Getting ready to pull the trigger

[dm]

My wife has an opportunity to buy some years toward her retirement. She can buy 3 years for $77,000 and retire next july. There is currently a 25yr early out deal that will be expiring in 2008. If she doesn't take this and retires before she has 30 yrs in, her pension will be cut in halve because of her age, (46). She has 22 yrs now.

Her pension will be about $57,000 a year and we will pay for health insurance at the group rate. There is also cost of living adjustments.

Ive been planning on retireing, but my wife would have had to continue working till she was eligible for her retirement. Now with this deal it makes things much easier.

It will cost us the initial $77,000 and the difference between the 25yr and 30yr pension is about $15,000 a year at her current salary.

We will have approximatly 250K in my 401k and another 100k in taxable after paying the $77,000. My wife currently teaches a class in the evenings at the local college and she will continue to do this. She may even see if she can add a class or two. She makes $7200 a year teaching the class and enjoys it.

Our kids have moved out and we are debt free so I think that this will be plenty for us. I will be 49 and my wife will be 47. We gross about 200K now, but much of that went into paying off our house and the kids college.

Any suggestion's? Things I need to take care of.

 

[crazy connie]

I guess my ? for you is what about your pension? A nest egg of 350K with a 57K pension is great but what happens if she goes toes up or the "BIG D" bites you? I tend to look for the down side of financials and enjoy the upside when it happens which is most of the time now.

 

[dm]

The pension has survivors benefits so no problem there. We have been married 26 years so hopefully I don't have to worry about the "BIG D" but I guess I could always go back to work if I had to. Also the house and everything else is paid for, so there are other assets.

I will also get SS at some point.

 

[brewer12345]

As long as your cost of living including the healthcare premiums is under the pension amount, I think you are in good shape.

 

[Patrick]

DM, are you saying that if she takes the early out she gets $57K/year, but if she stays til 30 years (8 years from now) she gets $72K? If so, I would opt for the early out. 8 years of retirement is worth the $15K per year difference, IMO.

 

[Patrick]

I guess my ? for you is what about your pension? A nest egg of 350K with a 57K pension is great but what happens if she goes toes up or the "BIG D" bites you? I tend to look for the down side of financials and enjoy the upside when it happens which is most of the time now.

WRT to the Big D, if you live in a community property state, the spouse is entitled to 1/2 the pension that was accrued while you were married.

 

[crazy connie]

WRT to the Big D, if you live in a community property state, the spouse is entitled to 1/2 the pension that was accrued while you were married.

Ahhhh this one can be another issue in case of "D"... Insurance benefits... Are there provisons for that? I know with mine that once the retired employee is no longer alive the survivor gets NO Health Ins from the company. I imagine that "D" can impact that as well.

Please read the SPD on her pension plan and verify the discount cost factor for survivor option and bennies. Sometimes it is more cost efficient to buy an annuity (YUCK I can't believe I said that!) Also, is there a cash out option available?

 

[Patrick]

Ahhhh this one can be another issue in case of "D"... Insurance benefits... Are there provisons for that? I know with mine that once the retired employee is no longer alive the survivor gets NO Health Ins from the company. I imagine that "D" can impact that as well.

When I got divorced (I was still working at the time), I paid COBRA insurance premiums for my ex for 18 months. After that she was on her own.

 

[kramer]

Her pension will be about $57,000 a year and we will pay for health insurance at the group rate. There is also cost of living adjustments. . . The pension has survivors benefits so no problem there.

I'm curious -- what kind of work does your wife do? That is an incredibly large pension. Considering her young age, survivor's benefits, group health, it is probably worth at least 1.75 million dollars. congratulations!

Kramer

 

[Ginger]

I would check out the health insurance plan. With my DH --- I have to be on his health insurance plan when he dies or I have no access to his government health insurance plan. So right now, I have double coverage. I am still working full time and pay no health insurance premium as a company benefit, but pay on my husband's retirement health insurance plan.

If you think health insurance packages do not change in retirement, be prepared. We were notified that in Jan. 2008, major changes go in effect for retirees. We will pay substantial more on the premiums. Nothing is set in stone these days.

 

[bow-tie]

Wow dm, 57k/yr is some serious coin, especially if it allows you guys to exit before/right at age 50. Depending on how much you need, methinks you are in great shape, but I think Ginger makes a great point. I guess you have to make the decision on how comfortable you are that the health bennies will not dramtically change.

 

[dm]

She is a Middle School Principle. She has worked for the same school district since she got out of college. Her pension is based on her 3 highest years salary so she is much better off going with the pension instead of the lump sum as she has only been principle for a few years. We have to pay whatever the group rate is for the teachers for the health insurance, currently around $500 per month. This of coarse can change but at least we would be covered under a group plan. Also if something were to happen to my wife I can still continue the coverage.

Ive got to spend some time going over our expenses, but I'm willing to downsize some things to make this happen. We may be a little close as we currently don't have a buget, but I know people get by on less.

 

[dm]

We got the official numbers from the pension in the mail and I was off a little. To buy three years is going to cost $65,000. If she retires 7/01/2007 at 46 she will get $50,000 a year. If she waits till 7/01/2008 she will get approx. $55,600. There is an option that for aprox. $1800 a year I could continue to get 75% of her pension if she were to die before me. There are other options, such as 10 years guaranteed payments but I'll just have to run the numbers to see which way to go.

If she were to work till 2012 and got 3% a year raises, her retirement would be $83,000 a year. But if she only made it to 2011 with the early out deal going away in 2008 it would drop to $33,000. The pension has cola, so in 2012 she would be making a little more anyway.

So she can retire in 2007, 2008, or 2012. She is thinking she wouldn't mind going one more year, so unless something changes in the next few months I expect she will sign up for one more year.

I, on the other hand, will be calling it quits next spring. I think I'll be a SAHD. Since my kids have moved out of the house I think I can handle it.

I went back through the last three years to see how much we were spending in a year. We averaged around $70,000 but that included college cost of around 20k to 30k, and house payments of 15k for principle and interest. So with the house paid for and the kids on their own, or at least not quite as expensive, we should be fine. The wife still wants to teach a few classes at the college so that will help as well. We may have to budget for the first time in quite a few years, but the free time will be worth it.

 

[Spanky]

Dm,

Sounds like you have figured almost everything out. You plan is very feasible. Enjoy ER - you and your wife.

Spanky

 

[bosco]

Good luck!! and remember--don't sacrifice your principle but the principal is your pal!!! (might as well spell it right since you are married to one)

 

[REWahoo]

...(might as well spell it right since you are married to one)

Where the heck is Jarhead when you really need him....