Join Early Retirement Today
Reply
 
Thread Tools Display Modes
Need sanity check on when to take pension
Old 10-14-2015, 02:36 PM   #1
Full time employment: Posting here.
 
Join Date: Jan 2008
Posts: 838
Need sanity check on when to take pension

Hi, I'm looking for a sanity check to see if my thinking on this is correct:

I've been FIREed since 2008 and living off of my savings + a small income from a hobby of mine. Thanks to the market rebound, my total savings are greater now than they were in 2008.

I'll be 55 soon and can start collecting a non-COLA pension which would give me $43,556/year. Or I could get a lump sum of $703,293.

At 55 my pension is reduced. I could wait until age 60 to get the full pension value of $54,445/year (or $804,364 lump sum).

1st decision: I think should start collecting my pension at age 55 instead of 60. Even though it is reduced, collecting that money for 5 more years more than makes up for the reduced amount. Age 79 is the break even point if I figured that correctly, where I might have been better off if I had stared the pension at 60.

2nd decision: Since I'm doing fine living off my savings now, I really don't need the income from the pension right now. So if I delay taking it for a few more years, I have some tax advantages of having a pretty low income - bigger ACA subsidy, and reduced property tax. But passing up $43,556/year just to save a bit on taxes doesn't make too much sense to me. Seems I may as well take it, invest some, and start giving more to charity. Or start living large, although that's never been my style.

Basically, I'm in good shape financially and I know that's great problem to have - I'm just hesitant to start taking the pension at 55 because once I do that there's no going back and I just want to see if I'm missing anything here. Any comments or critiques are more than welcome.
DayDreaming is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 10-14-2015, 02:40 PM   #2
Moderator
Walt34's Avatar
 
Join Date: Dec 2007
Location: Eastern WV Panhandle
Posts: 25,302
I guess basically it boils down to "How lucky do you feel?" If you're pretty sure you'll make it to 79+, wait. If not, take it now.
__________________
When I was a kid I wanted to be older. This is not what I expected.
Walt34 is offline   Reply With Quote
Old 10-14-2015, 02:44 PM   #3
Thinks s/he gets paid by the post
 
Join Date: Feb 2014
Posts: 3,054
Nice pension. No easy answer on early vs. late, each has its own advantages. Do you have relatives who lived a very long time? How is your health? I will have to grapple with this issue in 5-10 years as well.
jim584672 is offline   Reply With Quote
Old 10-14-2015, 02:58 PM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
travelover's Avatar
 
Join Date: Mar 2007
Posts: 14,328
Have you taken into consideration taxes on RMDs? It might be advantageous to bleed down tax deferred accounts and maybe even do Roth conversions now, then take pension later.
travelover is offline   Reply With Quote
Old 10-14-2015, 03:16 PM   #5
Recycles dryer sheets
 
Join Date: Jul 2013
Posts: 385
I am 55 also. Enjoy the money while you are relatively young. No one knows what the future will bring. Although you may live well beyond 79, travel and other plans become more difficult........Said another way "stuff happens".

Just my two cents.
phil1ben is offline   Reply With Quote
Old 10-14-2015, 03:34 PM   #6
Full time employment: Posting here.
 
Join Date: Jan 2008
Posts: 838
My father and grandparents all lived into their 90's. Mom is still around, in her mid-80s and doing well. I am in very good health.

I've been doing Roth conversions for a few years but probably should have been more aggressive with those. If I hold off on the pension so that I can do more Roth conversions now, my RMDs would be smaller when that time comes, but I'm not sure that offsets the fact of not having that pension income for a few years. This is where it gets too complicated to wrap my head around.
DayDreaming is offline   Reply With Quote
Old 10-14-2015, 03:44 PM   #7
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,266
What tax bracket are you in now? If you start your pension, what tax bracket will you be in? Once you start your pension and SS, what tax bracket will you be in? Taxcaster can help you answer these questions.

If your tax bracket once your pension and SS start is really high, given your good health and family longevity, it might be better to wait until 60 and take advantage of doing more aggressive Roth conversions at low tax rates.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56
pb4uski is offline   Reply With Quote
Old 10-15-2015, 08:12 AM   #8
Thinks s/he gets paid by the post
 
Join Date: Sep 2006
Posts: 2,842
It seems to me that this is "bonus" money for you in that it is not needed for retirement spending. As such if you look at tax angles this could be a case where taking the lump sum payout and rolling into IRA and then minimizing taxes would be best decision. It sounds to me as if your income needs are not that great so saving money for a later date in case of
Major medical issues would be best idea.


Sent from my iPad using Early Retirement Forum
__________________
But then what do I really know?

https://www.early-retirement.org/forums/f44/why-i-believe-we-are-about-to-embark-on-a-historic-bull-market-run-101268.html
Running_Man is offline   Reply With Quote
Old 10-15-2015, 08:14 AM   #9
Full time employment: Posting here.
 
Join Date: Jan 2008
Posts: 838
Quote:
Originally Posted by pb4uski View Post
What tax bracket are you in now? If you start your pension, what tax bracket will you be in? Once you start your pension and SS, what tax bracket will you be in? Taxcaster can help you answer these questions.

If your tax bracket once your pension and SS start is really high, given your good health and family longevity, it might be better to wait until 60 and take advantage of doing more aggressive Roth conversions at low tax rates.
Now 15%
Pension puts in me the 25% bracket
+ SS would put me near the top of the 25% bracket.

If I delay the pension until age 60 so that I can do more Roth conversions now, that's $217,780 pension that I'm not collecting over those 5 years, and I have a hard time seeing which option is better in the long run.
DayDreaming is offline   Reply With Quote
Old 10-15-2015, 08:25 AM   #10
Thinks s/he gets paid by the post
 
Join Date: Jun 2013
Posts: 1,019
A question you need to answer for yourself before deciding: Is your primary goal to maximize the expected payout, or minimizing your chances of outliving your money?
Which Roger is offline   Reply With Quote
Old 10-15-2015, 04:10 PM   #11
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,266
Quote:
Originally Posted by JoeDreaming View Post
Now 15%
Pension puts in me the 25% bracket
+ SS would put me near the top of the 25% bracket.

If I delay the pension until age 60 so that I can do more Roth conversions now, that's $217,780 pension that I'm not collecting over those 5 years, and I have a hard time seeing which option is better in the long run.
It sounds like you'll be paying 25% (or more) on your tax-deferred withdrawals if you start you pension now.

You're giving up $217,780 but you're also gaining in that you're saving 10% or more on your Roth conversions during those 5 years and then gaining $10,889 a year for the rest of your life. If you live long you'll be way ahead.

You can get an idea of how much you're saving by calculating your taxes with and without the Roth conversions to the top of the 15% tax bracket and look at the change in tax divided by the Roth conversion. just so you know if you go over the top of the 15% tax bracket and have a lot of qualified dividend income or LTCG then the taxes on any excess is quite high (generally 30%).

I think it would somewhat depend on how much you can do in Roth conversions and what the tax savings are compared to the $217,780 you would be foregoing.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56
pb4uski is offline   Reply With Quote
Old 10-16-2015, 10:50 AM   #12
Full time employment: Posting here.
 
Join Date: Jan 2008
Posts: 838
Quote:
Originally Posted by Running_Man View Post
It seems to me that this is "bonus" money for you in that it is not needed for retirement spending. As such if you look at tax angles this could be a case where taking the lump sum payout and rolling into IRA and then minimizing taxes would be best decision. It sounds to me as if your income needs are not that great so saving money for a later date in case of
Major medical issues would be best idea.
I'd been thinking of it the other way around: when I start taking the pension, that would cover my expenses, so then my other savings would be sitting there (and growing) for any major expenses in the future. But I will give your idea some thought. Thanks!
DayDreaming is offline   Reply With Quote
Old 10-16-2015, 10:52 AM   #13
Full time employment: Posting here.
 
Join Date: Jan 2008
Posts: 838
Quote:
Originally Posted by pb4uski View Post
It sounds like you'll be paying 25% (or more) on your tax-deferred withdrawals if you start you pension now.

You're giving up $217,780 but you're also gaining in that you're saving 10% or more on your Roth conversions during those 5 years and then gaining $10,889 a year for the rest of your life. If you live long you'll be way ahead.

You can get an idea of how much you're saving by calculating your taxes with and without the Roth conversions to the top of the 15% tax bracket and look at the change in tax divided by the Roth conversion. just so you know if you go over the top of the 15% tax bracket and have a lot of qualified dividend income or LTCG then the taxes on any excess is quite high (generally 30%).

I think it would somewhat depend on how much you can do in Roth conversions and what the tax savings are compared to the $217,780 you would be foregoing.
OK, I obviously need to give this some more thought. And more math! Can I ask how you came up with the $10,889/year number?

Thanks!
DayDreaming is offline   Reply With Quote
Old 10-16-2015, 11:53 AM   #14
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,266
$54,445 you would receive if you start your pension at 60 less the $43,556 you would receive if you start at 55.

By giving up $217,780 (5 years at $43,556 a year) you get $10,889 a year MORE for the rest of your life.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56
pb4uski is offline   Reply With Quote
Old 10-16-2015, 04:16 PM   #15
Recycles dryer sheets
 
Join Date: Mar 2015
Posts: 64
Have you calculated and the compared the present values of each option? Easily done in Excel.

I have the option of taking 82% of my full pension when I'm 52 next year, rather than taking 100% at age 65. Taking it sooner rather than later has a higher present value, so that's what I plan to do.
Marketwatcher is offline   Reply With Quote
Old 10-16-2015, 06:33 PM   #16
Thinks s/he gets paid by the post
nun's Avatar
 
Join Date: Feb 2006
Posts: 4,872
Quote:
Originally Posted by Marketwatcher View Post
Have you calculated and the compared the present values of each option? Easily done in Excel.
Yes let's do that assuming you are a man from your name. [edit....I'm refering to the OP "JoeDreaming']

Taken at 55 and assuming you live another 25 years, 43556/year for a lump sum of $703293 implies a payout rate of 6.2% and an IRR of 3.7%...I imagine the lump sum will be calculated using the IRS segmented tables.

If you wait to 60 and get $54,445/year for $804,364 lump sum and we assume you live 21 more years that is a payout rate of 6.8% and an IRR of 3.45%.

If this pension is your only source of safe income other than SS and taking it will allow you to cover expenses from 55 onwards so that you can leave more money invested and accumulating in other places I would take the pension asap. It's annoying to give up IRA to ROTH conversions now, but you will be reducing future RMDs.
__________________
“So we beat on, boats against the current, borne back ceaselessly into the past.”

Current AA: 75% Equity Funds / 15% Bonds / 5% Stable Value /2% Cash / 3% TIAA Traditional
Retired Mar 2014 at age 52, target WR: 0.0%,
Income from pension and rent
nun is offline   Reply With Quote
Old 10-16-2015, 06:40 PM   #17
Recycles dryer sheets
 
Join Date: Mar 2015
Posts: 64
Quote:
Originally Posted by nun View Post
Yes let's do that assuming you are a man from your name.

.
I'm a woman. Why does that matter?
Marketwatcher is offline   Reply With Quote
Old 10-16-2015, 07:45 PM   #18
Thinks s/he gets paid by the post
nun's Avatar
 
Join Date: Feb 2006
Posts: 4,872
Quote:
Originally Posted by Marketwatcher View Post
I'm a woman. Why does that matter?
I was referring to the OP, "JoeDreaming". Gender is important in annuity calculations because of the different life expectancies, of course other factors like general health are as important.
__________________
“So we beat on, boats against the current, borne back ceaselessly into the past.”

Current AA: 75% Equity Funds / 15% Bonds / 5% Stable Value /2% Cash / 3% TIAA Traditional
Retired Mar 2014 at age 52, target WR: 0.0%,
Income from pension and rent
nun is offline   Reply With Quote
Old 10-16-2015, 07:52 PM   #19
Recycles dryer sheets
 
Join Date: Mar 2015
Posts: 64
Quote:
Originally Posted by nun View Post
I was referring to the OP, "JoeDreaming". Gender is important in annuity calculations because of the different life expectancies, of course other factors like general health are as important.
Ah, yes now I see. Thanks for the explanation. And I agree with your conclusion from your calculation. Intuitively, it makes sense to take the pension sooner.
Marketwatcher is offline   Reply With Quote
Need sanity check on when to take pension
Old 10-16-2015, 08:09 PM   #20
Recycles dryer sheets
 
Join Date: Jan 2014
Posts: 456
Need sanity check on when to take pension

Quote:
Originally Posted by pb4uski View Post
$54,445 you would receive if you start your pension at 60 less the $43,556 you would receive if you start at 55.

By giving up $217,780 (5 years at $43,556 a year) you get $10,889 a year MORE for the rest of your life.

Plus I think 75 is his (OP) breakeven age...($43,556 x 5 yrs = $217,780. $217,780/$10,889= 20 yrs.).


Sent from my iPad using Early Retirement Forum
PERSonalTime is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Long time lurker, first time poster and need a sanity check Toocold Hi, I am... 13 07-05-2016 08:08 AM
We're both 50 and need a sanity check. mbnj77 Hi, I am... 13 08-18-2014 09:44 AM
Need a sanity check or just to bounce this off of others frayne Other topics 15 12-18-2011 09:04 PM
Shoot holes in my plan or give me a sanity check frayne FIRE and Money 4 04-04-2004 03:48 PM

» Quick Links

 
All times are GMT -6. The time now is 02:03 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2024, vBulletin Solutions, Inc.