Can I Cash In My Pension

Ruth asks…

How to Best Invest $30K for My Future?

I really need some financial advice so I‘m calling out to all the Financial Wizards out there!!!

I am a divorced 47 year old woman, permanently disabled, and receive $1683/mo from Social Security Disability Insurance (SSDI) as my only source of income ($1780 – $96.40 for Medicare) .

It’s a long story, but I had to cash out my pension for living expenses while waiting for SSDI and Long Term Disability Insurance to be approved. It was long-ago spent, thus I have no pension other than a lump sum of approximately $30,000 from a medical disability settlement.

I own my home and my mortgage is about $920 and includes insurance and taxes. In 2009 my house is appraised, for tax purposes, at $233K, in 2008 it was $212K, and 2007 was $199K. I currently owe ~ $156K. I cannot currently re-fi it due to a tax lien (another long story).

So, since I‘m operating under the assumption that I alone will be responsible for myself and my finances until I die, I am trying to figure out the best way to invest this money. I realize this is a terrible market right now and won’t earn a lot. I can‘t have all the money tied up so I couldn’t access it within, say, 30 days, in case of an emergency.

Are any money and retirement savvy folks out there who can give me their opinions? I realize I must make the final decision but some “If it were me, I would ___” scenarios would be greatly appreciated.

Thanks,

Karen

Pension Forecast answers:

$30,000 is not a lot of money to retire on, so we have to make it grow first before using it.

$10,000 should go into an emergency fund.
That’s cash in the bank, for real emergencies, such as a leaky roof.

The other $20,000 should go into the stock market, as you won’t be touching it for 15-20 years. Your investment strategy is “buy-and-hold”
Open up a brokerage account, such as etrade, or schwab, and buy four different mutual funds.
$5,000 each goes into 1) growth, 2) growth & income, 3) aggressive growth, 4) international.
Mutual funds are better than single stocks, because there’s less risk. If a mutual fund holds 50 stocks, odds are that at any given time, 25-30 of them will be going up, and 20-25 of them will be going down.

I would not use any of this $30,000 to pay down the mortgage, because if you can’t refi, you can’t reduce your payments.

This is going to be a very tight budget.
But you do have one thing going for you: The only debt is the mortgage.

$1683 – income.

$200 – food
$920 – mortgage
$ 50 – clothes
$200 – transportation (city bus and/or gasoline)
$ 50 – car insurance (it’s a $300 check every six months)
$200 – utilities (electric, water, cable, phone)
$ 63 – fun and/or replenish the $10,000 emergency fund.

Two things will sink this budget quickly: credit cards and car payments. Avoid them both like the plague.

And if there’s anything you can do to get some extra income, do it.

Chris asks…

Is my friend being selfish?

For the past five years I have supported my friend in every way imaginable (financial, computer layout, colorizations, editing, creating and setting up his website etc, etc., ad infinitum) in his pursuit and endeavor to create, draw, write and ultimately publish his comic book graphic novel. Three years ago (2007) with the release of his graphic novel he decided to quit his job, and cash out his pension ($10,000) to pursue his dream full time. Needless to say, his money ran out in about seven months.Since that time I have supported him financially, paying his part of the rent (we live together), fixing his car when it went down, buying him groceries, paying for the various comic book convention vendor fees so he can sell his graphic novel at the shows, and the like. Last September I lost my job, and since that time things have been very hard for me. However, I am still supporting him. Recently, I had to sell some of my rare books to raise some money for groceries. He felt bad, so he decided to sell some of his Transformer toys. However, he only sold the ones that weren’t worth anything. He took one toy with him that was worth quite a bit, and I was with him when he turned down the offer of $450.00, even though we are behind in rent. He claims he just can‘t part with that particular toy. He also has a room full of other Transformer toys that are worth quite a bit of money, but he claims he won’t part with them. I have given up everything to help this guy (money, time, energy, effort, etc.) without the slightest hesitation, yet he sits around and watches me suffer, and struggle to keep things going. Is my friend being selfish?

Pension Forecast answers:

This question could easily go both ways. Im sure in your life, you have had something that has had a special meaning to you, maybe something you have received from someone you love, or some other reason, that you just don’t want to give it up. You feel like if you give it up, you have lost a special part of you and there is no way to get it back, even a feeling of hopelessness maybe. But on the other hand, you have seemed to have helped your friend with a lot and I think you deserve better from him. Maybe if you show how much you need help, and how much you have sacrificed for him, he will might come around and give up something for a great friend. So yes, in a way, your friend is being selfish.

Linda asks…

I need advice on personal pension, please?

To start, I am in full time employment and have never claimed benefits of any kind.

Ok. Well I am 57 years old and I have a pension fund.
My pension is invested in shares and as you know at the moment shares are at an all time low, but I need £8000 quick.
I can not afford to take out bank loans, in fact the thought of borrowing money is repulsive to me.
My question is, do you think the recession will turn in the near future, should I leave my pension or should I cash it in and get the money I need.
I know it is an impossible question to answer, but I really would appreciate your views. You see I need the money so badly that I don’t know if I am being reasonable or not.
Please if you do answer, speak in layman’s terms.
Thank you in anticipation.

Pension Forecast answers:

You see I need the money so badly …
How badly is that then? For a lung transplant? Life-saving treatment? For something that will ensure you survive to cash it in?

The thing is- if you cash in your pension fund it will likely yield a lot more than £8000. The trouble is what to do with the rest of it- because annuities (which is what you would need to buy to generate a pension from your fund) are at a cataclysmic low right now, and likely to remain so for at least another 18 months. If you buy one now while they are low your pension will always be low and your pension won’t go up when the annuities recover. There is a big debate about this on www.thisismoney.

If you can just take out the £8000 and leave the rest in shares I would do that (I would, seriously, because that’s the amount I need too!) and shares are recovering daily now. If you are allowed to choose which shares to cash in (unlikely, but I thought I would ask) then list them here and we will vote on them for you!

Robert asks…

I’ve had an NHS pension for 7 years, can I stop paying for a year then start again when I’m not skint? ?

Liitle short on cash at mo…. is it possible to stop paying into my nhs pension for any period of time, and then continue paying in when i‘m back up and running again?

Pension Forecast answers:

It is possible to do this however it could end up costing you a lot. Each year you work provides you with 1/80th of your final salary and also your lump sum is around 3 times your annual pension. Depending on your age and length of service this could cost you dearly. I would look at alternative ways of reducing your outgoings.

There are a lot of conditions placed on you if you want to re-join the scheme and have details these here.

Better still see the link which will give you all you need to know.

“If you are working for the NHS you can rejoin the Scheme provided you are:
not absent from duty for any reason; and not receiving Scheme benefits (unless you retired on ill health grounds and would be rejoining the Scheme
before age 50); and
•if rejoining on or after1 October 2008 have not had a break in NHS pensionable employment for five or more years.

If you rejoin the Scheme with deferred benefits, we will normally work out your
benefits in one of two ways and use whichever method gives you more:

Either
1.Your periods of membership will be added together and your total membership and final pensionable pay will be used to work out your benefits;
2. The benefits you have earned for each period of membership will be worked out separately. They will be based on the pensionable pay you were earning at the end of each period, plus any cost of living increases. The benefits will be added”

Lizzie asks…

How can I roll over an old pension plan to an IRA while taking out some cash and NOT pay a ton in penalties?

For the sake of argument let’s say it’s $50,000. I MUST USE half of that to rid myself of almost all debt and pay a few other small bills. I‘d also like to consider buying a home in the near future. So would it be better to take all of my money as a disbursement and pay the penalties/taxes/fees now, or take some out now and pay on it, and then pull more out of a ROTH IRA later and potentially have to pay on that too (if I remove it inside of 5 years, I think I‘ll pay more penalties…yes??)? Totally lost? So am I.