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Taking Defined Benefit early....
Old 05-20-2015, 12:01 PM   #1
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Taking Defined Benefit early....

So I am working my cash flow for retirement and looking at the option of taking my defined benefit payment before my full retirement age of 62. If I take it at 60, they reduce my benefit to 94% of my full retirement benefit (instead of $68.2K I will get $64.1K for the rest of my life).

The extra 2 years of benefit of course is $128K (discounted at 0%). If I lay out a spread sheet and look at the present value of the additional $4.1K I would receive from age 62 to the end of my life if I didn't take it early, even in the best case (discount rate of 0%) “break-even” isn’t until age 93. Discounting at 1% pushes “break-even” to 100.

What am I missing here? If my math is correct, it seems like a no-brainer to take it at 60. Not to mention that taking the pension brings with it eligibility for retiree health benefits (which don't look that great now with the Market Place).
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Old 05-20-2015, 12:03 PM   #2
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a 3% reduction per year from 62 to 60 is a pretty heavy subsidy (i.e. way less than an actuarial reduction using 417e assumptions)

you aren't missing anything, unless you can increase the age 62 benefit by working longer - I'm not sure if you are still w*rking or not...
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Old 05-20-2015, 01:08 PM   #3
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Quote:
Originally Posted by Big_Hitter View Post
a 3% reduction per year from 62 to 60 is a pretty heavy subsidy (i.e. way less than an actuarial reduction using 417e assumptions)

you aren't missing anything, unless you can increase the age 62 benefit by working longer - I'm not sure if you are still w*rking or not...
Thanks,

This is for a planned retirement in 2016 at age 59. Have an excess benefit plan that would be paid that year and it looks like I should take the reduced pension the year after at age 60. The organization is going through significant changes and I really don't think I want to be here beyond 2015.
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Old 05-20-2015, 01:24 PM   #4
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I retired at 58..or should I say I was fortunate enough to get a very generous package.

Full DB entitlement was age 62. Five percent decrease for every early year.

But, I waited until 60 so that my age and service would entitle me to take early with only a 3 percent reduction. The math seemed to work well at the time. I think 3 points is an attractive deal.
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Old 05-22-2015, 04:48 PM   #5
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I'm also in a defined retirement plan (CalPERS) and maxed out before I retired recently at 55. Just remember that your plan may also include a yearly cost of living adjustment (COLA) that you might not be taking into account.

I was thinking about working one more year after I hit the maximum but it made no sense to work for almost free. And if I had stayed another year I would have lost my first COLA of 2% which I would have never recovered. That one simple 2% raise over the next 25 years is worth $50,000.

Although I made it to the maximum retirement, most don't. If you can afford it, retire!
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