A pension is a rarity for people looking to retire in the near future.
Throw in nearly $400,000 in retirement account money and a chance to start a second career with a new income stream and you should be feeling pretty good about your finances at 54 years old.
However, one firefighter who also faces $65,000 in debt is feeling a little sheepish. What should he do in terms of investing and income to move forward with his finances?
That’s what a listener of the Clark Howard Podcast recently asked.
This Firefighter Has a Pension and $380,000 in a Retirement Account But Wants To Know What To Do About His $65,000 Debt
What do I do about my $65,000 in debt? And do I need an investment advisor to help manage my retirement nest egg?
That’s what a Clark listener wanted to know on the July 27 podcast episode.
Asked Wade in Ohio: “I’m a 54-year-old firefighter, getting ready to retire from that career and continue working another one. I’ll have a decent pension and approximately $380,000 in public employee investment accounts.
“I have approximately $65,000 in debt I would like to pay off. I’m planning on working another job for at least 10 years. How do I go about paying off debt, taking a little out for some fun and investing the rest? Do I have to pay a 1% financial advisor or will a robo adviser work?
“I’m a little embarrassed about the debt so I hesitate to meet someone face to face. You are the greatest.”
Clark put Wade’s finances into quick perspective. Wade doesn’t need to worry too much. He just needs to be smart about his spending.
“You’re the greatest because you’re someone who is willing to run into a burning building while the rest of us are trying to run out of a burning building,” Clark says.
“You’ve saved $380,000. You’ve got a pension. You’re in really great shape financially. You’re going to work another job for a decade. On the debt, that’s not something you go to a financial [advisor] about.”
If you want some financial counseling about your debt, consider working with someone at the National Foundation for Credit Counseling at NFCC.org, Clark says. You can get remote online counseling that will help you create a budget and a plan to pay down the debt.
You may pay $50 or $100 for that, Clark says.
“You shouldn’t be embarrassed about debt. So many people have debt it’s amazing,” Clark says. “Let me tell you, you are not alone.”
Does Wade the Firefighter Need a Financial Advisor?
As Clark mentioned, you don’t need to pay a 1% annual fee to get your debt under control. Those types of fee-only fiduciary financial advisors aren’t necessary for most people.
In terms of investing, Wade the firefighter could opt for Clark’s easy button. In most retirement plans, including a standard 401(k) plan, Clark’s favorite investing option is a target date fund.
Just pick the year closest to when you want to retire — even if that means from your second job — and put all your money into that fund. It will adjust your portfolio over time to be less risky as you get closer to retirement.
Alternatively, you can invest in a mix of index funds. Typically that means one total stock market fund, one international fund and one bond fund.
The biggest thing you need to check when it comes to your retirement account are the fees and expenses your administrator is charging you.
Clark’s advice? Contact someone from GarrettPlanningNetwork.com. Pay them an hourly rate like you would a lawyer to conduct a routine checkup of your retirement account. The public employee investment accounts.
“See if the fees on it are reasonable,” Clark says. “If not, you may be able to move it tax-free into something that may be much more reasonable for your wallet.”
How To Pay Off Your $65,000 Debt
Wade’s debt shouldn’t be difficult. That’s assuming he sets a good budget for himself and isn’t overspending.
He should be able to pay for at least a healthy chunk of his living expenses from his pension. And then he can use the income from his new job to pay down the debt.
“You have the mindset now that you want to kill off this debt,” Clark says. “Put your mind to it. You will pay it off much quicker than you possibly imagine right this second.”
Final Thoughts
Pensions are a rarity these days. Especially when you also have nearly $400,000 in a retirement account as well.
Wade is in good shape and should have another decade-plus of income. He just needs to make sure he makes a good budget, sticks to that budget, and makes it a priority to pay off his debt in the coming years.
