My mom is getting a 401k payout of 95k. I told her that as a safe bet, she’s getting about 65k after taxes. Her options are to either take the lump sum, or get lifetime payments of $658. That yearly payment would be nearly 8k/year, or $160k after 30 years. She is currently 65. However:
She owes 18k to the IRS. She owes 8.8k in credit cards. She owes 5k on her car to pay it off. All of those loans are above 8%, her house payment is less than 3% interest so I told her not to take that into consideration.
My advice to her was to take the lump sum rather than the annual payments, and to pay off all her debt. She would have around 30k remaining. She makes around 40-50k per year, so this would be paying off all her debt while also gaining about a years salary as an extra. I told her that investments may not be worth it, but rather suggested a 5% APY savings account for the extra 30k as she may be needing it soon.
side note: a big factor is her mental health. I know this debt weighs on her a lot, and the monthly payment would not cover the debt/car payment, which is why I believe she would be better off taking the lump sum.
I am a finance major, so I am overly confident in my advice that I gave her. However, I just graduated and am not very experienced. Does anyone else have other experience or advice to offer? I would love to hear any suggestions. Thank you!
***edit: it is a pension plan, not a 401k
Submitted August 28, 2024 at 11:08PM by Jazzlike_Morning_471 https://ift.tt/a2uIroz
