Join Early Retirement Today
Thread Tools Search this Thread Display Modes
Rethinking pension options
Old 01-02-2016, 03:04 PM   #1
Recycles dryer sheets
GreenER's Avatar
Join Date: Nov 2014
Location: Pastures
Posts: 152
Rethinking pension options

I had previously intended to take my non cola pension in 2017 at age 55 with joint survivor and payout of $2300/month or $2000/month plus 15% lump of 75,000. Now I am considering taking the social security adjustment option which would give us $3300/month until age 62 and then $1900month or $3000/month until age 62 and the $1500/month thereafter plus the $75,000 lump.

I am rethinking this based on the likelihood that we could be starting our 30 plus years of retirement in a down market. Since the pension is without cola I am thinking we would be getting more upfront while it is still worth more and it would lessen our need to dip into 403b/401k funds early on if the market is down. We will have about $800,000 in 403b/401k, approx. $150,000 in Roth and approx. $300,000 in house proceeds. We have already bought our downsized house and could pay that off when we sell the big house but I think we probably won't, as the interest rate on the new place is only 2.49% and having the money to invest post tax will give us more flexibility to manipulate our taxes. We will be trying to max Roth conversions in the 15% bracket while still getting some ACA subsidy until age 65. I can withdraw penalty free from 403b when I retire at 55. I would like to invest the lump sum in Wellington or Wellesley and look at that as what we will subsidize the drop in pension payout with when we hit the reduction at age 62. We don't plan on taking social security until 70 regardless. I am aware that the net payout from the pension is less when taking the social security adjusted payment, but am wondering if the net effect of keeping more of our money invested tax deferred for longer will still put us in a better position in the long run. I am especially concerned with sequence of return risk as we approach our final landing. We also plan on maxing HSA with catchup until age 65 so long as we stay healthy enough to be on a bronze plan. I am a little uncertain of our expenses once we downsize but I think we can get by comfortably on $50,000/year and possibly less. This would give us some room to do Roth conversions.

I would appreciate any ideas or input on this and can provide more details if needed. Or see my facts in my "Hello" post. Thanks for any help or insight!

"One's destination is never a place, but a new way of seeing things" Henry Miller
GreenER 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 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 01-03-2016, 08:07 AM   #2
Recycles dryer sheets
GreenER's Avatar
Join Date: Nov 2014
Location: Pastures
Posts: 152
Another thought on this is that by taking a larger pension payout early on when we have fewer income streams and a smaller one after age 62, we would decrease the amount of taxable income when we start having RMDs on top of social security. This idea of taking the social security adjusted payout goes against my base instinct, which is to take the largest total dollar payout. I would really appreciate some feedback as I am uncertain which way to play this.

"One's destination is never a place, but a new way of seeing things" Henry Miller
GreenER is offline   Reply With Quote
Old 01-03-2016, 10:14 AM   #3
MBAustin's Avatar
Join Date: Jul 2010
Posts: 5,508
Have you tried modeling both options in FIREcalc or another retirement calculator? That might give you some insight.
"One of the funny things about the stock market is that every time one person buys, another sells, and both think they are astute." William Feather
ER'd Oct. 2010 at 53. Life is good.
MBAustin is offline   Reply With Quote
Old 01-03-2016, 10:50 AM   #4
Recycles dryer sheets
OrcasIslandBound's Avatar
Join Date: Mar 2010
Location: Poway, CA
Posts: 441
GreenER, it seems like you have good options. Congratulations.

If it were me, I'd try to not answer this question until the last possible moment. If the S&P is still close to a record high, as it is now, I'd consider selling down the investments while the selling is good and take the non-SS option. However, if we have a "crash" between now and 2017 when you intend to retire, then definitely go for the SS option.

The thing that I would question, however, is once you commit to one option, are you stuck with that option? If so, then my inclination changes to going ahead with the SS option as you have about 7 years before you can get any SS. Then, if the markets stay high, you can delay SS and let it grow a bit more.
OrcasIslandBound is offline   Reply With Quote
Old 01-03-2016, 10:54 AM   #5
Full time employment: Posting here.
Join Date: Sep 2013
Posts: 774
A number of folks here have this "level income" or "accelerated income" option on their Megacorp pension, so this topic comes up periodically. The last time it did I posted some of my own modeling on the effects of inflation on the break even age.

The short answer is that for low levels of inflation like we've been experiencing one would do better taking the accelerated option up to one's mid-70's after which a standard single life annuity is superior. Once inflation exceeds 4% though, this break even age rapidly increases.

As my life expectancy is long and my inflation expectations low I do not intend to avail myself of this accelerated option in my own pension.

A related question for many pre-pensioners is when to commence the pension assuming it increases in payout for every year you delay. This turned out to be more potentially advantageous for me than the accelerated income option, but even so I determined that the best option for me was to delay by only one year and take a 5% larger pension at 56.
stepford is online now   Reply With Quote
Old 01-03-2016, 12:17 PM   #6
Recycles dryer sheets
GreenER's Avatar
Join Date: Nov 2014
Location: Pastures
Posts: 152
Orcas, I don't have the choice of changing payout after initial election. I will have to make a decision and stick with it. I will of course wait until I pull the plug in 2017 but had previously not considered the possibility that it might be financially sound to opt for the larger social security adjusted payout for the short term.

Stepford, Thanks for that info and the link to that thread that also speaks to this dilemma.

MBAustin, I did just try modeling it in Firecalc. It is a little hard to discern the finer points but it appears I will survive either way.
"One's destination is never a place, but a new way of seeing things" Henry Miller
GreenER is offline   Reply With Quote
Old 01-03-2016, 01:32 PM   #7
Thinks s/he gets paid by the post
Fedup's Avatar
Join Date: Mar 2014
Location: Southern Cal
Posts: 4,032
I'm taking this accelerated pension but it's very small pension. I only receive $1000 plus a month, non COLA so it's not worth stressing about. It has a steep drop at 62, but hopefully everything else will go up to compensate for the drop.

Sent from my iPad using Early Retirement Forum

Just another day in paradise
Fedup is offline   Reply With Quote

Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
Thread Tools Search this Thread
Search this Thread:

Advanced Search
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
40 yr old - rethinking priorities in life willowbeezer Hi, I am... 16 05-12-2008 03:56 AM
Rethinking Retirement??? bots2019 FIRE and Money 53 07-25-2007 05:45 PM
Rethinking International Investments Berkshire_Bull Other topics 8 01-06-2005 08:46 AM
Rethinking my approach -- comments? brewer12345 FIRE and Money 32 10-27-2004 04:48 AM
rethinking the "emergency fund" Berkshire Bull FIRE and Money 34 09-15-2004 12:20 PM

» Quick Links

All times are GMT -6. The time now is 04:20 PM.
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2019, vBulletin Solutions, Inc.