firemediceric
Recycles dryer sheets
- Joined
- Aug 9, 2017
- Messages
- 207
Any reason in my situation I should delay getting into the DROP?
October of this year I will be 54 years old and will have 25 years in at the fire department. At that time I can retire without penalty based on years of service. The last benefit statement I received, back in August 2021, estimates my monthly benefit of 85% of my pensionable salary will be $5,851 per month. That figure is based upon an average of my salary over the last 5 years. Each year longer I go adds another 5% up to a max of 100%.
That estimated benefit is lower than what my actual benefit will be because that average includes a hit I took to my pay while out on worker's comp. That period of several low months of pay just fell off from my average. The monthly benefit figure also does not factor in a 6% raise I received in September 2021, an 8% raise I received in October 2021 and a 3% raise I will receive April 2022. Obviously the impact of those bumps in pay will be minimal as they will be in effect for such a short time before I go into DROP, if I enter it at my earliest eligibility.
Those figures above do not include a separate $900 per month retirement benefit from the fire dept. which is completely independent of any pay scale, although that separate monthly benefit will rise by $12.50 per month for each month I delay going into DROP.
The pension board will provide me with a solid figure at the time I make the election to retire and enter DROP. Anytime before that point is nothing more than an inexact estimate unless I want to pay $800 for the actuary. I'm estimating my final number to be just under $7000 per month.
Here's where I go back and forth debating what makes the most sense for me: Every month longer I defer retirement adds to my monthly benefit. That 85% number will increase by 5% for each additional year I delay going into DROP. I could stay for up to 28 years for the full 100% of my last 5 years of pay as my monthly benefit and then go into the DROP. No matter when DROP is entered the maximum allowed time is 5 years. One cannot do anymore time than 5 years in DROP. Had I started my career at a younger age I certainly could have done the full 28 + 5 for a total of 33 years. Having started at 29 years old works against me in that regard.
Using round numbers that are easy for me, if my salary is $90,000, each extra year I stay, up to 3 years, adds another $4,500 per year to my benefit. That's another $375 per month as benefit until I die. On the other hand, each month of DROP will be almost $7,000 per month into my DROP investment account.
So do I delay DROP by a year to help my average, including a 6% bump I'll receive October 2022, to get roughly an extra $4,500 or so per year or do I jump into DROP ASAP and tuck away $7,000 per month? That's $84,000 put into the investment account in a year. The way I am looking at things is I would need to receive the $4,500 increase in benefit for over 18 years before it would equal the benefit of a single year in DROP.
Another thing to consider is that I will receive a 3% COLA annually starting at year 6 after retirement. That 6 year clock starts ticking at the time I enter DROP even though I will still be working collecting my normal paycheck. A paycheck that will be inflated by 8.75% because once in DROP I'm no longer contributing to my pension. I plan to put that 8.75% into my taxable Schwab account as I already am maxing out my 457 and Roth IRA.
Although the longer I work the less time I will need to pay out of pocket for health insurance before reaching medicare eligibility, I am anxious to retire and move away from my current area. A few years ago I would have told you my goal was to reach full retirement without penalty and leave without even doing DROP. As I type this I hope I don't get drawn in by the money and stay for even the full DROP of 5 years. With that in mind, I think it's unarguable that each month in DROP is better than a month not in DROP, meaning if I know I'm going to do any less than the full 5 years in DROP, I need to jump in at the first opportunity. If I had it in me to do another year or two before entering DROP and still had the fuel to press on for a full 5 in the DROP, that would make sense.
I'm now starting to ramble here at the end. I'd be interested to know how the rest of you look at this as to when I should pull the trigger? October of this year or delay?
October of this year I will be 54 years old and will have 25 years in at the fire department. At that time I can retire without penalty based on years of service. The last benefit statement I received, back in August 2021, estimates my monthly benefit of 85% of my pensionable salary will be $5,851 per month. That figure is based upon an average of my salary over the last 5 years. Each year longer I go adds another 5% up to a max of 100%.
That estimated benefit is lower than what my actual benefit will be because that average includes a hit I took to my pay while out on worker's comp. That period of several low months of pay just fell off from my average. The monthly benefit figure also does not factor in a 6% raise I received in September 2021, an 8% raise I received in October 2021 and a 3% raise I will receive April 2022. Obviously the impact of those bumps in pay will be minimal as they will be in effect for such a short time before I go into DROP, if I enter it at my earliest eligibility.
Those figures above do not include a separate $900 per month retirement benefit from the fire dept. which is completely independent of any pay scale, although that separate monthly benefit will rise by $12.50 per month for each month I delay going into DROP.
The pension board will provide me with a solid figure at the time I make the election to retire and enter DROP. Anytime before that point is nothing more than an inexact estimate unless I want to pay $800 for the actuary. I'm estimating my final number to be just under $7000 per month.
Here's where I go back and forth debating what makes the most sense for me: Every month longer I defer retirement adds to my monthly benefit. That 85% number will increase by 5% for each additional year I delay going into DROP. I could stay for up to 28 years for the full 100% of my last 5 years of pay as my monthly benefit and then go into the DROP. No matter when DROP is entered the maximum allowed time is 5 years. One cannot do anymore time than 5 years in DROP. Had I started my career at a younger age I certainly could have done the full 28 + 5 for a total of 33 years. Having started at 29 years old works against me in that regard.
Using round numbers that are easy for me, if my salary is $90,000, each extra year I stay, up to 3 years, adds another $4,500 per year to my benefit. That's another $375 per month as benefit until I die. On the other hand, each month of DROP will be almost $7,000 per month into my DROP investment account.
So do I delay DROP by a year to help my average, including a 6% bump I'll receive October 2022, to get roughly an extra $4,500 or so per year or do I jump into DROP ASAP and tuck away $7,000 per month? That's $84,000 put into the investment account in a year. The way I am looking at things is I would need to receive the $4,500 increase in benefit for over 18 years before it would equal the benefit of a single year in DROP.
Another thing to consider is that I will receive a 3% COLA annually starting at year 6 after retirement. That 6 year clock starts ticking at the time I enter DROP even though I will still be working collecting my normal paycheck. A paycheck that will be inflated by 8.75% because once in DROP I'm no longer contributing to my pension. I plan to put that 8.75% into my taxable Schwab account as I already am maxing out my 457 and Roth IRA.
Although the longer I work the less time I will need to pay out of pocket for health insurance before reaching medicare eligibility, I am anxious to retire and move away from my current area. A few years ago I would have told you my goal was to reach full retirement without penalty and leave without even doing DROP. As I type this I hope I don't get drawn in by the money and stay for even the full DROP of 5 years. With that in mind, I think it's unarguable that each month in DROP is better than a month not in DROP, meaning if I know I'm going to do any less than the full 5 years in DROP, I need to jump in at the first opportunity. If I had it in me to do another year or two before entering DROP and still had the fuel to press on for a full 5 in the DROP, that would make sense.
I'm now starting to ramble here at the end. I'd be interested to know how the rest of you look at this as to when I should pull the trigger? October of this year or delay?