56, Planning on retiring next year

[Marie]

I'm a single female, no debt (house is paid off), earning about $85K/year from my occupation, have worked for same company for 27 years, have a pension plan grandfathered in (would get ~1200-1400 per month), and a 401K which did take a hit along with everyone else's, plus other savings which are being managed by a good financial advisor (total taxable earnings approx 100K/year between this and the salary). I put 15% salary into my 401K which has a 5% company-match, and save approximately another 3-5% on my own, depending on the year.

My plan is to build a house on property I own in Massachusetts (I am currently in Connecticut), sell this one (paying off any debts when I sell) and retire there. I would be interested in taking up part time work-from-home skills to supplement my savings and pension.

I've several questions that I'm loathe to ask at work (there have been a few too many layoffs...).

Medical: At the moment, my retiree medical health plan benefits would be cut in approximately half should I retire in 2011. Are there viable ways of making up the shortfall?

Also, just recently I heard (second or third hand) about a co-worker about my age who left the company a year or two ago. She was eligible for early retirement but elected not to take it; the rationale I heard is that she can wait until she is in her sixties to file for retirement and get a better pension. Is this true? Can one leave employment but elect not to take the retirement package and defer this for later, to get better bennies and live on external savings until that time? If true, how would this affect medical?

Thanks. I'm sure I'll have more questions as I settle in here.

 

[Katsmeow]

As to whether you can take retirement later and get better benefits -- this will depend on your employer's plan. I understand not wanting to ask questions that might cause people to think you want to retire now. On the other hand, without more information you can't make good decisions.

Also does your emplloyer perhaps some information posted you could download, etc. When DH didn't want to ask certain questions I found that the information posted on the intraweb answered most of the questions.

 

[Marie]

Also does your emplloyer perhaps some information posted you could download, etc. When DH didn't want to ask certain questions I found that the information posted on the intraweb answered most of the questions.

I've looked at the website for retirement planning. They don't answer that particular question. Actually, they pretty much gloss over the early retirement option assuming that most will go until age 66 or or they drop, or whatever. (They do have a calculator so I do know what my pension would be approximately for any given year, and the percentage of medical coverage.)

I do wonder if anyone here has been able to do that option? Leaving but not picking up the pension until later? Sort of like the waiting to claim Social Security until one gets the most out of that, too?

 

[travelover]

................

I do wonder if anyone here has been able to do that option? Leaving but not picking up the pension until later? Sort of like the waiting to claim Social Security until one gets the most out of that, too?

I know that in some plans this is possible. I have a friend that left the same company that I retired from, at about age 50. Now that he just turned 55 he has applied for his retirement pension and health care benefits. In our company minimum retirement age is 55 unless you have 30 years on the job. I'm sure this varies among companies and you'd need to verify their policy.

 

[IndependentlyPoor]

I retired at 50 (with 27 years service) and began my pension at the earliest possible age, 55. In addition to the actuarial hit, the lump sum option was not possible for early retirement. I suspect there a big variations between plans.

Deciding whether to delay a pension is tricky. It is even harder for a non-COLAed pension. You have to assume an inflation rate in addition to estimating the number of years you will draw the pension.

 

[bbbamI]

Welcome to the forum.

As others have said, you have to check your plan. DH could have delayed taking his pension but did not do so. At the time (last year) he was able to get a partial lump sum and a joint survivor payment each month when he turned 55. We liked those options and since you never know when a change can be made to a plan, we struck while the iron was hot.

Besides, it's nice getting money (even though it would have been more if he waited) each month....less drawdown from our portfolio.

 

[KM]

1 - Welcome!

2 - What do you mean by your medical health benefits would be cut in half? Will you deductible double? My guess is the only way to "make up" for this is to ensure you have enough to cover whatever your projected premiums, deductible, and expected OP would be. I suspect most company "retiree medical plans" cost more than the "non-retiree" plans. I know ours does - but the benefits are the same.

3 - What everyone else said. Plans vary by company, but it is likely your friend delayed taking her pension, which then gave her a higher pension when she started to take it. You can probably do the same. You just have to run the numbers and see which way works better for you. A lot will depend on how much you have outside your pension, how long you can last with that, and how much that will increase your pension.

 

[heyduke]

welcome... i too will retire soon in march 2011 and will be almost 56 when i do... enjoy the site...

 

[LOL!]

I'm sorry to read that you appear to have $25K in taxable income from investments. Is it possible that you could invest more tax-efficiently? For example, you should have $0 (zero) on the top half of your Schedule B and only qualified dividends (taxed at lower rates) on the bottom half of your Schedule B. Schedule D should almost always show a loss. When I set my portfolio up this way, I was able to reduce my tax burden by thousands of dollars annually without changing the actual gains and returns of my portfolio. It was all about the proper location of various assets which I didn't have set up right before then.

 

[Amethyst]

Hey LOL, could you point us to any posts you've done on how to invest tax-efficiently? I think I've seen some by you, in the past. I scratched around a bit with the search tool but didn't find what I wanted.

Am sure I'm not the only one, other than the OP perhaps, who could use some sage advice on this score.

Thanks,

Amethyst

I'm sorry to read that you appear to have $25K in taxable income from investments. Is it possible that you could invest more tax-efficiently? For example, you should have $0 (zero) on the top half of your Schedule B and only qualified dividends (taxed at lower rates) on the bottom half of your Schedule B. Schedule D should almost always show a loss. When I set my portfolio up this way, I was able to reduce my tax burden by thousands of dollars annually without changing the actual gains and returns of my portfolio. It was all about the proper location of various assets which I didn't have set up right before then.

 

[Marie]

What's a non-COLAed pension, or a COLAed one, for that matter? (It's probably just an acronym I haven't seen before and once that's defined, I'll be able to tell you which one I should be getting.

1 - Welcome!

2 - What do you mean by your medical health benefits would be cut in half? Will you deductible double? My guess is the only way to "make up" for this is to ensure you have enough to cover whatever your projected premiums, deductible, and expected OP would be. I suspect most company "retiree medical plans" cost more than the "non-retiree" plans. I know ours does - but the benefits are the same.

3 - What everyone else said. Plans vary by company, but it is likely your friend delayed taking her pension, which then gave her a higher pension when she started to take it. You can probably do the same. You just have to run the numbers and see which way works better for you. A lot will depend on how much you have outside your pension, how long you can last with that, and how much that will increase your pension.

1 - thanks!

2 - the amount of medical services I'd get would be cut approximately in half, although prescription drugs fall into a different category which I don't think changes all that much. Dental would drop out entirely.

3 - Gotcha. I'll run the numbers this week. I don't plan to touch the 401K until I am at least 60 or claim SS until I am at least 66 (no penalties desired here!) And I am not retiring until I have the clear sign of my current home's ownership in someone else's hands!! In this volatile real estate market I'd dare not do otherwise.

 

[Marie]

I'm sorry to read that you appear to have $25K in taxable income from investments. Is it possible that you could invest more tax-efficiently? For example, you should have $0 (zero) on the top half of your Schedule B and only qualified dividends (taxed at lower rates) on the bottom half of your Schedule B. Schedule D should almost always show a loss. When I set my portfolio up this way, I was able to reduce my tax burden by thousands of dollars annually without changing the actual gains and returns of my portfolio. It was all about the proper location of various assets which I didn't have set up right before then.

You are correct, and I erred in not mentioning the 7 K bonus I got this year at work, so that's part of the 25K. (I get between 5 and 8 K each recent year as a bonus.) But I should definitely get more "tax-efficient" and am working on it.

After turning 50, I started putting 17-18% of salary into the 401K. After the market downturn in 08 and 09, I returned to 15%. In part to protect myself from the market and in part to have more convertable cash towards the new home in Massachusetts.

 

[IndependentlyPoor]

What's a non-COLAed pension, or a COLAed one, for that matter? (It's probably just an acronym I haven't seen before and once that's defined, I'll be able to tell you which one I should be getting.

COLA = Cost Of Living Adjustment
Social security is COLAed, my pension isn't.

 

[Marie]

Thank you. I'm not going to be in a cost of living adjusted pension from work, either. Hmm, didn't those die out with the dodo bird?

 

[LOL!]

After turning 50, I started putting 17-18% of salary into the 401K. After the market downturn in 08 and 09, I returned to 15%.

Sorry to point out the obvious: So when things got cheaper to buy, you actually started buying less of them? I don't see how that makes sense.

 

[LOL!]

Hey LOL, could you point us to any posts you've done on how to invest tax-efficiently? I think I've seen some by you, in the past. I scratched around a bit with the search tool but didn't find what I wanted.

Am sure I'm not the only one, other than the OP perhaps, who could use some sage advice on this score.

Thanks,

Amethyst

The bogleheads wiki is a good place to explore:
Category:Tax Considerations - Bogleheads
&
Placing Cash Needs in a Tax-Advantaged Account - Bogleheads
&
Principles of Tax-Efficient Fund Placement - Bogleheads

 

[Rustic23]

When I left a Bank at age 55, I was eligible for retirement. However I did not have to take it. When I reached 65, I started and it was a higher amount. I made the decision because I did not need the money at the time, and most of it would have gone to taxes. I am not sure that had I taken the money and invested it, that the amount I a getting now would not be about the same.

 

[Marie]

Sorry to point out the obvious: So when things got cheaper to buy, you actually started buying less of them? I don't see how that makes sense.

Was this a mistake? I also wanted to have finances available for getting started up for building. They weren't cheaper to buy from what I saw. I was losing out. The new money that went in there every two weeks from my salary was getting slammed around, at least from my viewpoint.

Explain, I am listening.

 

[LOL!]

When you put money in your 401(k) you have several choices in which funds to invest in. If you pass up putting money in your 401(k), you cannot go back and make those tax-deferred contributions.

Many folks would say that one should have an asset allocation that you are comfortable with and can sleep at night. In 2008-2009, the stock market dropped, but bonds did well. In mid-March 2009, stocks were really on sale. If you rebalanced some from stocks to bonds, you would have done OK.

What if you had been contributing to an asset allocation of 50% equities and 50% bonds for a while? What if you increased your 401(k) contributions to the max during the down turn? What if you rebalancing from bonds back into the stocks last March to get you back to a 50:50 asset allocation? Would your taxes have gone down because of the exclusion you get from the 401(k) contributions?

So you did not have to put your money into stock funds in your 401(k). You could (and should) be using a mixture of stock funds and bond funds. Not everything goes down.

 

[Katsmeow]

On your pension there can be many variables that affect it. For instance, my husband recently retired at 62. At his employer there was a penalty for "early" retirement, but as long as he was 60 or older he would receive full retirement.

You sometimes have to look at specific of how the pension is calculated. For example, he wanted to retire in June but they wanted him to stay for a project so he said he would retire in July. Well, when he got updated pension numbers he found that waiting that one extra month would cost him over $7000 on his lump sum! (In his case, he was taking lump sum in lieu of pension). So he ended up retiring in June.

 

[Marie]

When you put money in your 401(k) you have several choices in which funds to invest in. If you pass up putting money in your 401(k), you cannot go back and make those tax-deferred contributions.

Many folks would say that one should have an asset allocation that you are comfortable with and can sleep at night. In 2008-2009, the stock market dropped, but bonds did well. In mid-March 2009, stocks were really on sale. If you rebalanced some from stocks to bonds, you would have done OK.

What if you had been contributing to an asset allocation of 50% equities and 50% bonds for a while? What if you increased your 401(k) contributions to the max during the down turn? What if you rebalancing from bonds back into the stocks last March to get you back to a 50:50 asset allocation? Would your taxes have gone down because of the exclusion you get from the 401(k) contributions?

So you did not have to put your money into stock funds in your 401(k). You could (and should) be using a mixture of stock funds and bond funds. Not everything goes down.

I do have a mixed 401K portfolio. At that point everything was going down (except the stable fund which slugs along at 1.5% interest no matter what happens). The bond fund they had at that point wasn't a very good one (they've since switched to a different one), and I had a goodly amount in a balanced fund of stocks and bonds which didn't take a bad hit.

 

[chinaco]

Welcome.

Typically there is a reduction in early retirement pension benefit for early retirement. However (as mentioned) it depend on your company's plan. Check with your benefits dept. They can probably provide you with the calculation as well as a projection of your benefit at different ages of retirement. Also, some companies do not reduce the benefit if an employee has a large number of years of service (e.g., 25, 30, 35).


Assuming the benefit is reduced, it is probably done on an actuarial basis. Assuming it is fair... then you they would reduce it to an amount that would be equal to drawing it at full retirement based on your expected life. Meaning on average you would draw the same value either way. This is something else to checkout.

Another consideration is if it has a COLA. If it does not, then you need to consider the effect of inflation on your benefit payment over time.

I am in a similar situation (planning to FIRE at 55) and my pension does not have a COLA. I get a reduced amount if I take it at 55. Because of inflation concerns, I am planning to take my pension when I FIRE . I will likely delay SS till FRA or 70 for similar reasons but the opposite circumstances (depending on how things turn out) Because it has a COLA and an inflation factor applied to earnings (but it remains to be seen what type of changes occur to SS to keep it solvent).

 

[Amethyst]

Marie - Even if your pension does have a COLA provision, you need to be cognizant of inflation, and plan for the possibility that your pension will not entirely keep up. Some COLAs are calculated based on the Consumer Price Index (CPI). Without straying into political matters, I will just comment that not everyone believes the CPI reflects real inflation for things and services that people need as they age.

This effect was pointed out to employees at a work-sponsored retirement seminar I attended years ago, and husband and I are living with the effects of inflation erosion of his COLA'd pension.

Amethyst

Welcome.

Another consideration is if it has a COLA. If it does not, then you need to consider the effect of inflation on your benefit payment over time.

/QUOTE]

 

[IndependentlyPoor]

This info on timing SS might be useful
MarketWatch.com