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When to Start a Small Pension
Old 02-06-2008, 12:59 PM   #1
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When to Start a Small Pension

You people are great at figuring out stuff like this, so please help.

DH and I are 54, retired a year ago, and are living off interest and dividends of our investments. We don't anticipate touching the principle, although our health insurance is already $1000 a month. So far we can live off 2% or less withdrawal rate.

I won't be getting any pension. DH can get a small one, beginning next year of $358 a month (with 100% survivor benefits---we could get more if we decreased the survivor benefits). Plugging this into a Social Security calculator, it looks like our break-even point between taking $358 beginning at 55 and $523 at 60 would be almost 71. Based on our current health and family longevity, it is likely that we will both live past 71.

The break even point between 55 at the $358 and 65 at $677 is 76 years. Again---it is likely we will live beyond this.

It would seem that we should just hold off, but I don't know if the calculator takes into account how the money would grow if it was invested or at what rate. And psychologically, it seems like it would be fun to get a monthly check (although chances are we would just save it).

Any advice?
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Old 02-06-2008, 01:45 PM   #2
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One factor might be how confident you are that the pension is secure. If you are not confident the pension is a sure thing, I'd take it now, with no survivor benefits. Otherwise, wait if you don't need the money.
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Old 02-06-2008, 01:58 PM   #3
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Originally Posted by travelover View Post
One factor might be how confident you are that the pension is secure. If you are not confident the pension is a sure thing, I'd take it now, with no survivor benefits. Otherwise, wait if you don't need the money.
I agree.

Taking the no survivor benefits could give you a little extra money to buy life insurance.
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Old 02-06-2008, 02:11 PM   #4
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but I don't know if the calculator takes into account how the money would grow if it was invested or at what rate.
The SS calculator ignores the time value of money; that is to say, it assumes you earn 0% on your money.
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Old 02-06-2008, 02:18 PM   #5
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One factor might be how confident you are that the pension is secure. If you are not confident the pension is a sure thing, I'd take it now, with no survivor benefits. Otherwise, wait if you don't need the money.
I agree. I'd take the pension now without survivor benefits and invest it...and I hope you both live to be 100!
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Old 02-06-2008, 03:04 PM   #6
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You didn't mention how much more you get with no survivor benefit but I would be careful about that. Sh** happens and it would be nice to know that extra is coming in for ever. It irritates me that my Federal pension only offers an ~60% survivor benefit. I would prefer 100% and would pay proportionately.
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Old 02-06-2008, 03:38 PM   #7
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(523/358 )^(1/5) = 1.07876

So you 'earn' 7.9% on your deferral (not factoring in risk of the pension guarantor). About the same as SS deferral, I recall.

That's not a bad rate, so if you have good reason to believe in the stability and you don't need the money (as you indicate), it seems like you should defer it.
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