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Pension options - income leveling
Old 10-26-2017, 02:04 PM   #1
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Pension options - income leveling

Hi All,

58 yr old female retiring at end of year after 31 years. Spouse is 65 and working part-time. We've never lived an extravagant lifestyle.
We have no debt. House paid for, all kids educated, grown and gone. (However, there are house projects/updates that need to be done, i.e. 40 yr old kitchen, basement remodel, refinishing floors.) Our health is excellent. Any inheritance is unknown.

We don't have a large retirement portfolio.

My pension will be $3000/mo. and my health insurance is paid for.
I have small IRA of $100,000. My SS statement indicates I can collect SS @ 62 of $1530 or @ 65 of $1818 or @67 of $2200.

Spouse has 401K of $350,000 and will begin drawing full SS in 6 months of $2,400/mo. Spouse and I plan on working part-time for a few years so we don't have to touch either IRA/401K for as along as possible.

My Q is about pension options I have. I have 3 choices:

Regular pension of $3,000 /mo with 3% COLA

Income leveling pension based on SS @ 62: $4,000/mo with 3% COLA, then reduced by $1530/mo starting at 62

Income leveling pension based on SS @ 67: $3,930/mo with 3% COLA, then reduced by $2200/mo starting at 67.

I've run numbers and break even scenarios and it seems the straight Pension w/o leveling is the better choice long term.

The extra $$ provided by the leveling options is enticing as it would let us take care of some house projects earlier; however, the pension $$ given up over the long run seems to make these options a bad deal.

Any thoughts on these options?

Thanks!
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Old 10-26-2017, 02:48 PM   #2
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Off the cuff I would concur that straight pension sounds most attractive.... largest ultimate benefit so those 3% COLAs accrue on a larger amount. You may have already done this but it would be fairly easy to schedule out the cash flows and the PV assuming living to specific ages.

Does the pension provide for joint annuity benefits?
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Old 10-26-2017, 02:59 PM   #3
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I was curious...... looks like beyond age 74 you are ahead with the straight pension. How lucky do you feel?

 Cash flows with 3% COLA   PV at 7%  
AgeStraightLevel 62Level 67 StraightLevel 62Level 67
593,0004,0003,930 2,8043,7383,673
603,0904,1204,048 5,5037,3377,208
613,1834,2444,169 8,10110,80110,612
623,2782,6334,294 10,60212,81013,888
633,3772,7124,423 13,00914,74417,042
643,4782,7944,556 15,32616,60620,078
653,5822,8784,693 17,55718,39823,000
663,6902,9644,833 19,70520,12325,813
673,8003,0532,192 21,77221,78327,005
683,9143,1452,257 23,76223,38228,153
694,0323,2392,325 25,67724,92129,257
704,1533,3362,395 27,52126,40230,320
714,2773,4362,467 29,29627,82831,344
724,4063,5392,541 31,00429,20032,329
734,5383,6452,617 32,64930,52133,278
744,6743,7552,695 34,23231,79334,191
754,8143,8672,776 35,75633,01835,070
764,9593,9832,859 37,22334,19635,916
775,1074,1032,945 38,63635,33136,730
785,2614,2263,034 39,99536,42337,514
795,4184,3533,125 41,30437,47438,268
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Old 10-26-2017, 03:16 PM   #4
Confused about dryer sheets
 
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My pension provides for survivor benefits.
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Old 10-26-2017, 03:20 PM   #5
Confused about dryer sheets
 
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Quote:
Originally Posted by pb4uski View Post
I was curious...... looks like beyond age 74 you are ahead with the straight pension. How lucky do you feel?

Cash flows with 3% COLA PV at 7%
Age Straight Level 62 Level 67 Straight Level 62 Level 67
59 3,000 4,000 3,930 2,804 3,738 3,673
60 3,090 4,120 4,048 5,503 7,337 7,208
61 3,183 4,244 4,169 8,101 10,801 10,612
62 3,278 2,633 4,294 10,602 12,810 13,888
63 3,377 2,712 4,423 13,009 14,744 17,042
64 3,478 2,794 4,556 15,326 16,606 20,078
65 3,582 2,878 4,693 17,557 18,398 23,000
66 3,690 2,964 4,833 19,705 20,123 25,813
67 3,800 3,053 2,192 21,772 21,783 27,005
68 3,914 3,145 2,257 23,762 23,382 28,153
69 4,032 3,239 2,325 25,677 24,921 29,257
70 4,153 3,336 2,395 27,521 26,402 30,320
71 4,277 3,436 2,467 29,296 27,828 31,344
72 4,406 3,539 2,541 31,004 29,200 32,329
73 4,538 3,645 2,617 32,649 30,521 33,278
74 4,674 3,755 2,695 34,232 31,793 34,191
75 4,814 3,867 2,776 35,756 33,018 35,070
76 4,959 3,983 2,859 37,223 34,196 35,916
77 5,107 4,103 2,945 38,636 35,331 36,730
78 5,261 4,226 3,034 39,995 36,423 37,514
79 5,418 4,353 3,125 41,304 37,474 38,268
SS indicates my life expectancy is 86.6....so just going on stats, seems like more $$ is needed as you age.
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Old 10-26-2017, 03:33 PM   #6
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Inflation is likely to be higher in the future IMHO than it has been recently, so that COLA is a nice benefit. I believe I would go for the straight pension.
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Old 10-31-2017, 10:41 AM   #7
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I question the numbers in the OP, as the SS statement assumes that one works until the date the SS benefit is claimed.
Retiring @ 58, after 31 years of SS contributions would result in lesser SS benefits than those listed here.
Then it is unclear whether the "leveling" of the pension would take into account these reduced SS benefits, or is still based on the numbers shown in the current SS statement.

Due diligence demands double-checking and a good understanding of these aspects.
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Old 10-31-2017, 11:14 AM   #8
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OP needs to use the SS calculator at the SS website (where you enter in your actual values from statement) and then reduced or zero for future years until retirement. To get a real true set of SS numbers.

The SS statement assumes you work until 62 at a minimum.
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Old 10-31-2017, 01:44 PM   #9
Confused about dryer sheets
 
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I have 31 years of employment with my current employer only. I have actually been working full time since age 17, when I graduated as a junior, so I have more than 31 years of SS contributions.

As for the SS calculator, it was used as well and it was set at 0 for future years, even though I will continue working my part-time job. My pension system had me do this in order to get a clearer picture of


Didn't know I needed to put in all these details in order to get responses....
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