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Hello, I am bluwtrguy from Michigan
Old 08-07-2011, 08:59 AM   #1
Confused about dryer sheets
 
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Hello, I am bluwtrguy from Michigan

Hello everyone. I am new here and love this site. Just registered today and I have a question.

I just found out I will be getting layed off next March. I will be 55 in January. When I leave, I can choose to start collecting a pension of $30,000 a year with no COLA going forward. Or, if I wait, I would get an additional $3,000 a year for every year I wait until I am 65.

We are close to FIRE, $850,000 in retirement accounts, $160,000 in emergency fund accounts, $120,000 in college accounts. Still have 2 high schoolers at home. Was planning to quit at 60, but I will have to recalculate.

Seems like taking the money now makes sense. Based on my life expectancy, I would get the same either way. If I take it now and can find another job, I could theoretically invest and come out ahead. If I wait and live beyond my life expectancy, I would end up collecting much more, although likely collecting dollars worth less as the years go by.

Any thoughts on this? I have 7 months to decide. I am leaning on taking the money now, as I think there has to be a period of high inflation coming within the next few years. (although I have thought that for the last 3 years too!)
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Old 08-07-2011, 09:12 AM   #2
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Welcome aboard. None of us can answer without knowing what you expect your expenses to be, which you may not want to share. Might be best if you run a few scenarios through FIRECalc: A different kind of retirement calculator to start, at the very least one collecting now and one at a future date/age. Best of luck...
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Old 08-07-2011, 09:16 AM   #3
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Hi Bluwtrguy, welcome to the forum. You will find lots of help and advice here, and tools as well. Have you looked at firecalc, the tool linked at the bottom of the page? It will let you run different scenarios to model how taking or delaying your pension can affect you. Other sources of income, such as social security, can affect this choice.

My initial reaction is if the pension payout rises by 10% it is worth leaving, for at least 5 years and possibly longer, unless you think you can earn a greater return than that in your retirement accounts. By year 5 the effective yearly increase would be closer to 7% and then taking the annuity and keeping your IRA might work out better.
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Old 08-07-2011, 11:00 AM   #4
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Strictly dollars and cents, a 10% guaranteed jump in pension is hard to beat. As MichealB has pointed out, the returns diminish. I don't see any bond yields close to 10%. OTOH, you know your expenses. If you can keep happy at $60K income, you are pretty well set. My choice is to wait a while (I am close to your situation), mainly because of anticipated healthcare costs.
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Old 08-07-2011, 12:34 PM   #5
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Originally Posted by Bluwtrguy View Post
Hello everyone. I am new here and love this site. Just registered today and I have a question.

Based on my life expectancy, I would get the same either way.
Welcome.

I used to look at this as a straight calculation based on life expectancy, but I've changed my view on that.

Assuming you don't have any known condition that would lead to a shorter than normal life span, one of the biggest risks of ER is 'longevity risk' - running out of money before you run out of life. So if I can, I try to weigh things towards protecting myself against that risk.

My pension is structured much like yours (but smaller ), and I plan to hold off until 65 to collect for that very reason. If I live past my actuarial life-span (50% chance on average), I'll have a little more buffer in my old age.

A second benefit in delaying for me, which may or may not apply in your case - If I pass prior to 65, DW will collect a default 50% of what I would have started taking at that age. To get that 50% benefit if I actually took it early, would mean settling for a reduced lifetime benefit to compensate. I can make that decision at 65 though.

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Old 08-07-2011, 02:01 PM   #6
Confused about dryer sheets
 
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Thanks for the responses everyone. All of the comments are spot on about spending requirements. I now spend $6,000 each month (not including what I save for retirement, or health care which is provided by employer for 7 more months until the layoff.). I have not spent time on a spending plan of absolute requirements. My guess is i would need about the same $6,000 as now with eliminating wants and adding health care.

We owe $90,000 on the house and have no other debt. I tried firecalc with numerous scenarios and I am just not quite able to call it quits for good. I have a healthy emergency fund, but finding a job in Michigan at my age will not be easy. My original thought is my wife and I both need to try and find some work that will take us to 59, which firecalc shows to be very doable. But, what I really need to do is get a detailed spending plan on paper for now and the future. I have just been real interested in this the past couple of years. I am lucky that I had a "mentor" who told me in 1986 to save at least 10% and invest in index funds. Now that an unexpected layoff is coming up (guess that makes it expected), I am concerned, but I know I am better prepared than many would be.
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Old 08-07-2011, 02:09 PM   #7
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Originally Posted by Bluwtrguy View Post
I am lucky that I had a "mentor" who told me in 1986 to save at least 10% and invest in index funds.
I think it equally noteworthy that you were 'lucky' enough to heed your mentor's advice.
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Old 08-07-2011, 03:05 PM   #8
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I think it equally noteworthy that you were 'lucky' enough to heed your mentor's advice.
+1 Funny how some people get 'lucky', huh?

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