Pension breakeven question-factors to consider?

[WestwardBound]

I recently had a thread about Roth conversions that describes my current situation/plan. BTW, I did a conversion in 2021 and will carry on as available.

https://www.early-retirement.org/forums/f28/roth-conversion-thoughts-feedback-111091.html

My current plan is to wait on my pension until about age 67-68 but with the rise of inflation I'm looking for suggestions on how to evaluate taking it early. I can take it at age 59 (this year) at about 77% of the full pension at age 65. Each month I wat after 65 increases it by 0.8% (9.6%/year).

A straight breakeven on just pension payments is about age 80-82. However, I'm thinking there is some value to taking dollars today in an inflationary environment versus waiting. I assume I should also consider an investment return to the dollars not spent from savings when the early pension is taken.

Thoughts on my thinking? Any calculators out there that can help?

Thank you.

 

[target2019]

I would prefer the certainty of 9.6% increase in the coming year, and re-evaluate each year. YMMV.

Flexible Retirement Planner can be tweaked to do the comparison. But keep in mind that the future returns and future inflation you plug in to any calculator may or may not happen.

 

[WestwardBound]

Using a base pension of 100k, early at 59 (2022) will be 77k. Waiting until age 68 will be 129k. I found a breakeven spreadsheet that factors in an annual inflation input as well as a real rate of return.

Using the 59 vs 68 scenario gives the following breakevens:

Annual Inflation
0% 79 y/o
2.0% 82 y/o
3.5% 86 y/o
5.0% 94 y/o

This makes intuitive sense and adding in a constant RRR further extends the breakeven in favor of taking it early. My father passed at 73 and my mom is still going reasonable well at 90. I'd say my health is closer to mom than dad but who knows.

Anyone know what the next 20-30 years of inflation will be?

 

[pb4uski]

You can use immediateannuities.com to back into the value of each option, with the value being how much you would have to pay to get an insurer annuity with similar life-contingent benefits.

At the extremes, a 59 yo male in VA would have to pay $181,250 to get an immediate annuity starting now with a $770 monthly fixed benefit. A 59 yo male in VA would have to pay $169,775 to get a deferred annuity with $1,000 monthly benefits starting in 6 years at age 65. In the middle, a 59 y male in VA would have to pay $180,306 to buy a deferred annuity with a $885 monthly fixed benefit starting in 3 years at age 62.

So it looks like at today's annuity prices, it looks like taking it earlier ha higher values.

However, the longer the defer then the more time you have headroom for low-tax cost Roth conversions. So for example, the values between taking at 59 vs 62 are so similar that I'd probably defer to 62 to get 3 more years to do low-tax cost Roth conversions (depending on your current tax bracket vs expected RMD tax bracket). You could do this analysis for each year to try to get a feel for where the sweet spot is.