Almost 60 and they just froze the pension

[Trillian49]

The defined-benefit pension was basically the reason I've been holding onto this job, and the company just froze it. There will be no more contributions into the pension, and benefits won't accumulate. Had the pension stayed in place 5 more years, the benefit would have been something I could have lived on comfortably. Now it will fall significantly short of that. The good part is -- I hope -- I feel I'm free to leave now. It's exciting but I'm also fearful.

The company still offers an early retirement benefit. I'm worried they could withdraw it leaving me with no access to the pension money til I'm 65. They already took away a week of vacation this year, also people have been RIF'ed. I'm in a key position so I doubt they'll let me go, which would give me a tiny package. I'm feeling strongly I should just take what I've got and run.

What troubles me is my finances don't look as good as I'd like. I read the stories about people who have made their retirement dreams come true and as much as I've been trying, I'm not where I'd like to be.

One decision I'm facing is whether to withdraw my contributions from the company pension plan or leave them in. My monthly benefit will be 1,600 if I retire at 60 vs. 2,300 at 65 -- if I leave my contributions in the plan. It will be 1,275 at 60 vs. 1,800 at 65 if I take them out. If I take them out, I'll have 50,000 to roll over into an IRA. Assuming I retire at 60 and take my contributions out I'll get 1,275 a month from the pension.

Besides the pension, I have 150,000 in the 401K and 110,000 in IRAs. If I take the pension money out of the plan that will be about 300,000 in retirement funds which if I take out 4% annually will be another 1,000 an month.

When I turn normal retirement age I'll have another tiny pension at 300 a month from a previous job. I guess that's my cost of living increase.

If Social Security holds up I'll be able to draw 1,700 a month if I retire at 62 or 2,350 a month if I wait til 65.

I have personal savings less than 20,000 and I rent. My daughter lives with me while finishing her education (second degree) which will be the end of this year.

My parents are both in failing health in their late 80s, and I'd like more time to help care for them. Already I spend several evenings a week with them and this gives me some idea of possibly how little time there could left for my own enjoyment of a life free of physical and mental decline, which all the more makes me want to retire now.

I want more free time, more time to care for my parents, and I want a more active lifestyle as I sit at a desk all day with my day job.

So what I'm thinking is... retire on my 60th birthday in 2 months. Will I be OK?

Thanks for reading,
Trillian

 

[REWahoo]

Trillian, some questions:

What will your annual income need to be in retirement for you to live comfortably? Do you have a budget you currently live on or do you track your spending? How will your expense needs change once you no longer work? What will you do for health insurance coverage between now and the time you are eligible for Medicare? Have you run your numbers through FIRECalc to see what it tells you?

 

[militaryman]

This is just me putting myself in your situation....

Assuming you have health care figured out between now and Medicare age I would say that I would retire.

I would keep the 401k and IRA invested and not touch it.
I would use the 50k as a bucket of 25k for two years to supplement the 1275/mo until SS kicks in at 62.

I could live comfortable from that point on on the $3000/mo that the pension and SS brought in.

That would leave a nice 250K cushion in the bank earning interest for emergency funds.

It really depends on whether YOU could live well on that amount though.

I would not have a monthly rent payment though but would have about $350/mo in prop. taxes and prop ins. Plus home upkeep that I estimate at $300/mo so that may be a wash depending on what you pay for rent.

 

[Trillian49]

Trillian, some questions:

What will your annual income need to be in retirement for you to live comfortably? Do you have a budget you currently live on or do you track your spending? How will your expense needs change once you no longer work? What will you do for health insurance coverage between now and the time you are eligible for Medicare? Have you run your numbers through FIRECalc to see what it tells you?

I've gotten accustomed to living on half my salary, what suprised me when I put the numbers into FIRECalc is it looks like I'll still be able to do that, or pretty near. It shocked me how I'm not really retiring that early and also how OK financially I'm likely to be, assuming SS holds up.

I haven't thought out the medical expenses. I have good medical, prescription, dental, vision, and LTC. Obviously that will need to change. I'm healthy and don't take medicines except for vitamins which aren't covered by insurance anyway. I might get by with catastrophic coverage until Medicare kicks in, or AARP? What do other people do?

 

[mews]

hmm, if you leave, could you get COBRA for healthcare coverage? What would that amount be? (Your employer's cost * 1.02 is the max. If you can cut a deal to get laid off between now and December, there is a special deal in place - you pay (I think) 1/3rd. Company picks up 2/3rd.)

Why not schedule any needed work now, on the current plan, anyway?
Get a through physical if you haven't had one lately - this could be useful info.

Good luck!

ta,
mew

 

[REWahoo]

I've gotten accustomed to living on half my salary, what suprised me when I put the numbers into FIRECalc is it looks like I'll still be able to do that, or pretty near. It shocked me how I'm not really retiring that early and also how OK financially I'm likely to be, assuming SS holds up.

That sounds like good news. Be sure to factor into your planning some sort of allowance for both the expected and unexpected expenditures we all get hit with - usually at the most inopportune time. Roof replacements, major auto repairs, and dead appliances are all part of daily living and need to be factored into your budget.

And while FIRECalc is an excellent tool, it can only give us a rear-view mirror look at whether or not we would have run out of money with a certain spending level. Many of us try to err on the side of caution in this area.

I haven't thought out the medical expenses. I have good medical, prescription, dental, vision, and LTC. Obviously that will need to change. I'm healthy and don't take medicines except for vitamins which aren't covered by insurance anyway. I might get by with catastrophic coverage until Medicare kicks in, or AARP? What do other people do?

Medical coverage is the Achilles heel of early retirement. For those of us unfortunate enough to not have continuing coverage through our former employer (other than COBRA - short term), purchasing an individual policy is the usual option - provided you have no preexisting conditions and live in a state with affordable coverage. I suggest you spend some time looking at this collection of information on health insurance in our FAQ section: http://www.early-retirement.org/forums/f47/faq-archive-buying-private-health-insurance-30756.html

 

[Trillian49]

Your suggestions are appealing because they seem simple. What are your reasons for taking the 50k rather than leaving it in the pension? By not touching the 401K do you mean leave it in the company plan? I feel I'd rather take it out so I have more investment choices.

I need to figure out that health care...

My rent is 1200, and the place costs an arm and a leg to heat in the winter. I'll want to move which, as a renter, is easy to do.

More and more I'm feeling I'd rather retire now and adjust my lifestyle so that I am comfortable...

This is just me putting myself in your situation....

Assuming you have health care figured out between now and Medicare age I would say that I would retire.

I would keep the 401k and IRA invested and not touch it.
I would use the 50k as a bucket of 25k for two years to supplement the 1275/mo until SS kicks in at 62.

I could live comfortable from that point on on the $3000/mo that the pension and SS brought in.

That would leave a nice 250K cushion in the bank earning interest for emergency funds.

It really depends on whether YOU could live well on that amount though.

I would not have a monthly rent payment though but would have about $350/mo in prop. taxes and prop ins. Plus home upkeep that I estimate at $300/mo so that may be a wash depending on what you pay for rent.

 

[mews]

Roll the IRA & 401k over to Vanguard, but leave it invested. That way, you are leaving the tax-protected investment untouched as long as you can. DON'T withdraw $$ - it will be taxable income!

Most company plans have fees & loads you DON'T want to pay any longer than you need to! Just do a rollover.

ta,
mew

 

[DangerMouse]

Personally I would move the money available away from the company you work for. I wonder if all the changes/layoffs they are making are a sign of real financial trouble and I would hate to see any pension go away. However, i would definitely rollover to a IRA or whatever to avoid taxes.

 

[ffresh]

Just be cautious and AWARE that pensions can be gone in a heartbeat if your employer later declares Chap 11/7. So too can annuities paid as Early Retirement benefits. I can attest to that. OTOH if you have control of your retirement finances, e.g., a roll-over to an IRA, the employer can later implode without affecting your financial health - just another thing to consider!