Sometimes, getting laid off can be the best thing that could happen.
Scott: Justin Wilson's a CERTIFIED FINANCIAL PLANNER™ professional with Hanson McClain. He's going to talk about a story where he worked with an individual, or a family, in a real life situation. You may have a different experience. Our attorneys like to say that we don't want to have any sort of thing that's promissory. Past performance is not indicative of a future result.
Scott: Yeah, you get it. Anyway, Justin, welcome to being a part of Hanson McClain's Money Matters.
Justin: Gentlemen, how are you?
Scott: Fantastic. And Justin Wilson is a financial advisor in the Northern California region. Someone came to you. Tell us about the situation they were in. Were they retired? Were they working? What were they trying to accomplish? Usually, someone doesn't see a financial advisor unless they want to accomplish something.
Justin: That's correct. What sparked his phone call into our office was that the caller was being forced to retire prior to when he wanted to. His company was downsizing, so he was being forced out about three or four years earlier than he had planned to retire. That's what sparked the conversation.
Scott: And I'll tell you, we see that and I know you do as well, Justin. Twenty-five years of helping people transition into retirement, seems about half the time, well, studies are showing about half of the people go into retirement earlier than they had planned.
Pat: And often times they're forced out, but sometimes it's health related.
Scott: It's not usually good.
Pat: Okay, they come to you and what do you do?
Justin: We sat down, and he really wanted to discuss best income strategies moving forward.
Scott: Yeah, he’s losing his job.
Justin: What he had to make work in terms of income without a job. Luckily, he was going to be full Social Security age, so instead of going out and looking for another job, he just decided, "Hey, maybe this is the time to go ahead and retire even though it's before I was planning." He was lucky enough to work for a company that offered a pension as well as a 401(k). So between his pension, a severance, unemployment, because it was a surplus condition where they were kicking him out, and Social Security, we had to look at what and how and when to pull what income.
Pat: So there are four different areas, and the one that you most certainly are going to do right away is the unemployment, so that was a given. You don't have to make a decision there because you're going to get the unemployment.
Justin: Yeah, part of the decision on that was he was kicking around whether he was going to take a lump sum pension buyout from his company or if he wanted to take the monthly pension and just have a monthly payment. And what gets sticky there is if you're collecting a monthly pension, you can't collect unemployment at the same time. So one of the things we're going to have to look at is, "All right, if I take the monthly pension, I'm going to defer that until unemployment runs out since the monthly pension wasn't going to be much more than the unemployment."
Scott: He's going to say, "I lost my job." And they'll say, "Yeah, but you’re getting a pension?" "Yes, I'm retired." "Well, then, you're retired." If he doesn't have a monthly pension, he doesn't have to...
Justin: Yeah, it's one of those weird rules, you know? You can't take a pension and unemployment, but you can take Social Security and unemployment. I can't figure it out.
Scott: Well, you do figure it out. You don't know why the rules are written the way they are, but your job is help people navigate through those.
Pat: That's very nice of you, Scott. With your name on the door telling him his job. He's a guest on the show!
Scott: He says I can't figure it out. I'm saying figure it out.
Pat: Oh, he certainly can. He was being sarcastic.
Pat: All right, Justin, sorry about that little rant.
Justin: So one of the other thing was whether to take the monthly pension or the lump sum, and then how to structure his severance payments. He had several options, take it all up front as a lump sum, and it was toward the end of last year, so it added on top of all the income he had throughout the year. Or was he going to take it as a monthly payout or take it over a certain number of quarters? So all those were concerns of his, and how to best structure that so he would be better off throughout all of retirement.
Pat: So what'd you end up doing?
Justin: Well, we discussed the pros and cons of the lump sum pension buyout based upon the interest rates and where they were, along with his goals, whether it made more sense to take the monthly pension or the lump sum.
Scott: And every company's different, every situation is different there.
Pat: Every situation is different. So some companies, it may be more advantageous to take the lump sum, and some, you always take the pension, correct?
Justin: Correct, correct. And then also we, as I discussed earlier, we were deciding whether if he was going to take the monthly pension, to defer it until after unemployment ran out. And then we also recommended that they take the monthly severance payments. He was lucky enough to be old enough to file and suspend his Social Security before they changed that rule in ... was that end of April of this year?
Scott: Yeah, yeah.
Justin: And so we recommended that his wife go ahead and take the spousal benefit and he suspend his until his severance ran out, and that would allow her to defer her Social Security for several more years and allow that to accrue as well.
Pat: Okay, Justin, a disclaimer, for the rest of the listeners, that rule of file and suspend is no longer a part of the Social Security rules.
Pat: You cannot do it. So once again, changing the landscape for whatever reason, so the people went ahead and took the...this couple went ahead and took the lump sum and quit...they didn't take any distributions until...
Scott: How long was the severance?
Pat: Thirty-five months, he said.
Justin: Thirty-five months, yeah. He was a unionized employee and part of their bargaining agreement stipulated how many months he would get paid based upon the years of service.
Scott: And those are full months? Like, that's three years of pay?
Justin: Three years of pay. And because he's not contributing to his 401(k) and some other things, he was actually getting more money per month in his pocket than he was while he was working.
Pat: And he was getting unemployment benefits at the same time.
Scott: Let me just ask you this.
Scott: So here, his plan was to work for three or four more years.
Pat: Just for now.
Scott: When he first received this offer, did he think this, like, this was money from heaven or he viewed this as they're kicking me to the curb?
Justin: At first, he thought it was kicking him to the curb. He wasn't quite sure how the severance was going to work out and how all the income would play in. And by the time we were done with our meeting, he was about as happy as he could be.
Pat: No kidding!
Justin: They were going to pay him for all the years that he was planning on working anyway.
Pat: I never met the guy and I'm happy for him. Seriously! This one worked out so much better than actually him having to work the three years, right?
Justin: Yeah, he's a very happy man, golfing and fishing almost every day of the week and getting paid to do so.
Scott: Yeah, so he's a hardworking guy. Someone threw a curveball at him and he said, "Hey, I have to just sit down with someone who's qualified to take a look at all these things." And it does. You have to dig into the weeds. This isn't something that took place, I imagine, over one or two appointments, Justin. How many appointments…before it was all said and done, how many times had you met with him?
Justin: I want to say five.
Justin: Five times total by the time it was all said and done and he signed on the dotted line and was done with work.
Pat: So thank you very much. Thanks for being a part of the Hanson McClain team. As always, one of the fine advisors at Hanson McClain, Justin Wilson.
Scott: Yeah, thanks, Justin.
Pat: Appreciate your time.