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Early retirement penalties?
Old 09-11-2011, 12:42 PM   #1
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Early retirement penalties?

I am applying for a pension since my ssda has come through. I am 57years old and my normal retirement age in my union is 62. They offer and early retirement at age 55 but a reduction i n the benefit amount of 3% a year prior to 62.This is going to cost me 14% of my pension. My contension is that I am not seeking an early retirement but since I am disabled I have no choice to retire.I also have been a member for almost 38 years. I am wondering if anyone else has experienced a similiar scenario and a resolution was possible. I would understand if they would do this now and at 62 recalulate my pension but I don,t think they will.Again I have no choice but to retire but I don,t think it is fair to be penalized.Any advice would be really helpful. thanks lacawac
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Old 09-11-2011, 01:46 PM   #2
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Originally Posted by lacawac View Post
Again I have no choice but to retire but I don,t think it is fair to be penalized.
Actually, it is quite fair, since they are paying you for a longer period of retirement (assuming you have a life pension).

It's no different than those that take SS at age 62, vs. FRA (age 66/67) or hold off till age 70, and get a different amount with the same period of contributions over the years.

They will be paying you for a longer period of time, albit at a smaller rate. In the end, it's calculated that you will receive a total benefit the same as a person retiring at a later age.

It's no different than my disabled son, who has been collecting SSD since age 35. His benefit (based upon his SS contributions up to that time) is very little, but it will remain in force till he passes - expected to be more than a half-century later.

While he still works (in a sheltered workshop) part time, and still contibutes to SS (albit at a much lower rate), it will not impact his benefit, nor be anything close to what he would have received if he was able to contribute on a normal lifespan.

That's just the way it is.
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Old 09-11-2011, 01:53 PM   #3
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I understand what you are saying about ss.However those are elective choices that people make,In my case I can no longer work ,this is not an elective but a necessity and like I said I have 38 years of service which in my mind should account for something. thank you.
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Old 09-11-2011, 01:58 PM   #4
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In answer to your question, I have never heard of a disability clause in a DB pension such as you are describing.

Do you have long term disability coverage? If so, can you use that to delay starting your pension?
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Old 09-11-2011, 01:59 PM   #5
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I have 38 years of service which in my mind should account for something. thank you.
Nothing more than (hopefully) fond memories.

No, it dosen't account for anything (in a financial sense).

You were part of a company/union that provided "fuel" to a company. You've "burned out" (as I did ) and have no further value.

Be happy you are getting something (I worked for two different companies with close to 40 years total service and received no pension). Consider yourself lucky...
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Old 09-11-2011, 02:02 PM   #6
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I don,t believe that exists, it might have years ago and had been changed in a cost saving exercise. Thank you,
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Old 09-11-2011, 02:07 PM   #7
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Sorry about your situation with the disability.

Are you describing a company pension plan?

I assume by SSDA you mean you qualified for social security disability insurance.

I don't have direct experience with that situation (I have never been disabled). Obviously you need to work with your organizations benefits or pension group to get the answer.

I was not in a union... but I can tell you how mine worked

My pension plan does not have any sort of long-term disability provision. But it does have an early retirement provision. I had separate LTD insurance. Retirement and long-term disability were separate benefits and the only linkage was that LTD would not continue to pay once I reached retirement age or was no longer disabled (whichever occurred first).

I don't remember all of the details but I think it was LTD + SSDI were suppose to replace my income till retirement age. At retirement age, the LTD stopped. To fill the LTD gap, I would need to file for my pension benefit at that time.

Did you check to see if you have any sort of LTD coverage through your union?

I don't know about your income situation.... but if you have adequate income without your pension, you might be able to delay taking the pension benefit till 62 (check with whoever is running your pension plan).

When it comes to the pension... one needs to study the options carefully and not make a quick decision because it typically cannot be reversed.
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Old 09-11-2011, 02:23 PM   #8
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I don,t have LTD like you suggested,I think at one time they did but like I said ,they changed the plan a few years age ( not to my knowledge ),to state that disability converts to early retirement at age 55. But like I said early retirement was an elective if you wanted it and knew you would take a penalty,this is not an elective for me I have no choice.
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Old 09-11-2011, 02:43 PM   #9
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Quote:
Originally Posted by lacawac View Post
I don,t have LTD like you suggested,I think at one time they did but like I said ,they changed the plan a few years age ( not to my knowledge ),to state that disability converts to early retirement at age 55. But like I said early retirement was an elective if you wanted it and knew you would take a penalty,this is not an elective for me I have no choice.
My company had similar rules and when I retired voluntarily at 55 I took a reduced pension. My full pension would have been at 62.

I did realize that the reduced pension would happen even if I had to leave because of disability, which is why I always paid separately for long term disability insurance - through my employer who deducted the premium each month from my paycheck.

I'm sorry you are in the situation that you are, but I suspect your company rules are in line with the norm.
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Old 09-11-2011, 02:52 PM   #10
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I have 38 years of service which in my mind should account for something. thank you.
Well, it might. It's just going to depend on the specifics of your retirement system whether there is specific provision for disability retirement. Just to illustrate, I just looked up that provision for my own state retirement system, and it is:
Quote:
If you are determined to be permanently disabled due to natural causes and you have at least 10 years of credited service, you are entitled to an ordinary disability pension for life of 1 ĺ% for each full year of credited service multiplied by your average final compensation (AFC) or salary. The minimum benefit is 30% of your AFC.
So, you mentioned a union? You should get together with a union representative and find out about this for sure, one way or the other. It's no good trying to guess on general principles.
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Old 09-11-2011, 03:53 PM   #11
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If you had retired with the company I used to work for you wouldn't have been eligible until age 56, and your annualized pension amount would be reduced by 5% per year, 3% sounds generous.

You could have gone on LTD with my company and deferred your pension to age 62 and receive the full amount then. But LTD was 60% of full wages, with no annual increases. So losing 14% would probably be much better, sounds generous.

I've never heard of anyone getting a full pension early, disabled or otherwise. Frankly, that's not how pensions work.

I take it you don't have a lump sum option.
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Old 09-11-2011, 11:20 PM   #12
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I've never heard of anyone getting a full pension early, disabled or otherwise. Frankly, that's not how pensions work.
The only exception that I'm aware of is what my pension plan defines as "Catastrophic Duty Related Disability", defined as "a sudden, violent, life-threatening, duty-related injury...caused by motor vehicle accident, gunshot wound, aggravated assault, .... resulting in loss of one or both eyes, one or both feet, hands, complete paralysis, traumatic brain injury...resulting in total and permanent disability."

Everyone else who is disabled gets a reduced pension based on years of service.
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Old 09-12-2011, 02:32 AM   #13
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I had 19 years in a DB plan when at Megacorp , and now 10 years in a civil service DB plan. Both had disability clauses, neither gave full benefits under disability. Both used social security disability as a qualifier.

If you have SS disability, you now also have medacare early. THAT is worth a lot !!!!!!!!!!!
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Old 09-12-2011, 06:50 AM   #14
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If you have SS disability, you now also have medacare early. THAT is worth a lot !!!!!!!!!!!
True, but remember you can't get pre-age 65 Medicare until you've been on SSD for a 24-month waiting period.

That's because they are not going to start/stop Medicare if there is a possibility your disability may be "corrected" in that time and you return to w*rk.

So you do have medical coverage risk if you don't have medical coverage during that 24 month gap, and of course you have to go through the exercise of Part B/D commercial coverage at an earlier age along with understanding that your SSD payment will be reduced by the current Part B premium.
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Old 09-12-2011, 07:07 AM   #15
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The only exception that I'm aware of is what my pension plan defines as "Catastrophic Duty Related Disability", defined as "a sudden, violent, life-threatening, duty-related injury...caused by motor vehicle accident, gunshot wound, aggravated assault, .... resulting in loss of one or both eyes, one or both feet, hands, complete paralysis, traumatic brain injury...resulting in total and permanent disability."

Everyone else who is disabled gets a reduced pension based on years of service.
Your pension plan may be more than just a pension plan and have an disability insurance component to it.


The problem with a basic pension plan (when it comes to disability) is that the payout is typically calculated based on the number of years worked. If one is disabled early in their career, they may not have much of a vested pension benefit due to them.

I do not know all of the types of plans.... but if one works in a profession that is considered hazardous, that type of provision may be common.


I think the OP believes that since he is forced to retire because if disability, that he should get a consideration for that situation and the normal reduction be waived. The problem may be that there is not such provision and therefore cannot be done.

If his union drop LTD, then purchasing an individual policy would have been a good idea. Of course now it is too late. Although they cost, it deals with the risk of lost income.


BTW 62 as a FRA is pretty good. There are many pensions that use 65. 3% is probably lower than some yearly reduction rates.

The OP should take his time and carefully review his options and the cost/benefit of each his options.

In this low interest rate environment... and especially if his pension is fully funded and has a COLA, if he can afford to wait it might be in his best interest to do so. Even if he has to spend down savings to fill the gap. He really needs to do the analysis! If he cannot do the analysis, he should get some help.
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Old 09-12-2011, 08:30 AM   #16
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Maybe I don't quite get the OP's post but.....If what your suggesting was available and freely given ( no penalty early retirement pension if disabled) then it would dry up the disability insurance market that many take out to cover them for just such circumstances that you list. Many pay for decades disability insurance premiums "just in case" and the unfair thing would be that someone else gets the benefits that others pay extra for.
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Old 09-12-2011, 02:00 PM   #17
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Nothing is free... somebody pays for it. Most of the companies I worked for subsidized the premium in a Group LTD plan that the company setup with an insurer.

That was considered part of the compensation package...


Often people just look at the salary when looking for a position with a company. They need to look at all of the compensation (i.e., benefits).... Life Insurance, Health Insurance, Short and Long-term disability, retirement plan, etc.

Those non-salary compensation items can amount to big money during work and at retirement.
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Old 09-13-2011, 03:39 PM   #18
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My DB pension offers full retirement benefits with 30 years of service. You might check with your plan to see if they have something similar.
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Old 09-15-2011, 08:22 PM   #19
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welcome to the world of early retirement... lots of penalties exist when you retire early - after all I can't even be a senior until I am older so no discounts for me...
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