Retirement Plan Question

Question: My wife’s employer is part of a state municipal retirement. She she is part of one of the better plans offered. It’s a 2/1 match up to 7% but has a vesting period (1 more year) and the money must stay in the plan for the match to be counted. From my understanding it’s 5% guaranteed interest for life. She’s eligible for retirement at 60 (or earlier if she works 10 more years) and then can draw a monthly pension and lump sum withdraw for life. There’s some different breakdowns of lump sum/monthly draw options and things like survivorship and what not.

I get that more information would be helpful but I’m curious what people generally think of these type of plans? It’s not a great growth rate but guaranteed (maybe) withdraw amounts for life seem nice. Trying to assess if it’s worth to keep money in there and get the match or throw it in the market. I see upside and downside to both.

Answer:

Based on what you've shared about your wife's municipal retirement plan, you've got a really solid foundation to work with here. That 2:1 match is fantastic – it's not often you see that kind of generosity these days. And with only a year left to vest, you're so close to locking in those benefits. It would be a shame to walk away now.

Here's what I'm thinking: Given your wife's age and career stage, this plan could be the bedrock of your retirement strategy. That 5% guaranteed return? In today's world, that's like finding a unicorn. Sure, it might not sound as exciting as what you hear about the stock market, but remember, we're playing the long game here.

Now, I get your concern about potentially missing out on market gains. It's a valid point. But here's what I'd suggest: Let's treat this municipal plan as the “safe” part of your portfolio. It's your safety net, your guaranteed income stream. Then, we can look at being more aggressive with your other investments – maybe your 401(k), IRAs, or even a taxable brokerage account.

Think of it this way: This plan gives you the freedom to take some calculated risks elsewhere because you know you've got this solid foundation. It's all about balance.

Here's what I'd recommend:

  1. Absolutely max out the contributions to get that full match. It's free money – don't leave it on the table.

  2. Stick it out for that last year of vesting. You're so close!

  3. Once vested, let's sit down and look at your overall financial picture. We might adjust your other investments to be more growth-oriented since you've got this stable base.

  4. Start thinking about when your wife wants to retire. That early retirement option could be a game-changer if it aligns with your goals.

Remember, retirement planning isn't just about maximizing every dollar. It's about creating security and peace of mind. This plan offers that in spades.