Early Retirement question/help for relative

[colleyvillesooner]

My MIL is 62 and thinks she wants to retire early. She has been missing work and taken leave of absences to help with her husbands illnesses (he is on disability and has been hospitalized twice in the last 4 months) and isn't sure how much longer she will be able to work. She knows she will only get partial SS until she is 67 i think. She works at a Walmart in the Tulsa area.

She has $9k 401k fund and $18k in WMT Stock.

Can she retire now and not pay a penalty on selling the stock and cashing the 401k? How is this done? Does it all come in a check and you just deposit it into your account, or do you have to roll it over to an IRA. They are getting all kinds of advice from people who don't really know what they are talking about, so I ask the masses here. Not sure how wise that is though ;)

Or is there someone they can talk to walk her through this? not sure they would go this route, but wanted to know who that would be.

Thanks for any help or advice.

[olevetonahill]

I cant help, But I wish her well Bro

[colleyvillesooner]

Thanks vet. It's been a rough patch for them, and I don't want them to do the wrong thing for a short term gain then get hit with a crippling tax bill.

[pphilfran]

I have been out of the loop for a few years but I think I will be correct...I am sure others will correct me if I am inaccurate...lol...

At 59 1/2 you can make a 401k withdrawal without penalty...though normal taxes will apply...

Not sure about the WM stock...probably something similar...

If you wish to transfer the money to a new account the current company should transfer to the new security firm without a check passing through your hands...you can get a check but you don't want it touching your private accounts and should be sent directly to the new firm....an account rep from the new account will be very helpful in setting up the transfer....

Good luck, sounds like you are going to need some....

[badger]

MSN Money has always had good articles on this topic. Here's (http://money.msn.com/retirement/article.aspx?post=ae25de5b-6c8c-4409-b7d1-e9ee82be0ba3) one on retiring early (although it seems to be aimed more at us younger folks). Here's (http://money.msn.com/retirement-plan/should-you-take-social-security-early-smartmoney.aspx?GT1=33040) one on getting Social Security early. Here's (http://money.msn.com/retirement/when-is-it-ok-to-tap-your-401k-early-smartmoney.aspx) one on tapping the 401k early.

Here's (http://www.kiplinger.com/tools/retiree_map/index.html?map=&state_id=37&state=Oklahoma) a site on Oklahoma tax specifics for retirees, as well as other state info... I assume they'll be staying here if your FIL is in bad health and they're already established in the Tulsa area.


Social Security benefits are exempt. There's an exclusion of up to $10,000 for qualified private pension income. Total public and private pension exemptions cannot exceed $10,000 per person. The retirement benefits must be received from an employee pension benefit plan, an eligible deferred compensation plan, an IRA, annuity or trust or simplified employee pension under IRC section 408, an employee annuity, United States retirement bonds, or lump-sum distributions from a retirement plan. There is no longer an income limit beginning with tax year 2010. For civil-service retirees, each person may exclude their retirement benefits received from the Civil Services Retirement System, including survivor benefits, paid in lieu of Social Security to the extent that such benefits are included in the federal adjusted gross income.


The big thing in all of this is that every financial planner out there would dissuade anyone from retiring early except under the most dire circumstances, such as job loss or extreme medical hardship.

I think the best thing they can do is talk to friends their own age about their own retirements (or retirement plans), including recommendations on financial planners in the area, and other resources for retirees. If they are hurting for money, there's always reverse mortgages, or shared living expenses if they live with family or friends.

Now might also be a good time to decide how much help you and your spouse are willing and able to provide them, not just financially, but providing care and assistance in everyday living. Your kids might be a bit freaked out if they get home from school one day and find that their room is occupied by the grandparents and all of the grandparents' stuff and they have just been relegated to sharing room with a sibling!

[8timechamps]

Colley, As pphilfran said, since she's over 59 1/2, she can take withdrawals without penalty (not without taxes though). First things first, she doesn't need to take the entire amount (unless she needs all the proceeds right now). She should roll it to an IRA and only take what she needs. As for the WMT stock, do you know if it's in a tax deferred account, or taxable equity account? If it's just a regular stock account, that's pretty easy to deal with. If not, it's a little more involved, but not much more.

As for SS, she can take benefits at 62. There is no additional benefit she will receive at 67 though. However, in most cases, taking SS at 62 is advisable. It will not be as much as if she waited until 67, but the difference in the total amount she will receive between now and age 67 will probably outweigh the additional benefit she'd receive if she waited.

PM me if you want to discuss things in more detail.

[8timechamps]

MSN Money has always had good articles on this topic. Here's (http://money.msn.com/retirement/article.aspx?post=ae25de5b-6c8c-4409-b7d1-e9ee82be0ba3) one on retiring early (although it seems to be aimed more at us younger folks). Here's (http://money.msn.com/retirement-plan/should-you-take-social-security-early-smartmoney.aspx?GT1=33040) one on getting Social Security early. Here's (http://money.msn.com/retirement/when-is-it-ok-to-tap-your-401k-early-smartmoney.aspx) one on tapping the 401k early.

Here's (http://www.kiplinger.com/tools/retiree_map/index.html?map=&state_id=37&state=Oklahoma) a site on Oklahoma tax specifics for retirees, as well as other state info... I assume they'll be staying here if your FIL is in bad health and they're already established in the Tulsa area.



The big thing in all of this is that every financial planner out there would dissuade anyone from retiring early except under the most dire circumstances, such as job loss or extreme medical hardship.

I think the best thing they can do is talk to friends their own age about their own retirements (or retirement plans), including recommendations on financial planners in the area, and other resources for retirees. If they are hurting for money, there's always reverse mortgages, or shared living expenses if they live with family or friends.

Now might also be a good time to decide how much help you and your spouse are willing and able to provide them, not just financially, but providing care and assistance in everyday living. Your kids might be a bit freaked out if they get home from school one day and find that their room is occupied by the grandparents and all of the grandparents' stuff and they have just been relegated to sharing room with a sibling!

Not true. Case by case basis. The best thing they can do is to talk to a financial expert. Talking to friends is great, but it's easy for friends to give advice on your money.

[colleyvillesooner]

Colley, As pphilfran said, since she's over 59 1/2, she can take withdrawals without penalty (not without taxes though). First things first, she doesn't need to take the entire amount (unless she needs all the proceeds right now). She should roll it to an IRA and only take what she needs. As for the WMT stock, do you know if it's in a tax deferred account, or taxable equity account? If it's just a regular stock account, that's pretty easy to deal with. If not, it's a little more involved, but not much more.

As for SS, she can take benefits at 62. There is no additional benefit she will receive at 67 though. However, in most cases, taking SS at 62 is advisable. It will not be as much as if she waited until 67, but the difference in the total amount she will receive between now and age 67 will probably outweigh the additional benefit she'd receive if she waited.

PM me if you want to discuss things in more detail.

Here comes dumb guy question, but why do you pay taxes on the 401k withdrawls? I thought that was the purpose, tax free savings? or is it just tax free while it's in the account?

[rekamrettuB]

Here comes dumb guy question, but why do you pay taxes on the 401k withdrawls? I thought that was the purpose, tax free savings? or is it just tax free while it's in the account?

401k contributions reduced an employees income (no taxes paid on those earnings) when earned or was contributed tax free from their employer...it's a defered tax. Problem is you defer it to when you probably need it most. She could have some basis in it and it all not be taxed but most cases it's all taxed upon withdrawal. Basically, what you said, it's tax free while in the account.

[badger]

Not true. Case by case basis. The best thing they can do is to talk to a financial expert. Talking to friends is great, but it's easy for friends to give advice on your money.

It sounded like they just needed a place to start, that's why I suggested reaching out to the local support system to find out what was available.

While I understand it's case by case, wouldn't you agree that a majority of cases are that if you can continue you working, you should and a majority of the time should not retire early unless it's unavoidable?

[badger]

401k contributions reduced an employees income (no taxes paid on those earnings) when earned or was contributed tax free from their employer...it's a defered tax. Problem is you defer it to when you probably need it most. She could have some basis in it and it all not be taxed but most cases it's all taxed upon withdrawal. Basically, what you said, it's tax free while in the account.

I wonder if this is subject to state income tax and no other taxes, because if so, Oklahoma is likely going to push through the income tax cut that makes everyone $30k and under income tax-free.

[pphilfran]

Colley, As pphilfran said, since she's over 59 1/2, she can take withdrawals without penalty (not without taxes though). First things first, she doesn't need to take the entire amount (unless she needs all the proceeds right now). She should roll it to an IRA and only take what she needs. As for the WMT stock, do you know if it's in a tax deferred account, or taxable equity account? If it's just a regular stock account, that's pretty easy to deal with. If not, it's a little more involved, but not much more.

As for SS, she can take benefits at 62. There is no additional benefit she will receive at 67 though. However, in most cases, taking SS at 62 is advisable. It will not be as much as if she waited until 67, but the difference in the total amount she will receive between now and age 67 will probably outweigh the additional benefit she'd receive if she waited.

PM me if you want to discuss things in more detail.

This is correct....I have knocked heads with 8time from time to time but overall he gives sage advice...

[8timechamps]

This is correct....I have knocked heads with 8time from time to time but overall he gives sage advice...

Are we in a bro-mance?

[8timechamps]

Here comes dumb guy question, but why do you pay taxes on the 401k withdrawls? I thought that was the purpose, tax free savings? or is it just tax free while it's in the account?

No dumb questions when it comes to this subject matter.

401(k) accounts offer tax-free growth, not tax-free income. You get a tax break on the contribution (because the money you contribute is pre-tax income), and the investments grow without any gains tax. The tax comes in when you withdrawal monies from the account (like an income).

As an example, if you had a non-tax deferred investment account, and you bought XYZ company for $10 a share, and a couple of years later, you sold XYZ's stock for $100 a share, you would be taxed on the $90 a share profit you made. In a 401(k) account, you can buy and sell as much as you like without incurring any tax.

Make sense?

[8timechamps]

It sounded like they just needed a place to start, that's why I suggested reaching out to the local support system to find out what was available.

While I understand it's case by case, wouldn't you agree that a majority of cases are that if you can continue you working, you should and a majority of the time should not retire early unless it's unavoidable?

My only reason for steering people away from friends/neighbor advice, is that it's so easy for someone else to tell you what to do with your money. It's a zero risk scenario for them.

My plan is to retire as soon as I reach my magic number. However, if a person is afraid they will be stretched too thin (or has consulted with someone that knows how to calculate retirement needs, and have been told they may not meet their goal), then yes, it's a good idea to continue working. Unfortunately, I've seen people work well past the time they could have retired, only to retire and fall to ill health or die shortly after. When that happens, the families all say the same thing: "Why did he/she work so hard to retire, when they don't even get to enjoy it". In those cases though, it's all personal preference.

[colleyvillesooner]

Thanks for all the help. this has answered my biggest questions, the taxes on the 401k and the early SS. I will try and get more info on the stocks and report back.

[badger]

Unfortunately, I've seen people work well past the time they could have retired, only to retire and fall to ill health or die shortly after. When that happens, the families all say the same thing: "Why did he/she work so hard to retire, when they don't even get to enjoy it". In those cases though, it's all personal preference.

That happened to my grandpa. He loved being a radio operator so much that he worked till he was unable to, well into his 80s (and this was back in the 80s that he retired). His health failed a few years later to the point that he was on oxygen in the nursing room.

However, his hard work ensured that grandma, who herself did not work most of her adult life because grandpa was old-fashioned like that, heh, had ample retirement funds, even though she lived well beyond "retirement age." At least 90 years old, if I recall correctly.

I also had a relative that was insistent on retiring as soon as possible, one that was also prone to buying new vehicles every year to the point of taking out home loans to finance the purchases. Didn't fare as well in the retirement funding category.

While it could be looked at a sad ending for grandpa... he did what he loved doing, and what he loved doing was his job. If he was still alive today, he'd probably be still working on radio stuff. And he loved new technology, so it'd probably involve iPods and Sirius XM. :)

[badger]

Here comes dumb guy question, but why do you pay taxes on the 401k withdrawls? I thought that was the purpose, tax free savings? or is it just tax free while it's in the account?

It would make sense not to, wouldn't it? After all, the college savings plans allow for tax-free contributions AND withdrawals, so long as it's used for college-related expenses.

Alas, the elderly (for lack of a better term of classification) are the richest group of Americans currently. They have the assets and the wealth overall, even if it doesn't apply to them all. Thus, they are the ones that are most easily taxed (so long as that strong voting base doesn't track that back to them come election time, hehe).

Perhaps a solution could be to allow tax-free withdrawals so long as it's used for specific expenses, such as medicine or healthcare. On the other hand, that might make the grannies that wanna go casino gambling with their money upset :P

[MsProudSooner2]

If she takes SS at 62, it won't go up at 67. Also, if you take SS prior to 65, don't you pay some type of a penalty if you decide you need to go back to work (and you are lucky enough to find a job) prior to 65?

[Breadburner]

What she really needs to worry about is health insurance....When does medicare kick in......

[cleller]

With regard to the WMT stock, I glanced at the Walmart website, and see that they have something called the Associate Stock Purchase Program. Apparently the employee buys stock, then Walmart will match up to 15% of that. Not sure, but this doesn't sound like a typical 401 or IRA. Since she's over 59.5, I guess it doesn't really matter.

At any rate, if she chooses to sell off any of the WMT stock, it might be favorable to do it in smaller increments for capital gains purposes. The IRS has now mandated that the investment firms supply both you and them with the cost basis (original value) or the shares, which should make the tax forms easier. You can't earn anything with the government taking their cut.

I'm rusty on this right now, but another idea might be to establish a Health Savings Account. An HSA can have some tax benefits, but also requires you carry a high deductible insurance plan, which might not fit with her needs. You can put up to $3100/year for a single or $6200 for a family plan. There is also an over 55 age catch-up feature. Just something to think about, since health care is going to be a factor for everyone.

Disclaimer: I am not a professional, and would not trust the advice of an internet poster like me.

[8timechamps]

What she really needs to worry about is health insurance....When does medicare kick in......

VERY good question/comment. Medicare eligibility isn't until 65.

[8timechamps]

With regard to the WMT stock, I glanced at the Walmart website, and see that they have something called the Associate Stock Purchase Program. Apparently the employee buys stock, then Walmart will match up to 15% of that. Not sure, but this doesn't sound like a typical 401 or IRA. Since she's over 59.5, I guess it doesn't really matter.

At any rate, if she chooses to sell off any of the WMT stock, it might be favorable to do it in smaller increments for capital gains purposes. The IRS has now mandated that the investment firms supply both you and them with the cost basis (original value) or the shares, which should make the tax forms easier. You can't earn anything with the government taking their cut.

I'm rusty on this right now, but another idea might be to establish a Health Savings Account. An HSA can have some tax benefits, but also requires you carry a high deductible insurance plan, which might not fit with her needs. You can put up to $3100/year for a single or $6200 for a family plan. There is also an over 55 age catch-up feature. Just something to think about, since health care is going to be a factor for everyone.

Disclaimer: I am not a professional, and would not trust the advice of an internet poster like me.

Sounds like a typical Employee Stock Purchase Plan, although she should verify the account (I've seen similar accounts that are actually company stock fund rather than shares of company stock...so, when the employee sees the stock price go up, they think they have full value only to learn that the company stock fund only participates in a percentage of the actual stock, typically like 50%).

Again, the health care issue is a big one. One bad year can wipe out an entire career's worth of savings.

I don't post anything someone couldn't find online. Not to mention it's unethical to offer investment advice on the innerwebs. :)

[8timechamps]

That happened to my grandpa. He loved being a radio operator so much that he worked till he was unable to, well into his 80s (and this was back in the 80s that he retired). His health failed a few years later to the point that he was on oxygen in the nursing room.

However, his hard work ensured that grandma, who herself did not work most of her adult life because grandpa was old-fashioned like that, heh, had ample retirement funds, even though she lived well beyond "retirement age." At least 90 years old, if I recall correctly.

I also had a relative that was insistent on retiring as soon as possible, one that was also prone to buying new vehicles every year to the point of taking out home loans to finance the purchases. Didn't fare as well in the retirement funding category.

While it could be looked at a sad ending for grandpa... he did what he loved doing, and what he loved doing was his job. If he was still alive today, he'd probably be still working on radio stuff. And he loved new technology, so it'd probably involve iPods and Sirius XM. :)

Happens a lot. The Depression era generation is a perfect example of this. My grandma lived very comfortably thanks to my grandpa's planning. He worked until he was 77, then lived another 8 years. He was able to enjoy some of his earning, but people from that era don't loosen the purse strings very easily.

There are those people that "want" to retire early, and those that are putting the work in to actually retire early. Funny thing is, most of the "want to" folks do the least in terms of funding retirement.

[Sooner24]

If she retires in the year she turns 55 or older, which she would be, she can make withdrawals from her 401 with no penalty and only pays taxes on the money. If it's 401A money she will only pay taxes on the portion that is interest and not the money she contributed.

[badger]

There are those people that "want" to retire early, and those that are putting the work in to actually retire early. Funny thing is, most of the "want to" folks do the least in terms of funding retirement.

Word. I also have an ex-union retired janitor in the family that made more money than my college educated parents as a unionized janitor. Despite the good money, he hated his job and wanted to retire as soon as the union allowed... 55, I think.

I don't think their finances are really well in order... he's another one of those "new trucks every year" kind of guys. My own parents are still working, however, and can't wait to spend their retirement years enjoy time with their grandkids. Of course, this would involve me having grandkids, hehe

[colleyvillesooner]

If im reading this right, she can roll it into an IRA, then withdraw as she needs it and pay taxes on those withdrawls?

[rekamrettuB]

If im reading this right, she can roll it into an IRA, then withdraw as she needs it and pay taxes on those withdrawls?

Pretty much. Not a lot in her accounts tho so it's not like it's going to throw her in a higher tax bracket if she does decide to w/drawal all of it.

[badger]

Pretty much. Not a lot in her accounts tho so it's not like it's going to throw her in a higher tax bracket if she does decide to w/drawal all of it.

Does anyone know if the state taxed portion is an income tax? If so, she should hold off retirement till 2013.

Right now, the highest state income tax bracket is... $15,000. Yes, that is right below minimum wagin'. And if you make $15k or more, you are subject to 5.25 percent state income tax.

Link (http://www.tulsaworld.com/news/article.aspx?subjectid=11&articleid=20120209_16_A1_Oklaho593072)

Suddenly, NP and I paying everything from federal income tax refunds back to the state makes more sense...

Next year, after Oklahoma's Republican legislature presumably changes the tax rate so that $70k and over is the highest tax bracket (3.5 percent) and there's less taxes for lower income groups (2.25 for $30k to $70k, none for below $30k), she might not have to pay as much tax on that money.

IF, a big IF, that money is taxed under state income taxes.

[colleyvillesooner]

That's the thing i can't figure out, is it taxed by the state too.

[C&CDean]

No advice for your kin folk Ben, but thanks for the thread. It reminds me of how truly blessed I am.

Retired at 54 and making almost double what I made the day I retired and loving what I do. I can afford to live my normal lifestyle on my retirement alone if need be, and I don't draw SS and never will. Your thread kind of brings it all back into focus for me and makes me that much more thankful.

[pphilfran]

You will pay state taxes on the withdrawals....

[C&CDean]

You will pay state taxes on the withdrawals....

Which reminds me that since I'm on the old CSRS retirement system, I don't pay state taxes on my retirement income. Again, blessed.

[pphilfran]

Which reminds me that since I'm on the old CSRS retirement system, I don't pay state taxes on my retirement income. Again, blessed.

Screw you and your entitlements....

[C&CDean]

Screw you and your entitlements....

Entitlements? I am cut to the core sirrah. My benefits are a result of hard work, dedication, and all of you fine folks who have purchased postage over the past half-century. Mail early, mail often.

[rekamrettuB]

It's taxed by state but the state of Oklahoma has a $10,000 deduction of retirement income so, in this case, would knock out that 9,000 in her 401K.

[colleyvillesooner]

It's taxed by state but the state of Oklahoma has a $10,000 deduction of retirement income so, in this case, would knock out that 9,000 in her 401K.

As in, if she withdrew it in full, she would get zero? or if she cashed the 401k and the stocks, she would get 17K?

[rekamrettuB]

As in, if she withdrew it in full, she would get zero? or if she cashed the 401k and the stocks, she would get 17K?

She wouldn't be taxed at the state level on her 9K in her 401k because of the $10,000 deduction for retirement income. I'm not sure how the Wal Mart stock stuff will work tho. I assume it's not a 'retirement plan' and she'll be taxed as if she purchased the stock outside of any type of employment agreement but I'm not sure. Been a long time since I've dealt with anyone that cashed in Wal Mart employee stock.

[pphilfran]

I didn't know about the Ok 10k retirement deduction...

[diverdog]

My MIL is 62 and thinks she wants to retire early. She has been missing work and taken leave of absences to help with her husbands illnesses (he is on disability and has been hospitalized twice in the last 4 months) and isn't sure how much longer she will be able to work. She knows she will only get partial SS until she is 67 i think. She works at a Walmart in the Tulsa area.

She has $9k 401k fund and $18k in WMT Stock.

Can she retire now and not pay a penalty on selling the stock and cashing the 401k? How is this done? Does it all come in a check and you just deposit it into your account, or do you have to roll it over to an IRA. They are getting all kinds of advice from people who don't really know what they are talking about, so I ask the masses here. Not sure how wise that is though ;)

Or is there someone they can talk to walk her through this? not sure they would go this route, but wanted to know who that would be.

Thanks for any help or advice.

Okay, i have a bunch of questions.

1. Is your FIL getting SS benefits?

2. Is he covered by medicare or some other medical plan?

3. Has your MIL talked to Walmart HR about FMLA? Is she full time or part time? Is she covered by the health plan?

4. Does your FIL have a retirement plan.

5. What are their current expenses? Is the house paid for or do they have a mortgage?

6. Do they have assets besides what you listed. Oh and how long has she owned the stock?

7. Do they have any life insurance with cash value?

8. I hate to say this but unless they have more than what you are listing she cannot retire. Even if she decides to go down this path she needs to talk to SS before she makes any moves. You may have to face the very real possibility that someone in your family may need to take them in. This is not a great scenerio for them. They are going to need government help. I would also tell her not to cash in her savings. They are one disaster away from cleaning out their savings.

One other thought she should talk to social services.

A lot of the better banks have financial councilors and theymay talk to them for free. Make sure you find one that is a CFP and is honest and will give your in laws honest advice.

[SanJoaquinSooner]

Kiplinger (March 12) has an article, Make the Most of Social Security.

Lots of issues to consider. Here are two interesting paragraphs:


Couples should try to maximize household income over their lifetime. To do that, sometimes it makes sense for the lower-earning spouse (usually the wife) to collect benefits early, at age 62, and the higher-earning spouse to delay claiming benefits for as long as possible, earning an 8% delayed-retirement credit for each year up to age 70.

Although the wife's retirement benefits will be permanently reduced by 25%, collecting benefits early will have no impact on her more valuable survivor benefit. If her husband dies first -- and she is at least normal retirement age at the time -- she will be entitled to 100% of the monthly amount he received during his lifetime.


http://www.kiplinger.com/magazine/archives/make-the-most-of-social-security.html

[8timechamps]

Kiplinger (March 12) has an article, Make the Most of Social Security.

Lots of issues to consider. Here are two interesting paragraphs:




http://www.kiplinger.com/magazine/archives/make-the-most-of-social-security.html

Kiplingers is the BEST finance magazine for the average investor. I recommend it often.