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Re: Roadblocks
Old 12-18-2004, 07:05 AM   #21
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Re: Roadblocks

AltaRed,
Thanks for clarifying on t he discount situation. That sounds like the definition of "Golden Handcuffs'!

Good luck with your decision...
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Re: Roadblocks
Old 12-18-2004, 12:01 PM   #22
 
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Re: Roadblocks

I did not have road blocks to ER as much as I had road blocks to continue my soul sucking job. Each day management raised the bar and took away resources until it was impossible to continue. I quit within two weeks of a coworker having a heart attack. For me it was a choice between life and death. I was good enough to suceed way beyond my "qualifications" and was specialized so there was no where else to go.
Once I decided to ER, this group has been a great help. We eased into ER with the wife continuing to work for a few months until she was comfortable with our spending and my calculations. It is tough watching your savings going down without any replacement. We compensated by stashing enough in our personal accounts to take care of our mad money until our small pensions start.
Adjusting to the slower pace kinda comes on gradually. Like a tightly wound clock. You can wind it up tight every day or let her run down and just give her a couple of twists once in a while to keep things ticking. The clock will run either way, but you have a better chance of breaking the spring when you are all wound up.

The price of happiness seems to run a minimum of 24K.
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Re: Roadblocks
Old 12-18-2004, 03:04 PM   #23
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Re: Roadblocks

I am still working because we still have two young children, age 15 and 12. They will need financial support for college. We do have an education IRA account and 529 plan for each of the children. However, the accounts only contain sufficient funds for tuition - not room and board. It will help if they stay at home while attending college. If not, we could use some of our retirement saving or take out a student loan. I prefer the ladder. We should not pay for their entire college cost.

Another factor of not ER is that I do enjoy software development as an individual contributor. I do sometimes feel dejected because it is hard to move up or getting a promotion unless you take up a leadership role and start playing politics and doing more administrative tasks (i.e., project planning, scheduling, fire prevention and termination).


Spanky.
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Re: Roadblocks
Old 12-19-2004, 12:02 PM   #24
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Re: Roadblocks

ESRBob, government data I read somewhere suggests that an appropriate discount factor should be in the order of 6-7% to match up with actuarial tables (rather then my discount factor of 5% per year from age 60). If so, it encourages early retirement at 55 rather than waiting for 60 who have the FI to do so.

It's those who have yet to reach 55 to have the option for a discounted pension, or those who feel they 'have' to wait to collect full pension that are constrained by the 'golden handcuffs'. Until I became 55, I would have agreed with you. Now that I've reached that milestone, the other factors become the drivers.

Course every DB pension plan is different and thus the answer could be different.
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Re: Roadblocks
Old 12-20-2004, 02:56 PM   #25
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Re: Roadblocks

Quote:
I am still working because we still have two young children, age 15 and 12. They will need financial support for college. We do have an education IRA account and 529 plan for each of the children. However, the accounts only contain sufficient funds for tuition - not room and board. It will help if they stay at home while attending college. If not, we could use some of our retirement saving or take out a student loan. I prefer the ladder. We should not pay for their entire college cost.

Spanky.
A similar issue for me. I could retire late in 05 at 55, my wife plans to retire in 06 at 58. But we have one 15 year old son left at home. Older boy has education, job & preganant wife,( never thought I would see this day). The school planning for my younger boy is a key unknown in my retirement planning. If he goes to junior college, I have it covered in my spare change jar. If he goes to a state school the EdRoth and savings are about up to it. If he goes to Stanford -I keep working. I am a strong believer in education and was lucky enough (and parents were poor enough) that scholarships covered a first rate college for me.
But one nice thing for me is that when I become retirement elligible it "jerk proofs" my work life. My current manager is great but he is retiring next year and if I get a jerk boss then I will leave. Had one for 4 of my 31 years of work and you couldn't pay me enough for that time. If I get a good manager I will be happy to work on for another 2 or 3 years to build up my DB pension, cover some of son's school expenses and generally stay active in a job I really do like.
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Re: Roadblocks
Old 12-20-2004, 03:02 PM   #26
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Re: Roadblocks

As someone also waiting for a DBP Pension to kick in, I share your need to check the "tables" from time to time to see where I fit in the mix.

I just object to the term "discount" to describe ER. I think it must have been devised by someone with the express purpose of discouraging ER from occuring. It's not really a discount at all. It's just the benefit that one receives for X amount of years worked at X level of salary, is it Not. As you say all Pensions are different. In our case, the calculation is based on years of service times highest 12 months of salary. The catch is the minimum retirement age is 50. However like all such benefits, the longer you work, the more you get, so in effect one can argue that the benefit is "discounted". The difference in our case, is that term is never used. It's more like if you were elect to work an extra year after age 50 you would receive a "bonus" of X more percentage of final salary (based on an extra year of service and the actuary knowing you'd die a year sooner, so the double whammy increasing your benefit significantly) Case in point. There are employees that leave our Agency before age 50. They never woek another day for us in their lives. They still have the decision once they reach that milestone, much like those that reach 62 with SS. Should I start drawing my pension now? Or wait until 51 or 52 or 52 cause it'll be a bit more

The actuaries are trying to tell us to ER. We should listen...
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Re: Roadblocks
Old 12-20-2004, 03:04 PM   #27
 
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Re: Roadblocks

Hi Yakers! Why don't you tell your son what you will
pay for before he has to cover the cost on his own.

I did this with my first 2 kids with good results. The third
started college after my divorce and we are still fighting about who pays what. I should have made it clear to my daughter early on. A big mistake.

JG
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Re: Roadblocks
Old 12-20-2004, 08:19 PM   #28
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Re: Roadblocks

Quote:

If he goes to junior college, I have it covered in my spare change jar. If he goes to a state school the EdRoth and savings are about up to it. If he goes to Stanford -I keep working.
Yakers,

It is perfectly okay to attend a JC for the first two years of college. We (my brother, sister and I) chose that route before transferring to the UC (University of California) system. It really saved a lot of money for us kids (hint: our parents did not pay for our college education).

Another side benefit of this approach is that the chance of getting into a well-known university (i.e., UC Berkeley) is improved since competition is less.

Spanky
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Re: Roadblocks
Old 12-20-2004, 08:32 PM   #29
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Re: Roadblocks

Quote:
Should I start drawing my pension now? Or wait until 51 or 52 or 52 cause it'll be a bit more
It depends on whether the extra pension will provide the added safety margin that you feel you need. A few hundred K (e.g., 3 years * $100K) may make a big difference in how long your money will last.

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Re: Roadblocks
Old 12-21-2004, 06:37 AM   #30
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Re: Roadblocks

Quote:
It depends on whether the extra pension will provide the added safety margin that you feel you need. A few hundred K (e.g., 3 years * $100K) may make a big difference in how long your money will last.

Spanky
Spanky, that's not how DBP's work. The money last till you croak. There is no SWR calc. There is no safety margain. There is simply a commitment to live with X dollars per month for the rest of your life, (plus whatever else you squirreled away on your own) and just dealing with that budget. It's about picking a number, a benefit payout amount that you can live with, prefereably inflation indexed, that you think will meet your expenses.

I repeat, the danger is in the temptation to stay just a little bit longer. I watch people do this every day, every month, every year. I work in this huge building with more than a thousand souls all entitled to the same benefits that i am. It saddens me. Some of these folk, when they finally retire, take home MORE than when they worked here. Some of them passed the sweet spot years ago, but couldn't get around the psychological side of it.
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Re: Roadblocks
Old 12-21-2004, 07:32 AM   #31
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Re: Roadblocks

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I repeat, the danger is in the temptation to stay just a little bit longer. *I watch people do this every day, every month, every year. *I work in this huge building with more than a thousand souls all entitled to the same benefits that i am. *It saddens me. * Some of these folk, when they finally retire, *take home MORE than when they worked here. *Some of them passed the sweet spot years ago, but couldn't get around the psychological side of it. (
Although I'm not eligible for any type of DBP, I couldn't have said it better myself. JonnyM hit on the psychological aspect of identifying onesself with one's work and/or work environment. It's very sad that people just can't let go. Perhaps it's because they think that if they do, they will be without purpose or meaning.
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Re: Roadblocks
Old 12-21-2004, 07:47 AM   #32
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Re: Roadblocks

JonnyM, not all DB pensions work the same so you can't say that DBP's don't work that way. There are many variations, including some that require employee contributions and some that don't. Typically the sweeter plans have an employee contribution component. Congrats if your plan doesn't have a discount factor.

My DB plan has a true discount factor. Pension equals Z% x years of service x average of best 3 years of salary x 1.00 at age 60. If I leave at 57 years of age, the 1.00 factor becomes 0.85. So that is a true discount factor for ER. However, as I said in my earlier post, a discount of 5% per year below age 60 still pays off based on actuarial tables and there is little doubt I will taking ER in next 6-18 months.
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Re: Roadblocks
Old 12-21-2004, 09:46 AM   #33
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Re: Roadblocks

Quote:
My DB plan has a true discount factor. Pension equals Z% x years of service x average of best 3 years of salary x 1.00 at age 60.
Is this correct?
Just curious - I heard that Z% ranges form 1 - 2, e.g., for a service of 30 years and 2% per year, average of highest salary of 100,000, the pension = $60,000/yr for life (60% * 100,000) when retired at age 60. At age 57, it would be $51K a year -- not bad! - I can definitely retire on that amount.

Some pensions may even have cost of living adjustment?

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Re: Roadblocks
Old 12-21-2004, 10:15 AM   #34
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Re: Roadblocks

Quote:
Is this correct?
Just curious - I heard that Z% ranges form 1 - 2, e.g., for a service of 30 years and 2% per year, *average of highest salary of 100,000, the pension = $60,000/yr *for life (60% * 100,000) when retired at age 60. At age 57, it would be $51K a year -- not bad! - I can definitely retire on that amount.
That's how mine works, although it's 1%. The real killer is the actuarial table. Check this out:

55 37%
56 40%
57 43%
58 49%
59 55%
60 61%
61 67%
62 73%
63 82%
64 91%
65 100%

So if you retire "early" at age 55, 20 service years, and an AFC of $75k, you would get an amazing $462/mo... if you delay 10 years (age 65), you would get $1250/mo. They REALLY don't want people retiring at age 55.... when I do my planning, I don't even think about my DBP.
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Re: Roadblocks
Old 12-21-2004, 12:47 PM   #35
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Re: Roadblocks

Marshac, we've looked at your tables before, they SUCK! That is the poorest excuse for a DBP ever thought of by stingy Accountants.

Here's out Actuary Table:

Age Factor
50.00 0.89
51.00 0.94
52.00 1.00
53.00 1.04
54.00 1.10
55.00 1.17
56.00 1.24
57.00 1.31
58.00 1.36
59.00 1.41
60.00 1.46
61.00 1.52
62.00 1.57
63.00 1.57
64.00 1.57
65.00 1.57

You can see that is very gradual, and if we agree to use AltaRed's semantics the "discounting" is minimal before Age 52, and bonusland after but again, I think it's all how the Pension is marketed to the future retiree's.

Our plan is typically refererred to as 2/55 because for most employees (non-safety, Safety like Sheriff & Fire get tons better benefits) they can quickly and easily calculate a rough benefit of (2%) X (Years of Service) X (Highest 12 Months Salary) at age 55 to see what might be in store fo r them. So in essence, our County Government markets 55 as a typical retirement age, with the table showing the Actuary factor increase as you age, or choose to opt out sooner to a limit of Age 50.

I didn't say they don't have a discount factor, they just don't call it that, don't market it that way. If you changed the basic percentage down slightly it would be easy enough to make Age 50 equal to 1.00 and everything a bonus. You can make numbers do most anything you want. I still think that making 60 equal to 1.00 in that other company is a psych ploy to destroy people's ER leanings. No disrespect intended.



P.S. Note in my table that once you reach 62 you effectively never get any older. Hmmm....
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Re: Roadblocks
Old 12-21-2004, 02:12 PM   #36
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Re: Roadblocks

Quote:

Our plan is typically refererred to as 2/55 because for most employees (non-safety, Safety like Sheriff & Fire get tons better benefits) ....
You are correct that "Safety like Sheriff & Fire get tons better benefits ..." as evident in this article, "Ex-Taylor police chief gets $150,000 pension on $88,000 salary " .."to cover the shorfall the city simply raise property tax ...hmm that's nice!?

http://www.mlive.com/newsflash/regio...t=newsmichigan
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Re: Roadblocks
Old 12-21-2004, 02:23 PM   #37
 
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Re: Roadblocks

Quote:

You are correct that "Safety like Sheriff & Fire get tons better benefits ..." as evident in this article, *"Ex-Taylor police chief gets $150,000 pension on $88,000 salary " .."to cover the shorfall the city simply raise property tax ...hmm *that's nice!?

http://www.mlive.com/newsflash/regio...t=newsmichigan
What's funny is this guy probably complains about his taxes down at the local watering hole with his buddies
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Re: Roadblocks
Old 12-21-2004, 02:39 PM   #38
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Re: Roadblocks

Yes, Spanky it is correct. Z is typically in the range of 1-2% for many DB plans depending on level of employee contributions, and at 2% your math is correct. Again, if there are substantial employee contributions, the actuarial factor may be set to 1.00 at 50 year of age, increasing thereafter.

I have never made contributions to our company DB plan and thus it is not as good as some. It's all a question of what you pay for. For my plan, the factors are:

55 0.75
56 0.80
57 0.85
58 0.90
59 0.95
60 1.00
61+ 1.00
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Re: Roadblocks
Old 12-22-2004, 08:19 AM   #39
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Re: Roadblocks

To tie up that loose end then, our little corner of the world County withholds about 7.8% of your gross and matches that with about another 11.8% that goes into your "account".


There was a time a little over a decade ago when employees were permitted to "opt out" if they so chose, and some of the live fast, die young ones, cashed out, spent the money, and then years later when they still weren't dead yet, and the Union negotiatied the enhancement up to the afforementioned 2/55 bene level (it wasn't nearly so good before about 1/3 less benefit) these same souls mortgaged their homes to buy back in, and it was still a sound strategy in ROI terms.
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