Thread regarding Chevron Corp. layoffs

Good point. The Required Min8mum Distributions at age 7O can be a tax nightmare.

Some very simple math proves that Roth coversions are tax neutral for a fixed tax rate. The reason to convert is if you think your marginal tax rate on the income will be lower at the time of conversion than it will be later (e.g due to RMDs or SS or tax law changes). For most people it saves huge on taxes to convert.

There are about a million ways to skin the lump sum tax cat and each is specific to your own tax situation. So do your own figuring to get an expert to help.

I retired at 53 and have done extensive tax avoidance studies. Even partial Roth conversions as mentioned by @nsqr do not pay off for everyone in the long run. Undoubtedly 'rollers' will have other income than the amount rolled over, so the tax on this rollover will be higher, say 15%. If the 'roller' lives in a state that has income tax, the state will also take a bite of this 'rollover income'. The opportunity cost (loss of future investment returns) of this early tax hit will more than likely offset any future tax savings when RMDs hit 15-20 years down the road. As has been said many times, such decisions are best made when looking at one's own situation.

Well you can call convert it to a Roth basis until RMDs occur. So, if you retire at 55 you can convert $100k per year for 15 years and pay less than 10% tax, assuming you have no other income. That would get you $1.5 million converted by 70.

• lckt: yes the lump goes into a tax deferred IRA, that’s the easy part. The devil then is to spend it without getting a full tax hit: first withdrawals to live on and than to also reinvest as you are forced to start minimum withdrawals in your 70s. Personally I find little value in active managers handling my moneys , but discussions with experienced fee-based financial consultants from time to time to better focus your coarse are worth every penny.

The lump sum can be deposited in your 401k or IRA with no taxes whatsoever.

I talked to Heritage and was impressed also. Smart tax people. Ended up using a FOAF, but otherwise would have had not qualms with them.

@krvo, Did the wealth management company really save you that much money in potential taxes or did they hoodwink you into thinking that? I’m sure they are peeling off a nice slice of your investment under management.

For anyone needing advice on lump sum tax management, Heritage consulting in Dallas is great. They saved me literally hundreds of thousands in tax.

The lump sum is already a great deal in historic terms but even lower rates would be wild.

Chevron’s Retirement Plan can be changed in the blink of an eye if the company sees a need to do so. One push of the Enter key and goodbye to your ‘Plan A’.

1-2% seems more realistic near term. Still, nothing to sneeze at.

I put -3% in the lump sum calculator for retirement in 12 months and it doubled! Great jesus.

Nothing magical happens at zero, the lump would continue to grow larger at the same rate as any other drop. That said, Chevron could refuse to run the calculations with negative numbers, so that could also be a limit.

Everyone says interest rates may go negative. That could make the lump sum enormous! Has anyone calculated it?

I agree - plenty of dry powder for the next big opportunity, just like Chevron hoarding cash and waiting for the downturn to buy.

Riding out stock market crashes is a given. Taking advantage of them can make a huge difference in results.

@ewuf, it won’t triple in a couple of years. While you take distributions in retirement, your nest egg’s net balance will not double or triple. If your lump sum pension is invested appropriately and you’re not hit by downturns in the stock market, your money will last a longer time, but don’t be so naive to expect it to triple or even double. For that to happen, you’ll be waiting for a very long time— more like 20+ years to double. You’ll be as old as Rip Van Winkle if you wait for it to triple.

You are welcome to work as long as you like or until they lay you off. The rest of us will watch our lump sum triple in a couple years. Good luck to you!

@evum, a market crash will bring worse consequences for you (and everyone else) than any lump sum offset gain you can get from lower interest rates. The best option would to be lucky enough to stay working, bringing home a good paycheck and great benefits. You can always retire after the recession is over, with more years of service, a higher pension amount, and hopefully more money saved in the bank and retirement accounts. Very few people come out ahead in times of adversity. Be careful what you wish for.

With the coming rate cuts, our lump sums will balloon! Let’s hope the cuts precede a historic buying opportunity at the next market crash.

As far as lump sum timing, it is not a big deal when in the calendar year one takes it but do keep in kind the restoration account which you don’t really want in any year with other income for obvious tax reasons.

For one, it is very difficult to access your lump sum while working at Chevron. For two, I don’t like paying taxes on the conversions, which would be impossible at a chevron salary. Any other bright ideas?

@axnp, Why wait until retirement to take your lump sum pension and slowly move it into a Roth account over many years? You should have take advantage of that strategy over your working career. We all know there’s a maximum amount that can be contributed to the Roth and the money needs to remain in the account for at least 5 years before achieving the benefit of tax free earnings. Sounds like a strategy that came a bit too late.

Correct you are, again no doubt. Roth conversions, done correctly, are a huge tax tool. I hope Congress keeps that loophole open long and wide.

Another optimization with the lump sum is to slowly convert it to Roth status between retirement and age 70. You can very effectively avoid most income tax this way.

True, most fall into a life of mindless consumerism. Others just love to work!

Retiring at 50 is doable for very few people. Don’t think many people can save enough money over 15 years of work and make it stretch another 35 or 40 in retirement, even if you factor in Social Security twelve or more years later. Of course, it depends on the standard of living that would make you happy. If living a meager existence is what you desire, then go for it— retire at 50. I’d set my sights on working until 58 or 60 if you want to retire early.

I was one of those. Took the package and walked across the street to a better job the next day. Never looked back.

I remember at the Texaco-Chevron merger most of the Texacoids took the lump sum and retired even though they were right around 50. The change of control package was nuts.

50 is doable if you have been a good saver for at least 15 years,

60 too old! How about 50?

Age 60 is great if you like the work and want to keep going.

Trying to time interest rate fluctuations is tantamount to trying to time the market. A fools errand.

Right @1keq, especially if you don’t have much of a pension coming your way. Sounds like you.

talking about pensions makes jack a dull boy

That’s true, @1nte. Working after age 60 will still result in a higher pension amount, although the annual increase will not go up as quickly. Reaching age 60 before retiring from Chevron is almost always the last hurdle you would want to clear to optimize your pension.

No discount after age 60, but that doesn't mean it is the max. You can keep working and it will rise if your earnings rise and/or interest rates hold or fall.

@1pbc is right on the money. You can maximize your lump sum (and annuity) by retiring at or after age 60. You won’t be hit with the early retirement discount factor.