Pension options - income leveling

[LBart]

Hi All,

58 yr old female retiring at end of year after 31 years. Spouse is 65 and working part-time. We've never lived an extravagant lifestyle.
We have no debt. House paid for, all kids educated, grown and gone. (However, there are house projects/updates that need to be done, i.e. 40 yr old kitchen, basement remodel, refinishing floors.) Our health is excellent. Any inheritance is unknown.

We don't have a large retirement portfolio.

My pension will be $3000/mo. and my health insurance is paid for.
I have small IRA of $100,000. My SS statement indicates I can collect SS @ 62 of $1530 or @ 65 of $1818 or @67 of $2200.

Spouse has 401K of $350,000 and will begin drawing full SS in 6 months of $2,400/mo. Spouse and I plan on working part-time for a few years so we don't have to touch either IRA/401K for as along as possible.

My Q is about pension options I have. I have 3 choices:

Regular pension of $3,000 /mo with 3% COLA

Income leveling pension based on SS @ 62: $4,000/mo with 3% COLA, then reduced by $1530/mo starting at 62

Income leveling pension based on SS @ 67: $3,930/mo with 3% COLA, then reduced by $2200/mo starting at 67.

I've run numbers and break even scenarios and it seems the straight Pension w/o leveling is the better choice long term.

The extra $$ provided by the leveling options is enticing as it would let us take care of some house projects earlier; however, the pension $$ given up over the long run seems to make these options a bad deal.

Any thoughts on these options?

Thanks!

 

[pb4uski]

Off the cuff I would concur that straight pension sounds most attractive.... largest ultimate benefit so those 3% COLAs accrue on a larger amount. You may have already done this but it would be fairly easy to schedule out the cash flows and the PV assuming living to specific ages.

Does the pension provide for joint annuity benefits?

 

[pb4uski]

I was curious...... looks like beyond age 74 you are ahead with the straight pension. How lucky do you feel?

	Cash flows with 3% COLA				PV at 7%
Age	Straight	Level 62	Level 67		Straight	Level 62	Level 67
59	3,000	4,000	3,930		2,804	3,738	3,673
60	3,090	4,120	4,048		5,503	7,337	7,208
61	3,183	4,244	4,169		8,101	10,801	10,612
62	3,278	2,633	4,294		10,602	12,810	13,888
63	3,377	2,712	4,423		13,009	14,744	17,042
64	3,478	2,794	4,556		15,326	16,606	20,078
65	3,582	2,878	4,693		17,557	18,398	23,000
66	3,690	2,964	4,833		19,705	20,123	25,813
67	3,800	3,053	2,192		21,772	21,783	27,005
68	3,914	3,145	2,257		23,762	23,382	28,153
69	4,032	3,239	2,325		25,677	24,921	29,257
70	4,153	3,336	2,395		27,521	26,402	30,320
71	4,277	3,436	2,467		29,296	27,828	31,344
72	4,406	3,539	2,541		31,004	29,200	32,329
73	4,538	3,645	2,617		32,649	30,521	33,278
74	4,674	3,755	2,695		34,232	31,793	34,191
75	4,814	3,867	2,776		35,756	33,018	35,070
76	4,959	3,983	2,859		37,223	34,196	35,916
77	5,107	4,103	2,945		38,636	35,331	36,730
78	5,261	4,226	3,034		39,995	36,423	37,514
79	5,418	4,353	3,125		41,304	37,474	38,268

 

[LBart]

My pension provides for survivor benefits.

 

[LBart]

I was curious...... looks like beyond age 74 you are ahead with the straight pension. How lucky do you feel?

Cash flows with 3% COLA PV at 7%
Age Straight Level 62 Level 67 Straight Level 62 Level 67
59 3,000 4,000 3,930 2,804 3,738 3,673
60 3,090 4,120 4,048 5,503 7,337 7,208
61 3,183 4,244 4,169 8,101 10,801 10,612
62 3,278 2,633 4,294 10,602 12,810 13,888
63 3,377 2,712 4,423 13,009 14,744 17,042
64 3,478 2,794 4,556 15,326 16,606 20,078
65 3,582 2,878 4,693 17,557 18,398 23,000
66 3,690 2,964 4,833 19,705 20,123 25,813
67 3,800 3,053 2,192 21,772 21,783 27,005
68 3,914 3,145 2,257 23,762 23,382 28,153
69 4,032 3,239 2,325 25,677 24,921 29,257
70 4,153 3,336 2,395 27,521 26,402 30,320
71 4,277 3,436 2,467 29,296 27,828 31,344
72 4,406 3,539 2,541 31,004 29,200 32,329
73 4,538 3,645 2,617 32,649 30,521 33,278
74 4,674 3,755 2,695 34,232 31,793 34,191
75 4,814 3,867 2,776 35,756 33,018 35,070
76 4,959 3,983 2,859 37,223 34,196 35,916
77 5,107 4,103 2,945 38,636 35,331 36,730
78 5,261 4,226 3,034 39,995 36,423 37,514
79 5,418 4,353 3,125 41,304 37,474 38,268

SS indicates my life expectancy is 86.6....so just going on stats, seems like more $$ is needed as you age.

 

[braumeister]

Inflation is likely to be higher in the future IMHO than it has been recently, so that COLA is a nice benefit. I believe I would go for the straight pension.

 

[joylesshusband]

I question the numbers in the OP, as the SS statement assumes that one works until the date the SS benefit is claimed.
Retiring @ 58, after 31 years of SS contributions would result in lesser SS benefits than those listed here.
Then it is unclear whether the "leveling" of the pension would take into account these reduced SS benefits, or is still based on the numbers shown in the current SS statement.

Due diligence demands double-checking and a good understanding of these aspects.

 

[Sunset]

OP needs to use the SS calculator at the SS website (where you enter in your actual values from statement) and then reduced or zero for future years until retirement. To get a real true set of SS numbers.

The SS statement assumes you work until 62 at a minimum.

 

[LBart]

I have 31 years of employment with my current employer only. I have actually been working full time since age 17, when I graduated as a junior, so I have more than 31 years of SS contributions.

As for the SS calculator, it was used as well and it was set at 0 for future years, even though I will continue working my part-time job. My pension system had me do this in order to get a clearer picture of


Didn't know I needed to put in all these details in order to get responses....