constitute the judgment of the author(s) as of the date of the report. These opinions are subject to change without notice and are not intended to provide specific advice or recommendations for any individual or on any specific security. The material has been gathered from sources believed to be reliable, however Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source.  Merriman does not provide tax, legal or accounting advice, and nothing contained in these materials should be taken as such.

Generation 401(k)

Generation 401(k)

 

The 401(k) has only been around since the early 1980s. When Indiana Jones was searching for the Lost Ark, employees were just beginning to contribute to their own retirement savings instead of relying on employer-run pension plans. Widespread adoption took a few years, so we’re just now starting to see a generation of hard-working Americans who were in charge of their own retirement throughout their entire career. I call these individuals Generation 401(k).

Bull markets in the ‘80s and ‘90s gave a lot of people confidence that 401(k)s were a much better way to save, but then a couple of recessions in the 2000s made everyone take a closer look at the pros and cons of self-directed retirement savings. In reality, 401(k)s were a way for employers to cut costs and worry less about having to make pension payments in the future. For employees, being in control of one’s own retirement seemed like a great opportunity; but it turns out it was more of a huge responsibility than anything else.

Before 401(k)s, many employees worked hard and didn’t think about how much they needed to save to create an income stream during retirement because their pension would take care of it. The pension wasn’t optional—it was automatic—and the employer was on the hook if anything bad happened in the stock market. Then, all of a sudden, the 401(k) came along, and employees had to choose how much to save, figure out where to save it, and then be able to stomach the ups and downs of the economic roller coaster. As a result, there is a whole generation of soon-to-be-retirees who are just now realizing they don’t have enough saved to enjoy life after work.

Millennials aren’t Generation 401(k). For the most part, it’s the parents of millennials who got stuck making self-directed investment decisions but lacked guidance and education on how to do it. It’s not their fault. The parents of Generation 401(k) weren’t able to teach their children how to invest wisely because it was never something they had to worry about. The result was inevitable: When it comes to preparing for retirement, trying to figure it out along the way isn’t the best path to achieve a stress-free life after work.

Where does this leave us today? For many in Generation 401(k), it’s catch-up time. Quite literally. In 2001, laws changed that allowed individuals to put more into their 401(k), including a new rule that allowed employees 50 or older to save more than their younger colleagues. These extra contributions for those over 50 are called “catch-up” contributions. This means that the final 10–15 years before retirement is a crucial time for saving as much as possible. In other words: It’s pedal to the metal time for saving.

For the younger generations, millennials and Gen Z, financial resources and education have caught up to the times. Young adults in their 20s and 30s know that achieving financial independence is their responsibility. The internet has made finding planning tools and investment knowledge available at the touch of a button or a voice command (“Hey Siri, how do I save for retirement?”). Preparing for early retirement has even sparked a revolution in how we perceive life after work. The “Financial Independence, Retire Early” (F.I.R.E.) movement has an almost cult-like following. The principles at the core of F.I.R.E. are nothing new, but the delivery has entered the 21st century by embracing technology and social media.

There is one common thread between Generation 401(k) and the younger generations. Whether retirement is 5 years away or 30 years away, it’s not going to happen the way you want it to happen without a plan. People who are planning to retire can do it alone, or they can choose to work with a professional. In these times of information overload, the allure of the do-it-yourself method has created paralysis-by-analysis for many. There are so many different moving parts to putting together a well-thought-out retirement plan that many people start down the path only to end up frustrated and rudderless before actually doing anything.

If you find yourself worried about having enough when you retire and you don’t have time or energy to dedicate to creating a financial plan, then you should hire a professional who can help you. Also, it’s not enough just to create a plan. You need to work with someone who will ensure that you implement your plan. Hoping you’ll be able to enjoy life after work is a stressful way to go through life. Knowing you have a solid plan in place to achieve your financial goals can give you peace of mind. How do you want to retire? Hoping it’ll all work out? Or knowing you can be financially independent?

DISCLOSURE: All opinions expressed in this article are for general informational purposes and constitute the judgment of the author(s) as of the date of the report. These opinions are subject to change without notice and are not intended to provide specific advice or recommendations for any individual or on any specific security. The material has been gathered from sources believed to be reliable, however Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source.  Merriman does not provide tax or legal or accounting advice, and nothing contained in these materials should be taken as such. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. As always please remember investing involves risk and possible loss of principal capital and past performance does not guarantee future returns; please seek advice from a licensed professional. Advisory services are only offered to clients or prospective clients where Merriman and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Merriman unless a client service agreement is in place.

The Ultimate Guide to 401k Rollovers

The Ultimate Guide to 401k Rollovers

Introduction written by: Daniel Hill

Meeting new clients is one of my favorite parts of working in wealth management. They come to us from all walks of life, and there’s a certain fascination associated with discovering each client’s journey that brought them to Merriman. Part of that discovery process involves understanding a client’s financial situation and looking at their previous work history. We see asset statements for IRAs, brokerage accounts, and, more often than not, an old 401(k) plan from a previous employer that’s been hanging around. Trust me, I’ve been there. Everyone switches jobs, and in the hustle and bustle of getting set up with a new company, the previous company’s 401(k) plan is left to its own devices with the assumption that it’ll continue to grow in value. But at what cost?

There are several options you can pursue in handling your old 401(k). We’ve put together a great tool to help you decide what to do: The Ultimate Guide to 401(k) Rollovers! We discuss your options, ranging from doing nothing to rolling your 401(k) into a traditional IRA. We walk through the advantages and disadvantages of each option as well as what to think about before making a decision. Every person has a different set of circumstances that must be taken into consideration, so ultimately, the decision you make has to be the one that is best for you. As always, if you find yourself wanting to speak with an expert, don’t hesitate to reach out to us at Merriman.

 

 

 

 

Disclosure: The material is presented solely for information purposes and has been gathered from sources believed to be reliable, however Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. Merriman does not provide tax, legal or accounting advice, and nothing contained in these materials should be relied upon as such.

Demystifying Retirement Income

Demystifying Retirement Income

 

You’ve worked hard. You’ve saved your pennies and watched every cent. Yet now that retirement is just around the corner, you’re second guessing whether you’re truly ready.

We see this often at Merriman. Near-retirees get cold feet not because they’re unprepared for retirement but because they’re unsure how to manage their retirement income. There’s less room for mistakes without a salary coming in. At the same time, retirement is full of financial uncertainties, ranging from personal health to the economy.

The solution isn’t to delay the retirement you’ve worked hard to secure. If you want to feel financially secure heading into retirement, start by learning the ins and outs of your retirement income.

 

How Much Income Do You Need in Retirement?

Outliving your savings is a top fear for retirees. Rather than letting worry consume you, do the math to understand your retirement budget. Account for major budget items like housing, transportation, and healthcare along with variable expenses. Then, take stock of your retirement benefits to see how they stack up.

Is there a big gap? Consider how you can reduce living expenses in retirement. Housing is a major expense, and many older adults are paying for more housing than they need. Downsizing saves money and cashes out home equity to put towards retirement savings. However, this only works if you have enough equity to make selling worthwhile. To estimate home equity, subtract the mortgage balance from the home’s current market value.

After housing, recurring bills and lifestyle expenses have the biggest impact. Rather than assuming small expenses don’t make a dent, use a budget to see how it all adds up and then adjust as needed.

 

Understanding Retirement Income Sources

Now that you understand the expenses side of the equation, let’s examine retirement income.

 

How to calculate Social Security benefits

Social Security retirement income depends on two main factors: lifetime earnings and the age you claim benefits. Filing early reduces benefits whereas delaying past full retirement age increases Social Security payments. Estimate your Social Security benefits online.

 

What about pensions?

Workers with a pension enjoy a second fixed income source in retirement. Pension plans distribute monthly payments according to a vesting schedule. Making the most of a pension requires understanding minimum distributions, age requirements, and other fine print to maximize your payout.

 

Other fixed income sources in retirement

In addition to Social Security and pension plans, retirees rely on fixed-income investments for income generation and capital preservation.

Fixed income investments include:

  • Bonds and bond funds
  • Certificates of deposit
  • Fixed annuities
  • Mortgage-backed securities
  • Preferred stock or securities

 

How to Supplement Fixed Retirement Income

Fixed-income sources provide stability and peace of mind. They don’t, however, keep up with rising costs of living. To maintain their standard of living over time, retirees need diversified income.

 

Building a balanced investment portfolio

It’s standard for near-retirees to shift asset allocation towards low-risk investments. However, stocks are still an essential part of a balanced portfolio due to the return potential. An experienced financial advisor can determine the right asset allocation for your goals. They’ll also develop a withdrawal strategy to maximize retirement savings. Common approaches include the 4% withdrawal rule, fixed-dollar withdrawals, fixed-percentage withdrawals, systematic withdrawal plans, and withdrawal “buckets.”

 

Working in retirement

Many older adults are starting businesses for flexible retirement income. The best businesses for retirees are low-risk and low-cost, such as consulting in a field where you have niche experience. Beyond less financial risk, consulting businesses are easy to start: Simply file a “doing business as,” also known as a DBA, with the Washington Secretary of State to operate as a sole proprietor under your brand.

 

Retirement shouldn’t feel like the great unknown. If you feel like you’re walking into retirement without a plan, contact Merriman to learn how we can help. Merriman’s fee-only services will help you clarify your retirement goals and understand your options for achieving them. Contact us toll-free at 800-423-4893 or email info@merriman.com to learn how you can invest wisely and live fully.

 

 

 

Written exclusively for Merriman.com by Katie Conroy.
Katie Conroy is the creator of Advice Mine. She enjoys writing about lifestyle topics and created the website to share advice she has learned through experience, education and research.

 

 

Disclosure: The material is presented solely for information purposes and has been gathered from sources believed to be reliable, however Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. Merriman does not provide tax, legal or accounting advice, and nothing contained in these materials should be relied upon as such. Advisory services are only offered to clients or prospective clients where Merriman and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Merriman unless a client service agreement is in place.