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Old 09-19-2015, 01:43 PM   #21
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Just for comparison, here's SS payout rates for each year delayed after FRA:

Benefit at FRA = 1
Benefit at FRA+1 year = 1.08, so annuity cost of 1.00, payout of .08 = 8%
Benefit at FRA+2 years = 1.16, so annuity cost of 1.08, payout of .08 = 7.41%
Benefit at FRA+3 years = 1.24, so annuity cost of 1.16, payout of .08 = 6.90%
Benefit at FRA+4 years = 1.32, so annuity cost of 1.24, payout of .08 = 6.45%
Benefit at FRA+5 years = 1.40, so annuity cost of 1.32, payout of .08 = 6.06%

FRA+4 or 5 years may not be applicable to younger members, depending on their FRA.

Those are payout rates for each individual year, not cumulative over more than one year.

As discussed in another thread, if you could delay until age 100 eventually the declining payout rate wouldn't be worth it.

www.immediateannuities.com is offering a 65 year old male a non-COLA SPIA payout rate of 6.78% for single life only. A 70 year old male gets 7.72%.
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Old 09-19-2015, 04:09 PM   #22
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Originally Posted by nun View Post
OK assuming a 1% annual COLA for the 24 month buy in your IRR (assuming you live to 83 and ignoring survivor benefit) goes up to 7.8% and the 48 year buy in has an IRR of 5.1%. I'd definitely buy 24 months and depending on your need/desire for guaranteed income I might buy more. The COLA and survivor benefit are big benefits.
Thanks again. I am inclined to go with the 24 months.
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Old 09-19-2015, 04:17 PM   #23
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Are the pension benefit increases based on a COLAed single life pension or a COLAed joint life pension? Even though your spouse is older joint mortality would likely come into play so the pension is even more attractive.
Thanks. If I understand correctly, the increases are based on the CA (contingent annuity) amount that I plan to take. Under that option, If I pass, my spouse will get the same amount that we were getting for the rest of spouse's life. If spouse passes first, my amount gets bumped up to the amount that would have been recieved initially with no CA (full benefit), with COLA added for the years that spouse was alive.
Did I answer your question?
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Old 09-19-2015, 04:20 PM   #24
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Thank you, Animorph.
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Old 09-19-2015, 06:02 PM   #25
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Thanks. If I understand correctly, the increases are based on the CA (contingent annuity) amount that I plan to take. Under that option, If I pass, my spouse will get the same amount that we were getting for the rest of spouse's life. If spouse passes first, my amount gets bumped up to the amount that would have been recieved initially with no CA (full benefit), with COLA added for the years that spouse was alive.
Did I answer your question?
Yes. then you're getting an even better deal. The benefit payments for joint annuities are lower because there is a greater chance that benefits will be paid for a longer time since one or the other annuitant is living. So the 5.8% I mentioned earlier was for a single male aged 58. For a 58/64 couple, the payout rate would drop to 5.3% ..... and both of these are fixed and not COLA.... a COLA equivalent would probably be 2.5-3% so the payouts you have available to you seem to be a great value. If it were me, I would do as much as needed to have my pension and SS cover my expected living costs.
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Old 09-19-2015, 07:48 PM   #26
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Thank you, pb4uski. Sounds like a winner. Gonna go see if I can get the ball rolling later this coming week. Have a meeting with the plan representative this coming week.
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Old 09-23-2015, 11:02 PM   #27
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Well, I have almost finalized the purchase of service. However, my initial method of figuring it out was off base. I misinterpreted that I could buy age of retirement. It turns out that I am buying months of service so the percentages I gave earlier don't apply. The correct calculation gives me a better monthly payment.

So, for close to $52,000 rollover from the 401K plan to the pension plan, I will receive close to $320.00 more per month with my spouse as a 100% CA. Also, there is, as stated above, a COLA of at least 1% per year. The amount of increase would be $160.00 more if I were to purchase only 24 months of service at a cost of almost $26,000. I think the way to go is with the maximum of 48 months.

Does 48 months sound like the best way to go?
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Old 09-23-2015, 11:37 PM   #28
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Well, I have almost finalized the purchase of service. However, my initial method of figuring it out was off base. I misinterpreted that I could buy age of retirement. It turns out that I am buying months of service so the percentages I gave earlier don't apply. The correct calculation gives me a better monthly payment.

So, for close to $52,000 rollover from the 401K plan to the pension plan, I will receive close to $320.00 more per month with my spouse as a 100% CA. Also, there is, as stated above, a COLA of at least 1% per year. The amount of increase would be $160.00 more if I were to purchase only 24 months of service at a cost of almost $26,000. I think the way to go is with the maximum of 48 months.

Does 48 months sound like the best way to go?
if you and your wife are both 58 you have a joint life expectancy of 34 years ie there's a 50% chance that at least one of you will live to 92. Using 34 years and a 1% COLA in an present value calculation gives and IRR of 7.5%. The payout rate of 7.4% is also very good when compared to commercial annuities. Whether you buy the service depends on your other sources of income, tolerance for risk and personal health history. but it looks like a good deal to me as you only have to live 14 more years to get back your principal.
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Old 09-24-2015, 10:30 AM   #29
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Thank you, Nun. My spouse is 64. If my spouse passes before me, per the plan, the amount goes up about $135.00 per month with retroactive COLA. I was thinking that this approach with a somewhat guaranteed income is less risky than leaving that $52,000 in the 401k plan. The balance in the 401k plan will still be around $115,000, after the rollover.
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Old 09-24-2015, 11:56 AM   #30
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Would this be treated as a withdrawal from the 401k such that you also have to pay the taxes on the amount withdrawn? Also, would the penalty apply since you are under 59 1/2? I am not sure how under the ERISA rules you could just transfer the money from one plan to another.
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Old 09-24-2015, 12:44 PM   #31
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Would this be treated as a withdrawal from the 401k such that you also have to pay the taxes on the amount withdrawn? Also, would the penalty apply since you are under 59 1/2? I am not sure how under the ERISA rules you could just transfer the money from one plan to another.

You can transfer this money to a pension fund with no problems. I did it at age 42 to buy some years...actually used after tax money additionally. The after tax money is treated as non taxable income the rest of your life, so $1000 of my yearly pension is tax free. The pretax transferred money gets taxed as part of the pension the rest of my life...


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Old 09-24-2015, 02:14 PM   #32
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You can transfer this money to a pension fund with no problems. I did it at age 42 to buy some years...actually used after tax money additionally. The after tax money is treated as non taxable income the rest of your life, so $1000 of my yearly pension is tax free. The pretax transferred money gets taxed as part of the pension the rest of my life... Sent from my iPad using Tapatalk
+1. From my own experience purchase of service can be done with others tax deferred retirement money with zero tax implications. Many public employers have both DB and DC pension plans and also other tax deferred savings like 403b and 457 plans. Using money from any of those would not cause any tax issues. Just as an aside the OP has described their plan as a 401k. If they work for a public employer it won't be a 401k, but might be a 401a or 403b, or a 457 if they work for state or local government. Still bittomline is that this is a good deal.
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Old 09-24-2015, 02:33 PM   #33
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Nun, in response to your last post, my local governement public employer has 2 plans, a DB 401(a) and a voluntary DC 401k. Participation in the 401(a) DB plan is mandatory with a small percentage of the funding provided by the employee and the rest by the employer.
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Old 09-24-2015, 08:05 PM   #34
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Nun, in response to your last post, my local governement public employer has 2 plans, a DB 401(a) and a voluntary DC 401k. Participation in the 401(a) DB plan is mandatory with a small percentage of the funding provided by the employee and the rest by the employer.

If you have a 401k plan it must be quite old as state and local governments haven't been allowed to offer those for many years and use 401a and 403b and/or 457 instead.
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Old 10-21-2015, 10:34 AM   #35
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Update: The Rollover went through and I was very fortunate regarding the timing. The account grew around $8,000.00 between the time I signed the paperwork and the actual rollover. This is due to the stock market going up after the day I signed the paperwork. I feel very fortunate as the market could have gone down.
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Old 10-21-2015, 01:56 PM   #36
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Update: The Rollover went through and I was very fortunate regarding the timing. The account grew around $8,000.00 between the time I signed the paperwork and the actual rollover. This is due to the stock market going up after the day I signed the paperwork. I feel very fortunate as the market could have gone down.
I will be buying "qualified service" I'm my employers pension plan soon. It will cost me a specific amount and so I have the money sitting in a stable value in my 457. I have enough to cover the buy in and don't want any ups and downs. My reasoning is if you have a large purchase within the next year the money should be in something close to cash.
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Use 401k Transfer to Purchase Service on Pension?
Old 11-08-2015, 08:25 AM   #37
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Use 401k Transfer to Purchase Service on Pension?

I have been struggling with the math for a similar situation. I can buy up to 24 months of service. Each year adds 2.5 % to my pension. The pension has a 3% cola. Salary pension is based on is 100k, so that math is easy. The hard math is it cost 41k per year so for 82k for two years Of credits, I can receive 5k a year additional in pension. Pension goes from 60k to 65k.
So bottom line for 82k I receive 5k with a 3% cola. So the first year is aprox. 6% .
I'm torn. Leaning towards not buying any. I retire June 3, 2016. Any comments, suggestions??
Thanks.
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Old 11-08-2015, 08:35 AM   #38
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I have been struggling with the math for a similar situation. I can buy up to 24 months of service. Each year adds 2.5 % to my pension. The pension has a 3% cola. Salary pension is based on is 100k, so that math is easy. The hard math is it cost 41k per year so for 82k for two years Of credits, I can receive 5k a year additional in pension. Pension goes from 60k to 65k.
So bottom line for 82k I receive 5k with a 3% cola. So the first year is aprox. 6% .
I'm torn. Leaning towards not buying any. I retire June 3, 2016. Any comments, suggestions??
Thanks.

You are getting in essence a 6% return on your money with a 3% kicker every year compounded. Was it Ben Franklin (or somebody famous) that said compounding is the "8th wonder of the world"?
I think many people even here would swear off their love for Wellesley to receive that if investing needs did not require liquidity obligations.
On return of money it cant be beat long term. But a person must address liquidity needs and safety of pension obligations, also before making decision.


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Old 11-08-2015, 08:45 AM   #39
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Not that much if this is very accurate, but I just put $82K 58 yo male wisconsin single life non-cola into immediateannuitys.com and it came up to $4740/yr. A COLA annuity would be worth more.

With the PE10 at historical highs, I'd be more inclined towards buying it than if it weren't so high. But you would be giving-up some ability to control your income, and presuming two people, the 60K is already pretty close to the ACA cliff, and the extra 5K would certainly put you over. But maybe your company has great retiree healthcare benefits and you don't need to worry about the ACA?
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Old 11-08-2015, 09:10 AM   #40
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Not that much if this is very accurate, but I just put $82K 58 yo male wisconsin single life non-cola into immediateannuitys.com and it came up to $4740/yr. A COLA annuity would be worth more.

With the PE10 at historical highs, I'd be more inclined towards buying it than if it weren't so high. But you would be giving-up some ability to control your income, and presuming two people, the 60K is already pretty close to the ACA cliff, and the extra 5K would certainly put you over. But maybe your company has great retiree healthcare benefits and you don't need to worry about the ACA?

Good point about ACA, and maybe there are other peripheral issues that need to be looked at also. But in just the terms of pure investment on return of money, the drumbeat of time really benefits the pension. Just a mental math guesstimate would suggest that $6k a year, becomes 8k a year in 10 years due to compounding.


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