Hard to follow through with ER plans!

[Paddy]

Just joined after a year or two of lurking. Greatly appreciate the info & wisdom here! Just turned 60 and have had at least 3 potential retirement dates come and go with not being able to pull the plug. End of July is the next target! After 30+ years with same employer not used to making life changing decisions! Anyway live in Canada so health insurance not really as big an issue as in USA. Wife (also 60 )and I both will have DB pensions & Canada Pension Plan (both with some degree of COLA) and government OAS at age 65 likely. We have been living on close to our anticipated retirement income successfully for 2 years now. Biggest fear is inflation and might outlive our money! Re inflation, we have $300K in our nest egg which is half registered and taxable, half not. In our heads the nest egg is to cover off any inflation our pensions don't keep up with. My grandfather lived to 97 by the way. Very, very concervative investors we are.

 

[bizlady]

Will your pension plans cover your expenses? What does "some degree" of COLA mean?

 

[Paddy]

"some degree of COLA"

Will your pension plans cover your expenses? What does "some degree" of COLA mean?

Pension plans will cover our expenses/conservative lifestyle for now. Home, cars are all paid for with no debt whatsoever. The COLA on our pensions are determined by the ability of the plans to pay it. I think half to 2/3 of CPI is covered up to a certain maximum. Expect to invest nest egg very conservatively just to cover whatever shortfalls our pension COLA create and thus maintain current lifestyle indefinietly? Make sense?

 

[Jamtin34]

I have tracked my PRI (personal rate of inflation) and found my basket of goods to run at 1.5x - 2x the "official" rate of inflation. If you accept that investment returns from equities are supposed to be "inflation beating", remember to establish which you're modelling:

Scenario 1
Official inflation 3%
Personal PRI ~3%
Portfolio return 5%
= you're likely to be fine

Scenario 2
Official inflation 3%
Personal PRI ~5%
Portfolio return 5%
= you're not fine

and my model has me living in retirement 60 years. On some level, it's just messing with the numbers and has huge volatility, but you can imagine I need to be surer than sure before I think I can FIRE.

 

[Paddy]

I have tracked my PRI (personal rate of inflation) and found my basket of goods to run at 1.5x - 2x the "official" rate of inflation. If you accept that investment returns from equities are supposed to be "inflation beating", remember to establish which you're modelling:

Scenario 1
Official inflation 3%
Personal PRI ~3%
Portfolio return 5%
= you're likely to be fine

Scenario 2
Official inflation 3%
Personal PRI ~5%
Portfolio return 5%
= you're not fine

and my model has me living in retirement 60 years. On some level, it's just messing with the numbers and has huge volatility, but you can imagine I need to be surer than sure before I think I can FIRE.

Thanks for the replies! Has me thinking. I'm no accountant, so my basic strategy is to invest the nest egg in guaranteed investment certificates (currently 3.5% return) and withdraw from the nest egg over the years whatever I seem to need to make up for any shortfall between our pensions COLA and our PRI. Hoping this will get us through 20 - 25 years with the understanding that our spending may just naturally decline as travel, etc becomes less and less possible. Obviously could or will run out of money at some point. I'll take 20 - 25 good years and not too worried about after that. I know this retirement planning is not a science as too many variables but just wondering if I am roughly on an OK track. Of course every month/year I dither makes the plan more possible as the nest egg is growing at a few thousand a month!

 

[67walkon]

Paddy, I'm about your age and have been going through the same thing. Your biggest advantage is health care. I have to figure out how to deal with it for a few years for me and than a few +5 years for my 5 year younger wife.

Our firm's insurance guy says the firm can continue to provide health insurance if it wants to, even if we reimburse. It is much cheaper that way, so that is probably what we will do IF the economy spares my firm after I leave.

But on the other stuff, who knows? FIRE and the Edward Jones advisor and all the other calculators I can find say it is very unlikely we will ever run out of money, even assuming our expenses start where they are now and go up 3% every year. There are some dips in expenses when the mortgage is completely retired in about 5 or 6 years and when our youngest finishes college in 3 more years.

For some of us, the uncertainty is hard to deal with. I think, but don't know, I can deal with it by just cutting way back if things don't go as well as possible. I'm not sure my wife would be very happy about that, however, so we keep talking about it and not doing it. I'm pretty convinced that I'm going to try to work about half time next year, if the folks at my office can live with it, and use that as a trial year.

I think you are roughly on track, by the way.

Another way at looking at putting it off is you are saving a few thousand a month. Call it $2,000 or whatever. 4% of $2,000 is $80 a year. How much difference is $80 a year going to make long term and is it worth $80 a year to put off what you want to do for month after month. If it is more than $2,000, you can do your own math.

Now I've about talked myself into moving up the date!

 

[chinaco]

Welcome Paddy.

There is no shame in taking your time and making sure you are ready and your plan is solid. It is your retirement and on your timetable.

Just make sure you have done a good analysis of your expenses in retirement and that you have not missed anything.

If you and your DW both have Pension with COLAs that sounds positive.

But you need to consider the downside and how you and your DW might be protected if/when certain adverse events occur.

For example:

You need to also consider what happens if one of you predeceases the other. Will the surviving spouse get to retain the deceased pension benefit (or some portion of it)? Or will their be a significant household income reduction that needs to be made up somehow?

 

[Moemg]

Just joined after a year or two of lurking. Greatly appreciate the info & wisdom here! Just turned 60 and have had at least 3 potential retirement dates come and go with not being able to pull the plug..

Welcome ! I can certainly identify with having dates to pull the plug & not doing it . I had several before I finally made the plunge . To me it was like getting up the nerve to go off the high dive . I walked the steps several times before I made the jump .

 

[Paddy]

Welcome ! I can certainly identify with having dates to pull the plug & not doing it . I had several before I finally made the plunge . To me it was like getting up the nerve to go off the high dive . I walked the steps several times before I made the jump .

Perfect analogy!

 

[Paddy]

Welcome Paddy.

There is no shame in taking your time and making sure you are ready and your plan is solid. It is your retirement and on your timetable.

Just make sure you have done a good analysis of your expenses in retirement and that you have not missed anything.

If you and your DW both have Pension with COLAs that sounds positive.

But you need to consider the downside and how you and your DW might be protected if/when certain adverse events occur.

For example:

You need to also consider what happens if one of you predeceases the other. Will the surviving spouse get to retain the deceased pension benefit (or some portion of it)? Or will their be a significant household income reduction that needs to be made up somehow?

Good thoughts to consider. Both our pensions have a number of options to consider for possible survivor benefits. I also have the option of continuing some very inexpensive life insurance from my employer to consider. Crystal ball would really come in handy right about now!

 

[Patrick]

Paddy, I'm about your age and have been going through the same thing. Your biggest advantage is health care. I have to figure out how to deal with it for a few years for me and than a few +5 years for my 5 year younger wife.

Actually, you need to figure a few +10 years for your wife since a female's life expectancy is about 5 years longer than a male's (at least in the United States). List of countries by life expectancy - Wikipedia, the free encyclopedia

 

[Paddy]

Survivor Pension Benefits

Good thoughts to consider. Both our pensions have a number of options to consider for possible survivor benefits. I also have the option of continuing some very inexpensive life insurance from my employer to consider. Crystal ball would really come in handy right about now!

I've been searching, without success, to see if there were any threads related to choosing pension survivor benefits when I retire. My pension plan allows for quite a variety of options from no survivor benefits (highest pension for me) to 100% survivor benefits (lowest pension for me). Wife is in the same (reverse) position with her pension plan. Need to make a decision soon!

So any threads on this topic anyone can remember? or any advice where to start such a thread? (I'm new)

 

[Patrick]

I've been searching, without success, to see if there were any threads related to choosing pension survivor benefits when I retire. My pension plan allows for quite a variety of options from no survivor benefits (highest pension for me) to 100% survivor benefits (lowest pension for me). Wife is in the same (reverse) position with her pension plan. Need to make a decision soon!

So any threads on this topic anyone can remember? or any advice where to start such a thread? (I'm new)

I don't know of any existing threads, but usually the actuaries have figured out the numbers so that the system is out about the same amount of money (over the lifetime of the participant) no matter which option you choose.

I know of several people who participated in the same plan that I was in that chose no survivor benefit and their survivors regretted it later when the former employee died early and they were left with no income.

Since your wife will get a pension too, I would say the place to start is to figure out if each of you could live on their own pension if the other one passed away. If so, you might want to choose the unreduced benefit. If not, then consider one of the options that will give the survivor enough to get by on if the spouse passes away.

 

[mystang52]

If you are insurable, another option might be to take the no-survivor benefit, and buy a term insurance policy. Cost of the annual premium is probably less than the reduced amount you'd get from a survivor-pension.

 

[Paddy]

If you are insurable, another option might be to take the no-survivor benefit, and buy a term insurance policy. Cost of the annual premium is probably less than the reduced amount you'd get from a survivor-pension.

Yes, I checked the rates to continue my life insurance my employer has. Amount is probably sufficient, and cheaper than the reduction in the pension should I choose a survivor benefit for my spouse. But it ends at 73 years of age! Another option is guaranteed 15 year pension paid no matter whether I and/or my wife die. We have 3 adult kids who could benefit if we both die "prematurely".

Spouse has only a limited amount she can continue with her current life insurance.

I guess we're thinking why worry about after age 73 (or 75) and just max out our pensions for the next 13-15 years. Once again crystal ball would be helpful. Any more rational decision making approaches? Seems at least partly personal comfort for taking certain risks that are quite unpredictable.

 

[67walkon]

Paddy, I ws referring to the health insurance issue. We will need to insure her for an additional 5 years after I am eligible for Medicare. Heck, she'll outlive me by a lot more than 10 years! Which is the one of the reasons I'm going to try to delay SS as long as I can, maybe even to 70--if we're "lucky", she'll benefit from the increased amount for a long time.

 

[Paddy]

Paddy, I ws referring to the health insurance issue. We will need to insure her for an additional 5 years after I am eligible for Medicare. Heck, she'll outlive me by a lot more than 10 years! Which is the one of the reasons I'm going to try to delay SS as long as I can, maybe even to 70--if we're "lucky", she'll benefit from the increased amount for a long time.

Sorry, I misunderstood. Health insurance just not an issue of any consequence in Canada except maybe long term care insurance. Life insurance, survivor pension benefits though seem to be a bit similiar in complexity as health care issues in US and therefore age of spouse is also a factor in our situation, just for different reasons.

 

[Paddy]

I don't know of any existing threads, but usually the actuaries have figured out the numbers so that the system is out about the same amount of money (over the lifetime of the participant) no matter which option you choose.

I know of several people who participated in the same plan that I was in that chose no survivor benefit and their survivors regretted it later when the former employee died early and they were left with no income.

Since your wife will get a pension too, I would say the place to start is to figure out if each of you could live on their own pension if the other one passed away. If so, you might want to choose the unreduced benefit. If not, then consider one of the options that will give the survivor enough to get by on if the spouse passes away.

Very fortunate we both have OK pensions, similar in value. However you made a very good point of doing the calculations as to whether either of us could survive OK just on our own pension with our own remaining expenses. Will have to start yet another new spreadsheet!

 

[Nuiloa]

Good thoughts to consider. Both our pensions have a number of options to consider for possible survivor benefits. I also have the option of continuing some very inexpensive life insurance from my employer to consider. Crystal ball would really come in handy right about now!

Paddy, are you on a provincial pension plan? I'm on the BC Municipal Superannuation Plan. They offer free seminars for people who are about to retire. Does your plan have anything like that? I found ours to be very helpful.

The bad news is that all the options, except Joint Life, won't guarantee your spouse anything much after your death, unless you pass away soon after retirement. For example, on a "single life, 15 years" plan, your spouse would get your pension for 15 years after you die. However, what the plan booklet doesn't say is that those 15 years start ticking on the day that you retire.

Our seminar leader said that the Joint Life is about the only way to ensure your spouse gets a pension. It does take a hit though - about $250 or more a month.

He also told us that taking CPP early might be a good move. It would take 11 years to catch up financially if you wait until you're 65. However, if you take it at 60, the CPP will be 30% less than if you wait (and that is going up significantly starting in 2012).

My friends with similar pensions all went into shock when the Bridge Benefit ended at age 65 and their income dropped by $800 a month. OAS took up some of the slack, but only about half. So from age 60 to 65, you can live high off the hog (pension + BB + CPP), but be aware that the bridge ends!

If you can find a retirement seminar through your work, I would highly recommend it.

 

[Paddy]

Paddy, are you on a provincial pension plan? I'm on the BC Municipal Superannuation Plan. They offer free seminars for people who are about to retire. Does your plan have anything like that? I found ours to be very helpful.

The bad news is that all the options, except Joint Life, won't guarantee your spouse anything much after your death, unless you pass away soon after retirement. For example, on a "single life, 15 years" plan, your spouse would get your pension for 15 years after you die. However, what the plan booklet doesn't say is that those 15 years start ticking on the day that you retire.

Our seminar leader said that the Joint Life is about the only way to ensure your spouse gets a pension. It does take a hit though - about $250 or more a month.

He also told us that taking CPP early might be a good move. It would take 11 years to catch up financially if you wait until you're 65. However, if you take it at 60, the CPP will be 30% less than if you wait (and that is going up significantly starting in 2012).

My friends with similar pensions all went into shock when the Bridge Benefit ended at age 65 and their income dropped by $800 a month. OAS took up some of the slack, but only about half. So from age 60 to 65, you can live high off the hog (pension + BB + CPP), but be aware that the bridge ends!

If you can find a retirement seminar through your work, I would highly recommend it.

Yes, I am a few provinces east of you. Did take in one session provided by my pension plan. Useful to a degree. 40 people in a room being lectured to is only so useful. Just keep doing my research and learning a little bit more each day. Staying away from financial advisors. Learnt yesterday from the good man on the phone that CPP early retirement penalty does not apply to the last month you work even if you work only 1 day that month.

Hopefully I'm not missing too much that might be critical, other than a decision making process to decide which risks to take or not .

You've highlighted some of the issues where quite frankly not sure how to make a good decision other than flipping a coin. For example we each can set up our pensions to have quite a significantly higher income from age 60-65. Then there is how much should we reduce our pensions to make sure the surviving spouse is OK financially. Then what if we both die the first year of retirement and should we risk the 3 adult kids' inheritance or not. I think I'm slowly coming to understand with the help of this forum that there is no 100% safe way to go. So I'll maybe try to narrow down where I'm struggling with parts of my plan and start a more specific thread (or two). And back to the spreadsheets!

 

[Nuiloa]

It is very scary to voluntarily cut your income. I'm just keeping my fingers crossed that it will be the right decision when the time comes. Suddenly getting only 60% of what I'm making now though feels like financial suicide.