roth IRA, pension benefit from old work site
Hi
My name is Virginia Ilie. I have few questions to ask. Recently I rolled all my retirement benefit in Roth IRA in a 36 month bump up cd retirement with interest rate of 1.42 % in a savings bank, here in Ridgewood, NY. I was told that the benefit will be around 2, 800 $ in 2015. . My question is how come after 3 years is only that amount ? I understood from Mr Ed . Slott that there is an anual growth of 8 % for IRA either Roth or regular IRA. So if this amount is not accurate , shoud I move this money , where should I move this money ( in which bank I need to depost those money to get the growth of 8% annualy? Another question , in his program Mr. Slott , that somebody rolled a retirement benefit of $ 500.000 in a Roth iRa and in 12 y had gown to 2 millions $ ? Also another q how can you get for a person of 20 y old with life expectancy of 63 y from 100.000 $ at 8 % to 2,511.000. Can somebody explain to me how do you calculate that amount ( in a simple terms that I can undestand) ? Anothe personal question. I vested with one company, I have paper stating that Iam vesting with this company at 62 y or 66y. The amount vested in 2003 was 5000 $. This amount will be paid to me for life time only ( as Single Life Annuity ). My former company transferred that fund to J.P Morgan in 2011. My question those 5.000 $ should be more if the fund would grow at 8 % annualy for the past 9 years? Second question is should I roll those money in a Roth IRA fund if J.P Morgan will allow me to do that or should I leave those money with J.P Morgan there because this is a Single Life Annuity fund ? Should I trust J. P Morgan? These are my question for the moment.
Thank you, With respect
Virginia Ilie
Permalink Submitted by Alan Spross on Tue, 2012-06-19 17:36
Virginia,
Note that the 8% figure is only an average produced over many years from investments in stocks and bonds. There is no guarantee anyone will get that amount and you could easily lose 30% or more in any given year in stocks. With a CD, you have a guarantee of not losing any of this money, but in exchange for that guarantee you only earn 1.42% annually over the 3 years. These low rates have been caused by the recession and the federal reserve which wants interest rates to be low so that people will borrow and spend. This is rough on savers, but even when interest rates are normal you will not get near 8% on CDs because they are risk free.
If you want to take on this added risk, you could bust the CD for a small penalty and roll your Roth IRA over to a brokerage firm and invest in stocks and other more risky assets where you might get 8%, 20% or lose 30%, but your funds are safer where they are now.
With respect to projecting your return in several years, there is fairly simple rule using the number 72. If you divide the expected yield into 72, your savings will double in that many years. For example, if you have 500,000 and a return of 8% then 72/8 = 9. You would have 1 million in 9 years and 2 million in 18 years. You can use this rule for simple calculations instead of detailed financial calculators. Note that it would take 50 years to double your savings at a yield of 1.42% (72/1.42).
Your last question appears to address a pension from where you worked. Under most pensions (and also for SS), if you wait longer to start the life annuity, your payments are higher. They might rise by 8% per year, but that means not collecting anything for a full year. While you get more by waiting, it will take you 12 years to make up for that year you did not collect anything. After the 12 years is over you will receive more, but you are not ahead until 12 years has passed.
JP Morgan is the largest bank in the US. They are probably more trustworthy than many other banks and since they are considered “too big to fail”, your annuity would be extremely safe.