I have been asked How I fund my retirement. The short answer is by way of a SEPP IRA and non-retirement accounts (savings/investments). The SEPP IRA is invested to produce income. The portfolio is a mix of short to mid-term Corporate Bond funds and Dividend paying Stock funds. There are also investments in energy and commercial real estate.
Below is the long story on how Leisure Freak Tommy made it happen.
Sh!t Happens- Company Merger and Underfunded Pension Fund
I did have a pension benefit that I qualified for after 31 years of service. After 20 years plus of hearing that the reason my salary was lower than industry pay standards was because of my pension benefit, my company was taken over by a non-pension providing company.
The new company received the Federal Government’s blessing to pay out severance packages with our pension plan money. This went on over multiple years to tens of thousands of laid off employees.
They then started using every legal way possible to exclude people who were in the retirement benefit plan from staying in the retirement plan. They did this by doing things like stipulating a new cutoff date. If you didn’t have at least 20 years of service then your benefit was frozen on that date. Never to be eligible for a full retirement benefit. Nice guys.
Lost My 401k Company Match and an Underfunded Pension… Perfect
Some time goes by. The economy and markets collapsed, the Jack-Hole CEO from the initial merger was now a convicted felon and sentenced to federal prison. Adding insult to injury, my 24 years of 401K company-match in mandatory company stock evaporated when the company nearly went bankrupt. I lost that match because anyone under age 50 was restricted from being able to diversify their match fund. Awesome!
Fast forward a few more years, the company was saved from bankruptcy by a now gone CEO. The guy who was to be my last CEO explained that the pension fund was hundreds of millions of dollars underfunded. That they had no intention of adding another dime to it. He then announced that they have frozen the pension plan I was part of. To everyone in it. That’s it. No more growth and with its underfunded status there is risk of default.
When we asked for more clarification from the company they sent the head HR manager to speak to us. We were told that we shouldn’t be concerned about the pension funding. It was a free benefit that we didn’t pay for. Needless to say that didn’t go over very well after a career of suppressed salary because of that pension benefit. The one they claim I did not pay for.
Nothing Left To Do But Move On
After the anger you have to move on and be logical. Promises were made and now they have decided to go a different direction. There are no guarantees. I needed to get over the lost $124,000 of 401K company match that I had accrued and that had gained in value over 24 years and all the pension issues. It was always their money and only mine by an agreed promise. No legally binding contract like the executives get when they hire on. It is Corporate America and they make the rules.
I decided to take what cookies that I still had in their cookie jar and make the leap into early retirement. The retirement I had planned for over many years.
Time to Check Pension Plan Health
I checked the Pension funding status and it was lower than one would like to see. On top of that the funding data they report is over a year behind so things were much worse than reported.
Looking at PBGC low maximum guaranteed payouts for someone in their early 50s worried me. If they did default on the pension I would receive considerably less. I didn’t want to spend the next 8 or 10 years being so tied to a company I didn’t recognize anymore. Nor tied to a company which no longer valued what I sacrificed many years for.
How I Fund My Retirement Using My IRA Without Paying Penalties
How I fund my early retirement: After a detailed discussion with my long time fiduciary financial adviser with analysis to back it up, I took the Lump Sum option. I added it to my 401K, IRAs, and ROTH IRAs. I fund my early retirement with a SEPP 72(t) supplemented by non-retirement account savings.
As to deciding to take the Lump Sum Pension buyout instead of the monthly lifetime (maybe) payment by company pension (annuity). I made the best decision I could based on the information I had. My 10 year Strategic Retire Early Plan had always been to take the lump sum. But the financial collapse that was still going on in Dec 2009 when I retired hit every investment type. Extreme caution was necessary.
The 72(t) calculated interest rate was low when I started my 72(t) payments so it did take a larger SEPP IRA amount than I had planned. But the SEPP investments and income easily surpass payout to me. The payout is based on the ridiculously low-interest rates that we were restricted to by the IRS to use in the payout calculation.
If you are interested, see my page “My Strategic Retire Early Plan” for the fund names my SEPP IRA is invested in.
When I hit the age of 59 ½ I will have received my Leisure Freak funding for 8 years. There is far more in the SEPP IRA than what it started with. Barring a repeat meltdown of the markets we lived through in 2008 – 2009, the SEPP IRA amount should be far higher even still. But we all know there are no guarantees in investing.
I live the Leisure Freak Retire Early and Often Passion-Driven lifestyle. Everything I earn is essentially saved and invested. My retirement savings have sky-rocketed from when I retired the first time. I was also able to use my short encore career salary to pay off my mortgage.
Retiring early to a passion-driven mindset instead of staying in a company and position that no longer floated my boat was the best financial and lifestyle move I have ever made.
It is an adventure.