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Old 07-11-2010, 06:00 AM   #21
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Originally Posted by LOL! View Post
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.
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Old 07-11-2010, 06:13 AM   #22
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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).
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Old 07-11-2010, 07:37 AM   #23
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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.



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.

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Old 07-11-2010, 10:51 AM   #24
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This info on timing SS might be useful
Start by admitting
from cradle to tomb
it isn't that long a stay.
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