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52-can i touch my defined benefit plan?
Old 07-07-2010, 03:15 PM   #1
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52-can i touch my defined benefit plan?

My husband and I quit our jobs...I am 52 and he is 42. We hated the grind. I have a defined benefit plan through my past employer. It says when I am 55 I should have $215,000. We have been living off of part time work and getting monthly payments through our deferred comp we saved. Can I get to the money now to invest? Do I wait and take lump or monthly annuity payments? Any advice appreciated.
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Old 07-07-2010, 04:04 PM   #2
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My husband and I quit our jobs...I am 52 and he is 42. We hated the grind. I have a defined benefit plan through my past employer. It says when I am 55 I should have $215,000. We have been living off of part time work and getting monthly payments through our deferred comp we saved. Can I get to the money now to invest? Do I wait and take lump or monthly annuity payments? Any advice appreciated.
Each plan is different. My immediate thought is that you could, but you would take a hit as far as how much you get. Do you have to take a lump sum or could it be payments? Why did you quit your jobs before you knew you could
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Old 07-07-2010, 04:28 PM   #3
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Each plan is different. My immediate thought is that you could, but you would take a hit as far as how much you get. Do you have to take a lump sum or could it be payments? Why did you quit your jobs before you knew you could

Yep, for instance, I work for the federal govt. I'm 52 yrs old. I have a defined benefit plan, as well. My minimum retirement age is 55. I could quit today, and I'd still get my pension, but not until age 60. And...I'd also take a 2% hit for each year I punched out early. Therefore...since I've worked way too long to give it up now, even for a few years, I'm gonna stay until I'm 55. EXACTLY 55, but still....55. I don't have a better answer for your situation, you'll need to contact the admiinistrators for your DBP, or at least your former employer. I hope you get good news!
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Old 07-07-2010, 04:34 PM   #4
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After posting the above, I realized that I've heard someplace that if I wanted to, I could possibly quit my job and just liquidate my DBP for the contributions I've made, maybe with some interest. Not for sure about that, but it's floating around in my head....lol Anyhow...I wouldn't be willing to give up the $1+ million value of my pension as it pays out over the years for a measly couple hundred thousand or less of contributions over my 35 year career. I wouldn't give 'em that satisfaction!
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Old 07-08-2010, 07:34 PM   #5
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First post. Been lurking for about 2 months and will someday get around to the "Hi, I Am" post. Not FI yet, much less FIRE.

But I *did* take a lump sum withdrawal of my contributions from a DBP back in 1998. Never regratted it - but you might. Three things:

(1) Every DBP is different. You'll likely need to check with your former employer for details. Surprised this wasn't covered in your exit interview.

(2) I've also been collecting a (very small) monthly check ever since. Compared to my current take home - easily twice as much as it was when I left the former employer - it's nothing. But come RE? I'm now as guaranteed to be collecting two DBP checks as one can be. (Former employer is a state education system and current one chenged their plan after I was vested.)

(3) Probably should put this first because I think IT'S VERY IMPORTANT. Please consider the tax remifications. The lump sum withdrawal I got back in 1998 did quite a bit to my tax bill, and all of it happened as I expected:

--- It moved me into a higher tax bracket. IIRC I went from 15% to 27%.
--- It was also considered an "early withdrawal" and subject to a 10% tax surcharge.
--- Only 20% federal taxes were taken out.

Net result? Every $10,000 withdrawn became $8,000 in my pocket (the 20% taken out immediately) and I had to plan on another $1,700 to be banked for the inevitable tax return (27%+10%-20%=17%). So yeah, each $10,000 was really worth $6,300.

YMMV. But I'm guessing it will negatively, because most of my numbers, especially that pesky 10% penalty are pretty hard to evade.

Tax Topics - Topic 558 Tax on Early Distributions from Retirement Plans

Again, I apologize for not properly introducing myself to this forum yet. But I felt I might have something of value to contribute to this thread.
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Old 07-08-2010, 09:10 PM   #6
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Recognizing that all pensions are different, DH has one that requires a 12 month wait after retirement before taking any withdrawls.

He will retire at 55 next spring. Does anyone know if there is a rule that allows withdrawls at 55 for DFB's, similar to nonpenalty withdrawls in the year of turning 55 for 401(k)'s if retiring that year? (hope this makes sense)
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Old 07-08-2010, 09:34 PM   #7
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(3) Probably should put this first because I think IT'S VERY IMPORTANT. Please consider the tax remifications. The lump sum withdrawal I got back in 1998 did quite a bit to my tax bill, and all of it happened as I expected:

--- It moved me into a higher tax bracket. IIRC I went from 15% to 27%.
--- It was also considered an "early withdrawal" and subject to a 10% tax surcharge.
--- Only 20% federal taxes were taken out.

Net result? Every $10,000 withdrawn became $8,000 in my pocket (the 20% taken out immediately) and I had to plan on another $1,700 to be banked for the inevitable tax return (27%+10%-20%=17%). So yeah, each $10,000 was really worth $6,300.

YMMV. But I'm guessing it will negatively, because most of my numbers, especially that pesky 10% penalty are pretty hard to evade.

Tax Topics - Topic 558 Tax on Early Distributions from Retirement Plans

Again, I apologize for not properly introducing myself to this forum yet. But I felt I might have something of value to contribute to this thread.
Welcome to the forum.

If you were concerned with the tax implications of the distribution why didn't you just roll it into an IRA? That would have avoided the 10% penalty as well as delaying any taxes owed. You could have then withdrawn it via a 72t plan if you needed it, or slowly converted it into a Roth allowing you to minimize the tax hit.
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Old 07-08-2010, 09:46 PM   #8
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Welcome to the forum.

If you were concerned with the tax implications of the distribution why didn't you just roll it into an IRA? That would have avoided the 10% penalty as well as delaying any taxes owed. You could have then withdrawn it via a 72t plan if you needed it, or slowly converted it into a Roth allowing you to minimize the tax hit.
I wasn't. I knew what I was trying to do.

This probably should be part of my intro thread, but I used the lump sum withdrawal to pay off a massive credit card debt attained(?) over a bad marriage.

I told myself I would never "repay" the hit to my FI or retirement - compound interest and all. But that this was the right route to go for me. Tax hit and all.

It was. I'm actually ahead of where I would have been, thanks to (a) a great job in IT and (b) exceptionally lucky investments in AAPL over the last 6 years. So that explains my "no regrets" claim.

One aspect I could not change - and saw nobody here pointing out - is how badly such a move could be for federal taxes. Whether this applies to the OP or not, I just felt it important to make sure they cover this angle.
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Old 07-09-2010, 08:41 AM   #9
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Yep, for instance, I work for the federal govt. I'm 52 yrs old. I have a defined benefit plan, as well. My minimum retirement age is 55. I could quit today, and I'd still get my pension, but not until age 60. And...I'd also take a 2% hit for each year I punched out early. Therefore...since I've worked way too long to give it up now, even for a few years, I'm gonna stay until I'm 55. EXACTLY 55, but still....55. I don't have a better answer for your situation, you'll need to contact the admiinistrators for your DBP, or at least your former employer. I hope you get good news!
You would just get back what you put in - no interest. Also, you would lose your FEHB healthcre with no chance of getting it back. You need to be in the plan for 5 continuous years prior to retirement. If you leave at 52, you would not have those 5 years when you hit 60.

FWIW, I left at exactly 55 with 33 years service and it was the right thing for me.
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Old 07-10-2010, 06:52 PM   #10
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You would just get back what you put in - no interest. Also, you would lose your FEHB healthcre with no chance of getting it back. You need to be in the plan for 5 continuous years prior to retirement. If you leave at 52, you would not have those 5 years when you hit 60.

FWIW, I left at exactly 55 with 33 years service and it was the right thing for me.

Yes, that's true, if I chose to withdraw the funds from my CSRS account. I was talking about leaving the money in the account, & taking a deferred retirement, at age 60. In my own personal situation, I would have Tricare medical coverage, based on my 33 years combined active duty and reserves. Also...I would never even consider leaving federal service before I get to age 55, like I said, I've come way too far to bail now. When I do go, I'll have just shy of 35 years. I'll have the CSRS DBP at 55, and then the military reserves DBP when I get to 60.

edit: I know about the 5 yr rule on the FEHB, no chance I'm gonna give that up or anything else by leaving a couple years early.
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