52 and ready --Pension Handcuffs

[brett]

I was in a similar situation. I highly recommend reading and re-reading you pension documents. Get a complete handle on the early out ledger.

I decided to 'wait them out'. It took two years but the financial benefit was huge and we are enjoying it now. The package provided us with several year of net income based on our burn rate and delaying the pension increased the entitlement substantially.

The last two years were not fun but my attitude changed because we were financially independent. Downsizing worked for me. So many firms are shedding senior employees because of cost....salary level, pension liability, high benefit costs. If you are with a megacorp you probably have and even choice of a downside or retirement incentive over the next two years.

 

[Teacher Terry]

I would stay the last 3 years. It is leaving too much $ behind. I stayed longer at my job then I wanted due to a pension. But now it is only a not so fond memory & I am glad I did

 

[hnzw_rui]

I would stay the last 3 years. It is leaving too much $ behind. I stayed longer at my job then I wanted due to a pension. But now it is only a not so fond memory & I am glad I did

I reckon this depends on other savings and how much you hate your job (or just plain going to work everyday), too.

I did the math for my scenario.

1. retire at 53, claim pension at 53, 30 years service: 56%
2. retire at 53, claim pension at 55, 30 years service: 65%
3. retire at 55, claim pension at 55, 32 years service: 69%

Scenario #3 would be ideal as then, pension will more than cover my living expenses (including some minor luxuries and travel) leaving any retirement savings as gravy.

However, depending on how much I'm able to put away I might consider scenarios #1 & 2 also. Between #1 & 2, it'll probably boil down to health insurance as #1 includes continuous, full health benefits (which some may consider a Cadillac plan) while I'm on my own for #2 between the ages of 53-55.

 

[gauss]

Is there some type of online Pension modeler that HR or your benefits provider provides? I would definitely want to make sure that the answer from the computer matches what you are getting with your hand analysis.

Also please keep in mind that most pensions track two different points in time

- when you separate from the company
- when you start drawing the pension

For most people these are the same date, but for ER's you may wish to analyze the two separately especially if your plan allows this and your itching to leave the Megacorp.

Where DW works, their plan provides for a significant ER subsidy that kicks in after 30 years of service. Phrased differently there is a large pension value spike in going from year 29 to year 30. In her case this drives her to continue to working until this point.

At my employer, I did not qualify for this type of ER subsidy - in fact my DB pensions were frozen. As such my pension would be the same if I left Megacorp after 22 years or after 30 years. The decision then was easy for me.

-gauss

 

[RobLJ]

Like most posted, read the plan. I doubt you can negotiate. (I see the OP has done so and is probably wise to wait it out.) I had to meet the rule of 80 to draw early from a 403b, but waited almost two years.

 

[bingybear]

My question to the forum is - Does anyone have any experience negotiating through this type of situation? I am concerned that if I go to HR first, I will put myself in a poor negotiating position.

I think this has turned into "check the terms of your plan" which really means you likely have no room to negotiate. Negotiation usually requires some give an take on both sides. And as I think you noted, sweeteners usually happen during downsizing.

My pension plans died in late 2001... so be happy you have one. Review the numbers... and make your decision. But I think you have come to that conclusion already.

good luck

 

[ChicagoGal]

Is there some type of online Pension modeler that HR or your benefits provider provides?

We have a tool in our HR system that calculates all sorts of scenarios, including what the lump sum would be vs. annual income (which ranges from roughly 6%-7% of the lump sum, non-COLA). It's definitely fun (and interesting) to play with. Based on the annual income numbers:

Retire @ 62, take @ 62: 100%
Retire @ 57, take @ 62: 84%
Retire @ 57, take @ 57: 63%
Retire @ 55, take @ 55: 49%
Retire @ 54, take @ 54: 32%
Retire @ 54, take @ 62: 62%

Every year worked past 62 increases by about 3%, but just delaying taking past 62 gets no increase.

 

[kcowan]

My plan was to take the reduced pension at 55. Then a golden handshake was offered at 49. I could take an immediate pension for 42%. 5 years of consulting with higher pay and extra write offs. Three years later, a divorce changed my plans to now retire at 60. Then I met a beautiful lady who had her own contribution.

Retired at 60 and all is well. So far mega has paid out 23 years of pension and counting!

 

[TXRNR]

As others have shared, I thought I would as well. I have listed the the results from my online pension calculator. As with other plans, there is a significant penalty to take anything prior to 55. The "early out" at 55 is pretty good, just have to get there.


Retire @ 53, take @ 53: 33%
Retire @ 54, take @ 54: 38%
Retire @ 55, take @ 55: 72%
Retire @ 62, take @ 62: 100%

No ability to leave at 53 but take payment at 55. No additional pension benefit to work past 62. THe LOA someone mentioned sounds like it may be worth investigating. I did not see one in the DB Plan, but will re-read as many have suggested. If nothing else, the investigation will keep me busy as I get closer

 

[Mulligan]

I guess I was lucky as our system has no age restrictions, just years of service. They also allowed you to buy SS eligible working years since we are not able to draw SS with those years (or at least WEP whacks it hard). The best option for me when I retired at 45 was not a very difficult decision. The choice was either a 75k pension with 2% annual COLA, or a 300k lump sum.


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[PERSonalTime]

Get the pension plan document , read it stem to stern. I would be surprised to see a private pension plan paying a "Full" pension at 55. Of my 2 pensions, the private DB one had a reduction factor of 56% at 55, rampping up to 100% at 65.

Are retiree medical benefits in play ?.....The kicker of my private "Megacorp" pension, was no retiree medical if not at least 55 when separating from employment.......My Public sector pension subsidizes retiree medical at 4% subsidy per year of service, 25 years service to get 100% subsidy.

Never seen a severance package to a non executive , except during a lay-off or when an employee was subject to an egregious actionable act by another employee.

So what percentage of retiree medical assistance do you currently receive? Do you receive, a partial subsidy or is it somewhere around 100%? If it's 100%, what portion is from your private employer versus public employer?


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[Evergreen]

I'm 52 and ready to go but will probably hang on until after Christmas, my 53rd birthday. My pension pot is available from 50, taking it in January I will lose a third of it. Fortunately I have decent savings, so ready to pull the plug and live life on my terms.

 

[soupcxan]

Retire @ 53, take @ 53: 33%
Retire @ 54, take @ 54: 38%
Retire @ 55, take @ 55: 72%
Retire @ 62, take @ 62: 100%

What is the payout if you retire at 53 but don't take the pension until 55?

 

[Music Lover]

I just turned 53. There is no rule of 80...you must have 30 years and be 55 to avoid penalty. The pension (MegaGovt) pays 2% a year to a max of 70%. I am 53 with 33 years of service. There is a 5% penalty for each year you leave before 55. My options are:

Retire now with 33 years of service: 59.4%
Retire @ 54 with 34 years: 64.6%
Retire @ 55 with 35 years: 70% (max)
Take 1 year leave without pay at 54, but continue to pay both portions of the superannuation premium, and then "officially retire" at 55: 70%.

I'm going with the 4th option.

 

[Spudd]

No ability to leave at 53 but take payment at 55.

I would carefully double-check this point. It seems unreasonable. Can it be that you are misunderstanding?

 

[pb4uski]

TXRNR, I agree with Spudd... it doesn't sound right. If you left at 53 for another job they would force you to start collecting your pension? Never heard of such a thing.

 

[LinCella]

Our city pension plan allowed retirement at age 50, however, there was a formula, years employed, age, salary, etc. I was ready to go at 50 but would have had only 50% pension. It was a difficult five years but in that time I was promoted to a manager and added quite a bit to the formula so I left with 70% and paid health. I'm happy I did, even though working was very difficult as management had become insufferable.

 

[Bamaman]

I approached this subject with MegaCompany's Human Resources one time. I was ready to go at 30 years and 52 years old. They said that government regulations wouldn't let individuals retire until age 55, no matter if they'd put their time in.

In 2008, MegaCompany overreacted and offered generous retirement packages to those 55 years of age--including a pension supplement until age 62 when SS could startup. And providing retiree insurance cost them a fortune.

My best friend was a real manager at UPS when it was owned by one family and UPS management as a private company. After UPS went public, his stock was worth $ millions. They worked him to death until they allowed his retirement at age 55.

I think that The King wants his subjects to continue working and paying into Social Security, 401K's, IRA's and other salary holdbacks--at least until age 55. He doesn't want to shell out money to any of his subjects until he has to. Those working pay taxes and taxes pay his treasury's expenses.

 

[TXRNR]

Retiring at say 53 but waiting until 55 to take the "Early Retirement" payment is something that could be done however the penalties are so significant (As published in the DB plan) that it is almost impossible. There is a statement that references situations such as layoffs, etc. where a bridge may be provided. This is where the thread began, looking for anyone who had experience working through the "gray area".

 

[stepford]

My "grey area" had some similarities. Like the OP the pension I would get through my Megacorp would be drastically reduced if I left voluntarily before age 55. If, however, I was laid off any time after age 49 I could retire at 55 without incurring this penalty. This was often referred to as the "6 year bridge to retirement".

I considered retiring at 50 several years ago, modeled everything and saved the data. If I had quit voluntarily then and started collecting my pension at 55 my monthly payment would have been little over $1K/month, whereas if I commenced the pension on the same date and left the the company on the same date as the result of a layoff my monthly payment would have been almost $1800. Big difference.

Through various machinations I have managed to stay at the company through my 55th birthday so the layoff effect on my pension is now moot, but this was very much a consideration over the last few years. Basically I felt that a voluntary ER was out of the question, but whenever a layoff seemed possible it represented a legitimate "offramp". For various reasons I OMY'd my way past these various offramps and am substantially richer, but commensurately older, sicker and "tireder" as a result. In retrospect it's sometimes hard to tell if I made the right call, though in fairness, I like the people I work with - including my management - so my "BS Bucket" (as another poster aptly termed it) has been much less full than most. Had that not been the case I suspect I would have more actively pursued potential layoff options.

 

[Cobra9777]

Gray Area

I can definitely relate to OP's situation. I retired at 52 and immediately started collecting the pension annuity, which was 41% less than it would have been at "early retirement" age 55. Not quite as harsh as OP's plan, but still a pretty steep haircut. Waiting to collect at a later date was an option, but IIRC, it made no difference in the PV of the pension benefit I had earned; it was just a TVM/actuarial adjustment.

During my 25 years at Megacorp, we had many periods of layoffs, which were always preceded by early retirement offers. These offers typically included a "bridge to early retirement" for people over 50. No such opportunity for me. I had a discussion with HR as well as our pension administrator to see if I could be bridged, as an exception. Their response was no. Under the terms of the plan, such bridges had to be offered to everyone or no one. No exceptions. The business outlook was fairly rosy at the time, so waiting was unlikely to change anything. I even inquired about going on leave-of-absence, rather than terminating, to bridge the gap, but that was not allowed either.

I actually pressed the HR person on this point because, as a manager, I was well aware of some exceptional cases where we offered severance packages to certain people that were being driven out, usually for performance reasons. These packages often included an LOA bridge to early retirement. I was told that such cases had to be approved by the CEO and my high performance ranking and voluntary departure would exclude any such possibility. Seems a bit backward but that's the response I got. Dead-end.

For me, the pension was by-far the biggest hit. But I also forfeited some unvested stock options and all RSUs, most of which I would have retained at "early retirement" age. There were also some smaller issues related to post-retirement health insurance subsidies, and others. I knew all these impacts quite well when I made the decision. But for me, the job had reached a point of stress and dissatisfaction where continuing was not really an option.

More importantly, while that extra money certainly would have been "nice," it was not needed for FIRE. It would have just gone to my kids... and probably a lot sooner, after 3 more years of stress took its toll on my health. I guess I was fortunate that DW also has a pension, which is larger than mine, and we also have rentals and other financial assets that will easily support our spending and lifestyle. Still, that was a really tough decision, especially the pension part. But once I knew I was FI, that extra money meant nothing compared to 3 extra years of freedom in my early 50s.

 

[TXRNR]

Cobra,
Thanks much for the response. My situation sounds very similar to what you experienced with the exception that I really need the 55 early retirment pension components or at least reasonably close in order to reach FIRE.

 

[Big_Hitter]

well, anecdotally at least, this thread shows how great DB plans are for employee retention