Lessons learned from Exxon retirees

Arthur J. Vangeli, CFP ®

Lessons learned from Exxon retirees

Retire SMART from ExxonMobil: Your 5 Best

(and worst) 401k rollover decisions

Abraham Lincoln said the following:

“If I had an hour to chop down a tree,

I’d spend the first 45 minutes

sharpening my ax.”

Use NUA, ESP and Savings to Bridge the Gap

Best and Worst Decisions

1. Consider leaving money in your Exxon Savings Plan (your 401k) if

retiring between 55 and 59 ½ to avoid 72t

2. Calculate your Net

Unrealized Appreciation tax savings, especially on low-cost basis Exxon stock held inside your 401(k)

Best and Worst Decisions

1. Ask Exxon to distribute your entire 401(k) in a check to you, and you’ll decide later where to roll it over

2. Rollover after-tax

dollars to your IRA (you can find these on your most recent statement)

Best decisions Worst decisions

3. Ensure you project your retirement income using various rates of return, volatility, and rising

Best and Worst Decisions…But WHY?

Your Friends Your Enemies

“Accumulation”

“Decumulation”

Tax deferred growth

Principle of Dollar Cost Averaging (Volatility)

Inflation

Taxable withdrawals

Principle of Dollar Cost Averaging (Volatility)

Inflation

Procrastination in starting Not saving enough

High risk-free rates of return

Fundamentally sound withdrawal rates

Problem

How do you turn a lump sum retirement

account into the highest average income

stream, adjusted for inflation, at a risk

Solution

“Decumulation” stage requires a

different strategy.

1. Create income

2. Manage risk

Sample rates of return

Principle of Dollar Cost Averaging hinders your return when withdrawing from accounts in retirement

American Funds AMCAP fund

Last 10 years What annual $ withdrawal

Year Annual gain End of year value do you want?

2000 7.5 $ 1,026,625.00 $ 45,000 annually 2001 -5.01 $ 932,445.59

2002 -18.66 $ 721,848.24 2003 29.64 $ 877,466.06 2004 9.8 $ 914,047.73

2005 6.98 $ 929,707.27 Exxon Savings Plan rollover balance 2006 8.63 $ 961,057.50 $ 1,000,000

2007 7.5 $ 984,761.81

2008 -37.68 $ 585,659.56 Your withdrawal rate is 4.5% 2009 39.21 $ 752,652.18

Average return 4.79%

40/60 AMCAP/PIMCO blend

Last 10 years

Year Annual gain End of year value 2000 7.62 $ 1,027,771.00 2001 2.80 $ 1,010,308.24 2002 -2.87 $ 937,623.20 2003 13.64 $ 1,014,359.16 2004 5.35 $ 1,021,258.64 2005 3.72 $ 1,012,594.99 2006 5.70 $ 1,022,767.26 2007 7.75 $ 1,053,563.78 2008 -15.84 $ 848,807.27 2009 23.70 $ 994,309.60 Average return 5.16%

Facts from a recent transition

(based on an actual case)

-Married couple Joe and Joanne Exxon

-Both age 55, Joe retiring with $600,000 in 401(k), of which $100,000 is XOM stock with a cost basis of

$25,000

-They want to withdraw $2,000 monthly initially in retirement, but remain flexible on increasing or decreasing this withdrawal in the years ahead

-Joe wants to take some investment risks, but Joanne is conservative and likes Certificates of Deposit

Joe & Joanne transition – Step 1

- Calculate Joe’s NUA calculation for XOM stock held inside his 401(k) account

-$25,000 taxed at ordinary income rates

-$75,000 NUA tax deferred until sale of stock -Currently, each share of XOM stock (recent price is $84 per share) pays an annual $1.76 dividend, representing a 2.1% dividend yield

Joe & Joanne transition – Step 2

- Calculate Joe’s 72(t) withdrawals using $600,000 and also using $500,000

For $600,000 Joe’s max 72(t) would be $28,941 For $500,000 Joe’s max 72(t) would be $24,117

Joe & Joanne transition – Step 3

Ask yourself the following questions:

-Are there any short-term planned expenses in the first 3 years of retirement? (special trip, travel, auto replacement, moving, etc)

-Are there any other people dependent on this income (children, parents, etc)

-What is the most money I may need in the next 3 years if I had to estimate?

Joe & Joanne solution

Recommendations for this couple were as follows: 1. Joe and Joanne’s probability of success was

highest when they did not exercise their NUA

technique, did not exercise their 72(t) technique, and managed their money in a 40%/50%/10%

stock/bond/cash mix inside their Exxon Savings Plan 2. Joanne slept best at night knowing they had

$50,000 in cash inside their 401(k), representing

another 2 years of planned withdrawals, and Joe liked having $200,000 linked to the stock market to collect dividends provide further growth opportunities.

3. Joe and Joanne projected $2,100 of income from XOM stock dividends, and another $21,900 from Joe’s 401(k) in the year ahead

Both appreciated the flexibility of stopping

withdrawals from the 401(k) if Joe starting working again, while avoiding additional taxes if they needed to vary withdrawals from his 401(k) before age 59 1/2

Examples of recommended

investment portfolios for retirees

$500,000 portfolio, $20,000 desired withdrawals annually

10% VDC Vanguard Consumer Staples

5% VO Vanguard Mid-cap Blend

10% IVV Barclay S&P 500

10% VT Vanguard Total World Stock 15% BND Vanguard Total Bond Market 5% VCSH Vanguard ST corporate bond 10% TIP Barclay Inflation protected 5% CMFIX CM Advisers Multi-sector bond 15% SCPB State Street ST corporate bond

5% EEB Gugenheim BRIC

$500,000 portfolio, $20,000 desired withdrawals annually

Examples of recommended

Other considerations

If you don’t plan on obtaining a loan for anything in the next 3 years, then consider contacting the 3 major credit bureaus and freezing your credit for $10 or less at each.

We welcome the opportunity to discuss any specific concerns.

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Disclaimers

The thoughts and opinions expressed in this webinar are that of Results Wealth Management, located in Cedar Park, TX, and are designed for U.S. residents only. Opinions and positions may change over time due to economic, market, and political

conditions.