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Pension Question (CalPERS)
Old 03-09-2016, 01:58 PM   #1
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Pension Question (CalPERS)

I'm not at all familiar with pension systems and how they calculate benefits. My wife turns 55 in a couple of months and becomes eligible to start drawing a pension from her previous 17+ years of work in government. She was thinking about waiting until 60 to file because we really don't need the extra income right now. However, from the CalPERS site, if she starts drawing on her pension immediately, she would get slightly more than $15,000 per year. If she waits until age 60, she would get slightly more than $17,000 per year. Does this make sense? She would be giving up five years of pension income (>$75,000 total) for $2,000/YR more, but at that rate it would take almost 38 years to make up the difference in total payout. Seems to me like a no-brainer to take the money now. I don't think my wife expects to live to be 98. Are there any other advantages to waiting that we may be overlooking?
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Old 03-09-2016, 02:26 PM   #2
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Does the pension have a yearly COLA? If it does, that may change your math on how much money is received over a lifetime as the 17k would receive bigger COLA's. Though we are not talking big dollar differences.
Will delaying pension keep you in a lower tax bracket during her 55-60 years?


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Old 03-09-2016, 02:41 PM   #3
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Hi Mulligan,
It has a maximum yearly COLA of 2%. It shouldn't affect our current marginal tax rate, but that assumes I don't get any unexpected bonuses (which happens occasionally, and even triggered the AMT once).

I was mostly curious if this was typical of pensions. It just seems that there isn't much reason to forgo drawing on it immediately; not nearly as great a benefit as when delaying SS.

Regards,
Wino
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Old 03-09-2016, 02:54 PM   #4
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I dont know the funding status of Calpers, but one thing is sure. They usually will not take back the money they already gave you.
There are as many pension funding formulas as a dog has fleas, so they are hard to compare. I was able to retire at age 45 with a then pension of over $70k plus cola. If I waited until 60 to draw it, the amount would have been exactly the same. So after putting a pencil with no lead to the paper, I determined I would draw it then. Yes I could have worked longer and received a bigger one, but that wasn't an option I wanted to take.
Personally with that difference assuming numbers are correct, I would start stuffing the coffers more and take early at 55.


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Old 03-09-2016, 03:24 PM   #5
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Thanks, that's our thoughts too. We discussed using the money to augment our retirement travel fund. We could also use it pay down the last couple of years left on our mortgage, but it might be better to keep that interest deduction for now.

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Wino
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Old 03-09-2016, 04:03 PM   #6
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I have looked at the Calpers pension for friend and by delaying her break even point was 39 years. Definitely take as soon as you can.
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Old 03-09-2016, 04:37 PM   #7
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jkern,
Thanks for the confirmation. Sure seems like CalPERS' actuarial table is heavily tilted in their favor.

Regards,
Wino
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Old 03-09-2016, 05:09 PM   #8
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Quote:
Originally Posted by IBWino View Post
I'm not at all familiar with pension systems and how they calculate benefits. My wife turns 55 in a couple of months and becomes eligible to start drawing a pension from her previous 17+ years of work in government. She was thinking about waiting until 60 to file because we really don't need the extra income right now. However, from the CalPERS site, if she starts drawing on her pension immediately, she would get slightly more than $15,000 per year. If she waits until age 60, she would get slightly more than $17,000 per year. Does this make sense? She would be giving up five years of pension income (>$75,000 total) for $2,000/YR more, but at that rate it would take almost 38 years to make up the difference in total payout. Seems to me like a no-brainer to take the money now. I don't think my wife expects to live to be 98. Are there any other advantages to waiting that we may be overlooking?
Her benefit is only increasing 2.5% a year and that is a combination of time value and different attained age but that doesn't sound very good to me.
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Old 03-09-2016, 05:11 PM   #9
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^ when you defer an annuity you need to add in the missed payments to the principal - it goes up way more than interest ($45K)
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Old 03-09-2016, 05:28 PM   #10
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Thanks guys. It appears there's no compelling reason to postpone; just wanted to be sure that we weren't overlooking something.

Have a great evening!

-Wino
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Old 03-09-2016, 05:44 PM   #11
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Thanks guys. It appears there's no compelling reason to postpone; just wanted to be sure that we weren't overlooking something.

Have a great evening!

-Wino
Health insurance benefits might also come with retirement, so look into that. Also make sure you understand the joint and single life options.
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Old 03-09-2016, 06:08 PM   #12
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^ when you defer an annuity you need to add in the missed payments to the principal - it goes up way more than interest ($45K)
Where did I say just interest? Did you bother to read the post?
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Old 03-09-2016, 06:17 PM   #13
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you ninja edited it - yes I read it before the edit
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Old 03-09-2016, 06:21 PM   #14
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Health insurance benefits might also come with retirement, so look into that. Also make sure you understand the joint and single life options.
Hi nun,
No health insurance benefits. We looked at the joint/survivor option, and it reduces her payout by about $2400 per year, with the beneficiary receiving the remaining cash value of her pension in the event of her death. The current cash value is less than $190K, and it is reduced by a little over $1000 per month of pension payout, so we don't think think this makes sense for us.

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Wino
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Old 03-09-2016, 10:00 PM   #15
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Originally Posted by IBWino View Post
I'm not at all familiar with pension systems and how they calculate benefits. My wife turns 55 in a couple of months and becomes eligible to start drawing a pension from her previous 17+ years of work in government. She was thinking about waiting until 60 to file because we really don't need the extra income right now. However, from the CalPERS site, if she starts drawing on her pension immediately, she would get slightly more than $15,000 per year. If she waits until age 60, she would get slightly more than $17,000 per year. Does this make sense? She would be giving up five years of pension income (>$75,000 total) for $2,000/YR more, but at that rate it would take almost 38 years to make up the difference in total payout. Seems to me like a no-brainer to take the money now. I don't think my wife expects to live to be 98. Are there any other advantages to waiting that we may be overlooking?

You've done a good job with the basic analysis. You're correct, this is a no-brainer! CalPers is a pretty good pension system so take the money now and the COLA's in the future. 👌


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Old 03-10-2016, 08:12 AM   #16
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As a comparison the Feds cut your pension 5% for every year under 62, for those that ER. If you were to start collecting at 56 that would mean a 30% cut, and with the Feds the COLA doesn't kick in until 62.
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Old 03-10-2016, 09:41 AM   #17
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However, from the CalPERS site, if she starts drawing on her pension immediately, she would get slightly more than $15,000 per year. If she waits until age 60, she would get slightly more than $17,000 per year. Does this make sense?
I haven't looked at CalPERS specifically but both worked for and have a pension from another state operated PERS. Many have age at the time of retirement included in the formula (so if you take a pension earlier than the age they want there is a reduction) or special rules that can affect payout. It may simply be the COLA being applied, but the difference may simply just be her age difference.

An example of a special rule would be something like a 60/20 rule, where if you reach age 60 but have 20 years of service in the early retirement penalty from a "normal" retirement age of 65 is reduced or eliminated.

If you are close to one of those special rules it can at times make complete sense to delay benefits. Otherwise, playing catch-up for a few years of missed income is often hard to do.
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Old 03-10-2016, 11:28 AM   #18
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Thanks everyone. We also discussed this with my brother-in-law last night who also has a CalPERS pension and is pretty knowledgeable about how it works. He agrees that she should start taking it immediately.
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Old 03-11-2016, 12:06 AM   #19
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No brainer! Take it at 55 especially since she is not wracking up more service time. I receive a CalPERS pension. One of my sisters, age 57, is now working in the private sector and when I asked her if she was collecting CalPERS (she is vested from prior employment) she said well I am not retired yet. I had to inform her to collect NOW as there is no benefit in waiting longer. She can work her private sector job and collect CalPERS.
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Old 03-11-2016, 10:24 AM   #20
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Thanks doxiemoma. She's going to start investigating the process today.
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