Retiring now

Discussion in 'Hangar Talk' started by Ryanb, Aug 27, 2019.

  1. Bell206

    Bell206 En-Route

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    Medical insurance is the biggie for early retirement. The implementation of Obamacare came very close to tanking my early retirement. My original plan was a BCBS catastrophic policy ($283/mo; $7500 deduct). Ocare went in effect Jan 1 2014, I retired Jun 2014. Change was no catastrophic plans available to people over 30.

    Plan B: bought standard BCBS policy ($345/m; $4200 deduct) outright for 1st year.

    2nd year, Plan B cost rose to $524/month; $5400 deduct. My agent said it will go up again the following year. Not good.

    3rd year, Plan B went to $695/mo; $7200 deduct with another increase predicted the following year. This was no longer sustainable.

    After going through the options: no insurance+penalty, ad hoc work to pay premiums, get job for insurance, medicaid, or Obamacare itself--elected to go the Ocare route the 3rd year via the national Marketplace. I didn't think I qualified but agent found out yes. Unfortunately, Ocare requires earned income in excessive of the Medicaid limits but less than a predetermined level based on status. And I was living off savings which was zero earned income.

    After many meetings with people smarter than me, I restructured my retirement income plan to provide earned income monies to qualify for both Ocare subsidies when possible. This income fluctuates every year depending on my year-end fund balances and external side income. While Ocare has income limits like Medicaid it does not have "countable asset" requirements like Medicaid. For a similar policy to Plan B above but with a smaller provider network my monthly premiums have ranged from $111 to $325 with deductibles from $550 to $2750. The open market price on this same BCBS plan is $711 per month with $4000 deduct. The irony of the whole thing was Ocare screwed my original insurance plan yet in the end Ocare ended up saving the day and at times is cheaper than my 1st plan. Go figure.

    Having learned a lot about Ocare, I'd gladly take my back my original catastrophic plan if I could. The ACA is not what was marketed to the population as a whole.

    Obamacare subsidies work on 2 levels: monthly premium and deductibles. Both are based on earned income that exceeds the Medicaid limit of $12k or $16K for Medicaid Extended states. At the $29K level (for a single person) the deductible subsidy is lost but the premium subsidy remains with all subsidies prorated until you reach the upper Ocare income limit of $50k for a single person. The only way to see how you qualify is to get an account and go through the process or find an insurance agent that has one of the Ocare calculators. Every state is different.
     
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  2. James_Dean

    James_Dean Pattern Altitude PoA Supporter

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    Probably because the math of an amortization table doesn't work that way.

    You always pay the same interest every month on the outstanding principle which is the cash you would need to pay off the mortgage.

    Assume you finance $350,000 to buy a home on a 30 year 4% note. The first month your payment is $1670.95 and $1167 goes to interest and $504.28 to principle.

    Payoff balance after year 10 would be $275,744. If you didn't pay it off your interest would still be 4% of that balance which is $919.

    The equation is exactly the same for the return needed to justify the payoff no matter where you are at in the amortization.
     
  3. Matthew

    Matthew Touchdown! Greaser!

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    I have a little while to work this out, but thanks for that info. I wasn't sure how subsidies are calculated with no earned income after I quit work.
     
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  4. Bell206

    Bell206 En-Route

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    Here's the Marketplace link. Lot's of info in the drop down menus: https://www.healthcare.gov/
    Also Google is your friend. Tons of info. After that find a local Ocare certified agent/broker... not an "assister"... to get more specific info. There's a drop down link on the above site to find local help.
     
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  5. MooneyDriver78

    MooneyDriver78 En-Route

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    It’s not just earned income, the modified income ACA uses to decide if you get subsidized includes IRA withdrawals, dividends, capital gains, etc.
    Also it’s not a gradual tapering off, there is a cliff at the 400% poverty income level.


    Tom
     
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  6. Everskyward

    Everskyward Administrator Management Council Member

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    My medical is $1200/month for a "silver" plan, and I am single. That's before I ever set foot in a medical facility.

    When I was still eligible for COBRA, it was $500/month for a better plan.
     
  7. Cooter

    Cooter Ejection Handle Pulled

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    This is a bit like Zeno’s paradox to me, it’s had my head in a knot. It may be what I don’t know that is causing my confusion. So here’s a question....

    I thought payments over the monthly amount were applied to the end of the amortization schedule, or at least they were for me on a previous loan. If that is the case, the lender has money that isn’t reducing the principle for any year until the end of the term. That money seems to be his, interest free until the loan is paid for. If the payment schedule is adjusted each year and your extra payments reduce the principle for the upcoming year, then what your saying makes more sense. At least that is how I see it in my mind. What am I missing?
     
  8. Bell206

    Bell206 En-Route

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    Correct. I was being general. Your MAGI is close to your standard AGI.
    The subsidies prorate from 100% or 133% level based on MAGI. They end at the 400% level. If you select a Silver plan you have a prorated deductible subsidy but it ends at the 250% level.
     
  9. PaulS

    PaulS Final Approach

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    There are different types of loans. I can get a simple interest loan that is not on an amortization schedule through my brokerage. In that loan the principal payment is divided equally over the duration of the loan. The interest is based on the remaining principal, so as you pay the principal the interest payment decreases. If you didn't guess, you can get that type of loan if you qualify, (meaning you don't really need it.) I can also choose just to pay the interest if I use it for an accounts payable loan where I know that I will be paying it off after some short period of time (usually a month or two).

    A mortgage follows an amortization schedule, it's been too long to remember which schedule they use, but your recollection is correct, you pay mostly interest at the beginning which is not advantageous to you versus a simple interest loan, but beggars can't be choosers. If you are near the end of your mortgage you are usually better off to just make the payment and invest the money you would have used to pay the loan off early. If you are near the beginning of the loan, then you are usually better off paying the loan off if you can.
     
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  10. Cooter

    Cooter Ejection Handle Pulled

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    I had a mortgage and that’s how I viewed it. I paid it off at the 12-13 year mark on a 30yr loan, but much past that and I was just going to keep to it. It seemed to me that the worst option was to pay some amount over the required payment each month. In that case, the lender benefitted the most.
     
  11. Matthew

    Matthew Touchdown! Greaser!

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    Now you are making me wonder if I am remembering correctly, if that was each or for both of us.
     
  12. Everskyward

    Everskyward Administrator Management Council Member

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    My plan is not the cheapest, nor is it the most expensive. I think I will do a little better shopping around this year. I procrastinated last year, then I went on vacation. Also, my COBRA expired at the end of November, which was inconvenient, since I didn't want a gap.
     
  13. PaulS

    PaulS Final Approach

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    I've never run the numbers, but generally paying more each month is applied to the principal and shortens the loan so it can be beneficial. Not sure it would have helped since you paid it off early.
     
  14. Bell206

    Bell206 En-Route

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    Curious. Was your policy through the National Marketplace or through a state exchange to get your Silver plan?
     
  15. Salty

    Salty Ejection Handle Pulled PoA Supporter

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    401k loans are SO much better than any other loan you’d get in a scenario you’d take that loan. I’ve leveraged them multiple times in the past. Can’t see doing it again, but I’d do it before leaving money on a credit card or taking out a personal loan.
     
  16. Everskyward

    Everskyward Administrator Management Council Member

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    It's a state approved (?) plan, but not a standard Covered California plan. In other words, buying this plan, I would not get a subsidy, even if I qualified for one.
     
  17. Mooney Fan

    Mooney Fan Line Up and Wait

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    And exchange, or Class 6 etc. store access
     
  18. Matthew

    Matthew Touchdown! Greaser!

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    I looked at Healthcare.gov.

    For KS, and my and my wife's current age right now:

    Bronze average: $1820 ($21840/yr)
    Silver average: $2287 ($27444/yr)
    Gold average: $2213 ($26556/yr)

    Those have deductibles around $12k.
     
  19. EppyGA

    EppyGA Touchdown! Greaser!

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    My and my wife's Medicare is $135.50 a month for each of us. I still have money in an HSA. For my wife we have an AARP United Healthcare supplement that is $130 a month and a drug plan that is $28.90. Have a VSP plan for eye care through my retirement plan that is $21 a month.
     
  20. Everskyward

    Everskyward Administrator Management Council Member

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    Wonder why the gold is slightly less expensive than the silver...

    But the prices seem about equivalent to what I pay based on where we both live. I pay that San Francisco premium for everything.

    Actually I checked while I still lived in Colorado, and the prices were about the same in both locations.
     
  21. denverpilot

    denverpilot Tied Down

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    The amazing part about those plans is that they’re larger than my first mortgage per month.
     
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  22. Everskyward

    Everskyward Administrator Management Council Member

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    Mine too, by a lot. But I will only have to pay that huge individual policy premium for a little over 2 1/2 more years. I think. Not 30 years. ;)
     
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  23. Matthew

    Matthew Touchdown! Greaser!

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    I didn’t look too closely, but I think the Gold deductible was a little higher.
     
  24. Bell206

    Bell206 En-Route

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    How many providers are there when you look up those policy prices? Those prices look nothing like I see when the ACA subsidies are applied especially with the Silver plans. Unless you are exceeding the ACA income requirements there might be some other info needed to get a more accurate quote.

    While each state is different the exchange websites are not very forth coming when it comes to this.
     
  25. Matthew

    Matthew Touchdown! Greaser!

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    There were only 7 total policy choices. I did not try to get a price with subsidies.
     
  26. Everskyward

    Everskyward Administrator Management Council Member

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    Speaking for myself, I don't come close to qualifying for a subsidy, so I get to pay the full price.

    I don't remember how many insurers there were, guessing at least 4 or 5.
     
  27. wsuffa

    wsuffa Touchdown! Greaser!

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    Peace of mind is important, but it needs to be a good financial decision, too.
    Debt is a tool, nothing more, nothing less. Used responsibly and properly it is not a problem. Used irresponsibly and it can be a real problem. Likewise retirement plans - under some old pension systems (including the old Fed system), one could leave and take their contribution money out. Often that's not a wise decision, but under some personal circumstances, it's a fine decision. Likewise NQ executive compensation deferred plans - those require that you take the money out when you leave the company - sometimes it makes sense to reinvest, sometimes it makes sense to use it as a severance package.

    Being "millionaires" does not qualify one to be the bearer of advice. I know some that got their money through the lucky sperm club or less-than-ethical acts: I wouldn't trust them. I've met a couple of billionaires (with a B) that I wouldn't take advice from either for other reasons. And Edward Jones (I knew someone that referred to the company as "Fast Eddie") is not on my radar of good advisors. I mentioned qualified independent advisors. That means one who doesn't have an interest in churning or selling you more stuff.

    Sometimes folks that aren't uberwealthy can provide good advice if they've been in your shoes and can help you avoid mistakes they made.

    But again, YMMV. You gotta find someone that will understand your particular situation and help guide you... at the same time you gotta have enough smarts to say "this isn't right". I happen to be a big fan of dollar cost averaging in investments, yet I've met a couple of advisors telling folks to lump-sum invest everything at once without regard to the market. Are they wrong? Dunno, just a different opinion, but in the kind of frothy market we have right now, averaging will tend to reduce risk. YMMV.
    Yeah, there are a couple of places where they still exist - primarily state and local governments. Even the Feds stopped doing it. Some heavily unionized industries still have them, but many have gotten rid of them (one reached a settlement with employees that required them to make extra contributions to the 401K/SIP for certain employees to compensate for no pension - that was a pretty sweet deal). Certainly there's a risk to the retirees.

    I stand by my comment that being rich in and of itself doesn't qualify someone. Broke people aren't generally ones to turn to, either. What is needed is someone that can understand the situation and make tailored recommendations. One size never fits all.


    I always assume HERE that folks do at least basic budgeting or they wouldn’t be able to afford our silly hobby. But yeah, budget is WAY before planning. If you don’t know what the incoming numbers are and the outgoing numbers, it’s impossible to plan anything.

    Basic financial education is seriously lacking in this country. Education about personal finance need to start in grade school. And worse, many parents today don't know themselves so they can't teach their kids. I was fortunate enough to have parents that taught me good financial planning skills early on (they were born before the Great Depression), including appropriate use of debt as a tool. Sure, I made mistakes along the way, but nothing so serious that I couldn't recover once I realized the error of my ways. It's a different world now, but the fundamentals are the same (same way as technology makes aviation a different world now, but you still gotta learn the basics of flight).

    For those watching, be aware that there are Roth IRAs and Roth 401Ks - they have different rules. Had the Roth 401K been an option when I was younger, I would have maxed out in that. Later in life, with higher income, it's not a slam-dunk decision.
    Bottom line for me: get qualified advice. Making a mistake on this stuff can cost serious money in the long run.
     
  28. NoHeat

    NoHeat En-Route

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    The “Backdoor Roth” is still available.

    I contribute to a traditional IRA, then a day or two later I convert it to Roth. It’s a 100% legal workaround for the income limit for contributing directly to a Roth IRA.
     
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  29. NoHeat

    NoHeat En-Route

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    Check out the “Backdoor Roth”.

    A two-step process.

    Contribute to a traditional IRA (or roll over 401k into IRA), then convert the funds to Roth.
     
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  30. ja_user

    ja_user Pattern Altitude

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    Everyone qualifies, just not directly. Fire the Finance Guy "Salesman"
     
  31. ja_user

    ja_user Pattern Altitude

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    This is a pretty simple question really. How much do you have, how much do you need per year (factor in whatever you will be doing, work or otherwise), and then how long will you live.. :)

    The question is simple, the variable are not as simple.
     
  32. denverpilot

    denverpilot Tied Down

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    All completely agreed. I really couldn’t flesh out the comments about “millionaires” because even for me, that post would be too long. Thanks for finishing those thoughts. My point was mainly to @EdFred who complained about “bragging”. I don’t think most folks here brag, and clearly some have done very well for themselves. We all know what airplanes we all fly. Hahaha. And just playing in the airplane game means we’re all pretty darn blessed.

    The gotcha I was trying to elude to was the pro rata rule which really applies to Roth conversions not contributions if I recall this correctly.

    I’ve had some years where a conversion (when I was younger and the tax benefits in retirement were greater — now it’s becoming nearly a wash between pre and post tax unless tax rates seriously skyrocket — would have been useful. If one has significant money in traditional IRAs, like many of us do who never had Roth options available to us before they existed, we would get absolutely screwed by any Roth conversion. The pro rata rule says earnings in ALL IRA accounts have to be used in the calculations, as I understand it.

    There’s a lot of earnings in those old accounts.

    Kinda ticks me off that someone younger earning more can shelter more than I can, because if I have a down earnings year, I can’t recharacterize anything into a Roth, even if it made a big difference for me now.

    Which it doesn’t. But the pro rata rule is a serious crapper if you’re in the generation caught between those who had Roth always available and those who never did.

    It honestly makes no sense but, when has tax law ever made sense? LOL.

    Anyway ... even if I have that all wrong above, my accountant has looked it all over and Roth conversion for me is a bad idea. That may have changed with a couple of years of lower income due to time off to do flight training and then the medical “fun”.

    I’m sure it’ll be a discussion point this year.

    We’ve also prepped both the accountant and the investment guy to think in terms of a possible second medical attack that leaves me with a major disability and to discuss options for if that were to happen... as well as a little long term thought about capital gains if for some horrid reason we had to raid the retirement cookie jar for something nasty and medical. Or possibly NOT sheltering some investments for a while to build up the external cookie jar.

    And all of that with some thought in mind as to how to properly structure everything such that me having some major issue doesn’t make Karen a broke widow.

    They’re going to earn their keep this year, for certain.

    Dark topics but heck, even with low percentage chances of that happening, let’s at least have the discussion of where we’d steer the ship (or more likely where they and Karen would) if needed.

    Big fat monkey wrench in the gears this year.

    Guess we will have a sit down with everyone and make a new plan. The plan never survives first contact with the enemy. LOL.
     
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  33. kayoh190

    kayoh190 Super Moderator Management Council Member PoA Supporter

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    Remember that we're talking about finding ways of contributing more money to retirement - not just converting money that's already been contributed. So in addition to what I'm already funneling into my 401k, how do I also contribute to an IRA as well?

    My finance guy doesn't invest for me - he just gives advice. Incidentally, he thinks I'm saving entirely too much money. ;)
     
  34. wsuffa

    wsuffa Touchdown! Greaser!

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    That is not my understanding of the prorata rule. As I understand it, the prorata rule says that *if* you convert only *a portion* of your IRA to a Roth then the tax paid must be based on the same prorata proportion of deductible contributions, earnings, and non-deductible contributions that exist in the account being converted. If you convert the whole thing at once, then it's not an issue.

    I may also have it wrong, hence the admonishment to talk to a qualified accountant or advisor.

    As for whether it makes sense.... as the value of your IRA (or rollover IRA, there can be some gotchas there) grows, it can get large enough to bump you into a higher bracket when added to your ordinary income for tax purposes - meaning you pay more tax on the conversion than you might otherwise. Likewise if it's big enough it can, by itself, ratchet up a bracket even if you have no other income. So if you're making $150K a year and you want to roll over a $250K IRA, you'll end up in a $400K bracket (subject to any deductions & exemptions, of course).

    My crystal ball is cloudy right now, but the tea leaves I can see say taxes will go up - perhaps a lot - depending on the outcome of the election. The leading candidates on one side want "wealth taxes", and at least 2 candidates have proposed jacking up the capital gains tax to be equivalent to ordinary income tax, which will also go up. So depending on who gets elected, we could be looking at 43% taxes for both income and cap gains at the higher income brackets, and possibly wealth taxes of 2% for wealth over $50 M. And I personally don't see how those candidates can do what they want to do without whacking middle-class wage earners too.... the math doesn't work (except in the world of getting elected...)

    Any way you slice it, I believe taxes will go up. So there may be some though of doing conversions now, though it really doesn't make sense to do something that would result in more taxes than if you'd just invested with taxable income (Roth or otherwise). Qualified accountant or advisor...
     
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  35. Bell206

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    Call up an investment company with good fees like American Century or Vanguard, open an IRA account and send them a check. But first I'd fire your finance guy who thinks you save too much and find one that thinks you don't save enough.
     
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  36. PaulS

    PaulS Final Approach

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    Generally if you've been able to save and plan well for retirement you won't spend your principal down over the rest of your life, which with your numbers it seems like you are saying you will do. In your example of $40M at 40 years, if you use the 4% rule, you can spend $1.6 million per year and still keep pace with inflation while maintaining your principal. At $20 million you'd should be able to spend $800k per year, still keep pace with inflation and not erode your capital. This spend rate is the equivalent of your net paycheck now. If you are spending this type of money now and not going into debt, then congratulations!
     
  37. TCABM

    TCABM Cleared for Takeoff

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    This is the next step:

    Do you have a spouse? Do they have an IRA of either type, and is it fully funded? Just things to consider. Also, a straight brokerage account for non-qualified investing.

    NQ annuities are another way to generate tax-deferred retirement income. Though you should stay away from the ‘free steak dinner’ salesmen and really need a good planner to understand if it’s right for you. Consider adding a CFP to your personal board of directors.

    Real estate, either in a REIT or individual properties. We think in multiple streams of income and have IRAs, 401Ks, TSP, and NQ income streams we can tap when traditional pay checks become smaller or non-existent.

    Tax strategy is important too, so also consider adding a CPA to your personal board of directors. They should be able to help you understand how to optimize for both today and in the future.
     
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  38. wsuffa

    wsuffa Touchdown! Greaser!

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    Oh, and just to stir the pot a bit... how about the lottery as a retirement plan? Do you take the lump-sum or the annuity if you win the Megapowermillions?

    :devil::devil: :popcorn::popcorn:
     
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  39. Bell206

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    +1. Keep a CPA, Investment Pro, and Tax/Estate attorney in your bullpen. Invaluable...and necessary in my opinion. The best money I spent planning for retirement was in professional fees.
     
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  40. Bell206

    Bell206 En-Route

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    Lump sum. I threw this question out at one of my last pre-retire meetings with my cpa, attorney, wealth guy. We all laughed then they looked at each other and in 30 minutes showed me what to do with that lump sum. Even at a modest investment level the lump sum would out perform the annuity option laying down. But I think they saw money on their side as they collectively stated if it were to happen they would convert their fees from a flat rate to a percentage.;)