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Help with pension decision
Old 02-09-2012, 05:27 PM   #1
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Help with pension decision

I am eligible for a very small pension from an employer of 30 years ago. I can collect the full pension at age 60 (about $3,500/year). Or, starting at age 55 I can collect this payment early at a penalty of .3%/month (3.6% per year). This is a COLA'd pension once I start collecting. I do not need the money now to live on, but I could certainly invest it or use it for every day expenses in my ER. Other than the obvious decision of being able to earn more than 3.6% on these funds, is there any other reason to wait to collect. I know SS penalizes something like 8% per year for taking it early.

I'm not very knowledgeable about pensions and I thought others out here would be. Thanks in advance.

Retired on 5/31/2011 at 54
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Old 02-09-2012, 08:29 PM   #2
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Break out a spreadsheeet and see how it looks if you invest at your estimated portfolio rate of return.

Or you could just sum up all the early payment money you would receive until age 60 and see if it is enough to buy you a COLAed immediate annuity to cover the difference between it and the full pension.

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Old 02-09-2012, 09:22 PM   #3
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If my calculations are correct you will get 85% of the age 60 amount of $3,500 per year or $2,959. Since this will begin I presume to be cola adjusted once you start the amount you are short will be determined by the inflation rate.

However, I say grab the $250 a month. Assuming a 3 real return and 2% inflation and a 35% tax rate you will have an age 60 pension of $3,266 and $13,000 in the bank which would amortize your shortfall of $234 per year for an excess of 30 years.
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