jjquantz
Full time employment: Posting here.
Two purposes to this post - 1) to see if my analysis makes sense, and 2) to hear other's opinions on the best options.
Based on my 15 year stint as a teacher I am entitled to a non-COLAd pension. The amount will not make me rich but amounts to slightly more than pocket change. The key characteristics of the pension are:
1) no COLA
2) very sound pension management, but still?
3) "Full" benefit at age 65,
4) 3% reduction per year for each year before 65 that one starts collecting.
5) 100% survivor benefit for DW is available at ~7% haircut to benefit.
So, in round numbers, One could collect $1000/month at age 65 or $700 per month at age 55, $730 per month at age 56, etc.
A straightforward calculation shows that the break-even point in nominal dollars is age 85. However, if I assume even a modest inflation rate of 2%, it takes to age 100 to break even in inflation-adjusted dollars. This ignores any effect that investing the proceeds might have on the total. Of course, if taxes will be lower at age 65 than at 55, this will have some effect, but only on the first 10 years, and it is entirely possible that RMDs could lead to a higher tax rate later in retirement.
So, on the numbers it looks like one should take the money now unless one expects one's tax rate to drop later in retirement. Even then, one would need to look at the specifics to be sure.
Of course, if you look at this as longevity insurance, the higher payouts later in life might be worth leaving some money on the table.
Does this analysis make sense?
Based on my 15 year stint as a teacher I am entitled to a non-COLAd pension. The amount will not make me rich but amounts to slightly more than pocket change. The key characteristics of the pension are:
1) no COLA
2) very sound pension management, but still?
3) "Full" benefit at age 65,
4) 3% reduction per year for each year before 65 that one starts collecting.
5) 100% survivor benefit for DW is available at ~7% haircut to benefit.
So, in round numbers, One could collect $1000/month at age 65 or $700 per month at age 55, $730 per month at age 56, etc.
A straightforward calculation shows that the break-even point in nominal dollars is age 85. However, if I assume even a modest inflation rate of 2%, it takes to age 100 to break even in inflation-adjusted dollars. This ignores any effect that investing the proceeds might have on the total. Of course, if taxes will be lower at age 65 than at 55, this will have some effect, but only on the first 10 years, and it is entirely possible that RMDs could lead to a higher tax rate later in retirement.
So, on the numbers it looks like one should take the money now unless one expects one's tax rate to drop later in retirement. Even then, one would need to look at the specifics to be sure.
Of course, if you look at this as longevity insurance, the higher payouts later in life might be worth leaving some money on the table.
Does this analysis make sense?