There’s a basic formula for determining when you can retire: when the withdrawals on your retirement nest egg will cover your expenses. Simple right? But what if your company wanted you to make a retirement decision, and gave you two weeks to decide?
Unfortunately, that’s a situation that we’re currently facing. Our company announced a change to our pension program at the beginning of the year. We were told that the lump sums of our pension plan would go down… but we wouldn’t know by how much until a calculator was available. However, if you retire in the next two weeks, you can still get the higher amount.
The calculator was made available yesterday and here’s what it looks like for me:
Unfortunately, the change just decreased my compensation package as I am now effectively earning less than I was before. In addition, it will take me over six years just to get back to the value that I currently have.
Since I was considering becoming a stay-at-home mom before, this is really making me reevaluate my plans to change around our finances by the end of next year.
What it means for you?
Anytime you could be faced with a split-second decision. Would you be prepared to make a quick decision? What if you received the numbers and had to make a decision in two weeks?
The reality is that things can change. Companies get bought, benefit plans change, you could be offered a buy-out. Are you ready?
What you can do to prepare yourself
Many of the topics in Retirement Planning Checklist: 43 Tasks to Get You Ready can be done long before retirement. Having them handy will give you a head start to making a quick decision. In addition:
- Know your living expenses.
- Know how much income your outside investments will generate.
- Have your finances in place to make a quick change.
Action Plan
I had some things on my to-do list from the planning I did back in February. We’re almost ready to refinance (just waiting for the right rate to lock and apply), the business is going well and I put the car up for sale.
However, two weeks is going to be a really tight time line….
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I lost everything due to illness several years ago. I’m now 55, and starting over with my retirement. I’m trying to get something going online to make money to put into my current 401(k) at work. I think you could make some money online. You’re good at writing. Give it a shot!
frugalwenchApril 29th, 2008 at 3:35 pm
That’s a big decision to make!
Good luck.
Unfortunately, I would not be in a good position if that happened to me, so I’m hoping for more time to get things in order.
MoneytummyApril 29th, 2008 at 7:04 pm
If anyone can get the analysis done in time it’s you!
I think you should take the plunge - you will make it work.
Mike
Four PillarsApril 29th, 2008 at 10:10 pm
Some of the best advice I ever got was: As long as you have all the information you need, delaying a decision does not ultimately significantly affect the decision. So if you have all the information you need, go with your first instinct.
MITBeta @ Don't Feed The AlligatorsApril 29th, 2008 at 10:16 pm
MIT - that’s some pretty good advice! I guess the trick is to know when you have all the information you need….
Mike
Four PillarsApril 30th, 2008 at 6:07 am
Wow!
This is along the lines of my recent rumination on planning an alternative budget in case of disaster (such as a job loss). Much, much scarier, though! I’ve just been worrying…you apparently actually have the circumstance in front of you. Gasp!
Funny about MoneyMay 5th, 2008 at 6:04 pm
@ Frugalwench: Thank you for the compliment. I consider my writing my weakness, so it feels great to hear otherwise. Glad to hear you are working to find extra money to put in your 401k.
@ Moneytummy: I think I might need more time too. Luckily there could be a second opportunity at the end of the year.
@ Mike: Of course I knew what your vote would be! I have been pretty open to change my whole life, so I’m surprised to see my own reluctance about “taking the plunge”.
@ MIT: That is terrific advice. I promise I’m trying really hard to decide! I think I may still need one more piece of information about our refinance though.
@ Funny about Money: That is a terrific idea. I have been running bare minimum survival calculations, it could be a very valuable tool for everyone.
May 6th, 2008 at 9:24 pm