Pension decision

[Zoraster]

A 23 year break even point ignoring inflation, investment returns, and the leverage of having additional purchasing power earlier in retirement... Seems like you answered your own question in regards of when to take it.

In my organization we have a defined benefit plan and every so often the question comes up in regards to whether it is better to go into drop and basically take your pension now in a tax deferred account for up to 5 years or continue accruing the additional multiplier (2.72) and higher average end salary the pension is based on after the 5 years and then take a 10 or 25% lump sum based on the actuarial value or just run with the higher benefit. My default response is always that it is better to go into drop and draw the pension instead of building it up because as you already keyed in on the break even part is soooo far out that it isn't worth it. In the 6 or so times I've had this conversation at work the majority of people going into it think it's better to accrue the additional pension time but after they get into the numbers it never is (unless you had a huge promotion and needed the additional time to up the salary average to the new level).

 

[Texas Proud]

The no survivor option, just for my life, is the $1,613/month in the OP. The $1,613 is for 10 years guaranteed. With 0 years guaranteed the benefit is $1,642 and 5 years is $1,635. While I plan to stay around for some time. I'm thinking the give up of $29/month for 10 years of guaranteed payments is preferable since then either me, DW or our kids will at least get a good chunk out of that pension. With the 0 years guaranteed if I die shortly after I start my pension the plan would get off scot-free and that wouldn't sit well with me.

Opps... yes, it was right there and I even read it...

 

[Terryjm51]

You can't take a lump sum payment?


Sent from my iPhone using Early Retirement Forum

 

[pb4uski]

No, this plan does not allow a lump sum. Big Hitter would know better but I don't think the lack of a lump sum option is at all unusual.

 

[Texas Proud]

So who do you think will live longer

Can either of you live off 50% if the other dies?


For me, that looks like the best option. You get a full pension for as long as you live.... and whenever the first passes, they get 50% going forward...

 

[pb4uski]

That's a tough one. Statistically, DW should out live me, but she does have more little aches and pains than I do, but they are more annoyances than anything serious. My family history is a bit better, especially on my mother's side. Net, its probably a toss-up.

I'm leaning towards the joint life/100%. Here's why... if I take the benefit at age 60 and divide it by the payout ratio for a SPIA issued to a couple at age 60 I can get the approximate fair values of the plan. The joint life/100% is ~$340k and the Joint/50% is ~$350k. I like that the joint life/100% maximizes the benefit to DW if I die since her income will decline by 1/2 of my SS when I die I don't see it makes sense to have it also decline by 1/2 of my pension. The joint life/100% just "feels" right.

 

[Texas Proud]

That's a tough one. Statistically, DW should out live me, but she does have more little aches and pains than I do, but they are more annoyances than anything serious. My family history is a bit better, especially on my mother's side. Net, its probably a toss-up.

I'm leaning towards the joint life/100%. Here's why... if I take the benefit at age 60 and divide it by the payout ratio for a SPIA issued to a couple at age 60 I can get the approximate fair values of the plan. The joint life/100% is ~$340k and the Joint/50% is ~$350k. I like that the joint life/100% maximizes the benefit to DW if I die since her income will decline by 1/2 of my SS when I die I don't see it makes sense to have it also decline by 1/2 of my pension. The joint life/100% just "feels" right.

Yes... I would agree... if she needs a pension/SS income to supplement living expenses it is the way to go.... no need to have both income streams cut if either of you pass...

If you had enough in assets where it did not matter a lick, well, maybe not... but then again I did not do any NPV on any of the streams... I am just going by gut feeling...

 

[pb4uski]

Interesting angle. If I take my QLP retirement plan and assume that I die today, hold all other assumptions the same and compare joint/100% to joint/50% she still never runs out of money... but her age 99 NW is 60% higher with joint/100% vs joint/50%.

 

[NoiseBoy]

No, this plan does not allow a lump sum. Big Hitter would know better but I don't think the lack of a lump sum option is at all unusual.

My megacorp pension does not have a lump sum option or a beneficiary option while working, except for a spouse (default.) I have always assumed that this is because the pension is funded by the company. By that I mean that there are no deductions from my paycheck for the pension. Their cash, their rules. It increases at 4% per year from 55 to 62, which is the maximum amount you can get. No COLA. I plan to start it at 55 because that is a requirement for access to the retiree health care benefits (if they still exist in 4+ years.)

I also have a public sector pension from a civil service gig which was my first fulltime job. I paid ~8% of my check into the program and it does have lump sum and death benefit options. It also has a 3% fixed COLA, so I'm hoping to live long enough to see some value for all the years off waiting that I've done!

FWIW - I like the joint/100% option because it follows the KISS principle.

 

[Texas Proud]

Interesting angle. If I take my QLP retirement plan and assume that I die today, hold all other assumptions the same and compare joint/100% to joint/50% she still never runs out of money... but her age 99 NW is 60% higher with joint/100% vs joint/50%.

Yes, that makes sense because you just cut your pension in half just when it started.... (not quite half of the 100% since it starts lower already)....


The better question is what would happen if you died in 10, 15, 20 etc. years.... I would think that somewhere in the 15 to 20 year range it would make sense for the 50% option.... more money up front with the reduction in many years....

 

[Big_Hitter]

FWIW - I like the joint/100% option because it follows the KISS principle.

nothing against a 100% J&S but do realize it comes with a haircut, usually 20% or so depending on the assumptions used and spouse age difference


I advised my Dad to get the 100% J&S when he retired in 92 and they are both still alive

 

[pb4uski]

Yes, that makes sense because you just cut your pension in half just when it started.... (not quite half of the 100% since it starts lower already)....


The better question is what would happen if you died in 10, 15, 20 etc. years.... I would think that somewhere in the 15 to 20 year range it would make sense for the 50% option.... more money up front with the reduction in many years....

I took QLP and looked at end of plan (DW is 99) NW if I die at 60, 70, 80 or 90 under Joint/100 or Joint/50 assuming a 10% reduction in expenses once I die. Joint/100 comes out consistently higher unless I live past 83 or so, then Joint/50 comes out ahead. If I live to 99, then our NW is about 7% lower with Joint/100 vs Joint/50 but I can live with that because of the protection that it offers DW.

So Joint/100 seems to be the winner.

 

[ggbutcher]

I took QLP and looked at end of plan (DW is 99) NW if I die at 60, 70, 80 or 90 under Joint/100 or Joint/50 assuming a 10% reduction in expenses once I die. Joint/100 comes out consistently higher unless I live past 83 or so, then Joint/50 comes out ahead. If I live to 99, then our NW is about 7% lower with Joint/100 vs Joint/50 but I can live with that because of the protection that it offers DW.

So Joint/100 seems to be the winner.

i'll be doing the same, thinking of it more as insurance of income stability for DW when I croak than as some total return on a date I can't nail down (croaking...)

 

[Texas Proud]

I took QLP and looked at end of plan (DW is 99) NW if I die at 60, 70, 80 or 90 under Joint/100 or Joint/50 assuming a 10% reduction in expenses once I die. Joint/100 comes out consistently higher unless I live past 83 or so, then Joint/50 comes out ahead. If I live to 99, then our NW is about 7% lower with Joint/100 vs Joint/50 but I can live with that because of the protection that it offers DW.

So Joint/100 seems to be the winner.

Good for you...

And if your NW is 7% lower.... well, that is also a good thing... so a win win....

 

[pb4uski]

Good point.. it is a win-win assuming that I am doing more than just breathing.

 

[Texas Proud]

Good point.. it is a win-win assuming that I am doing more than just breathing.

LOL... yes... but if all you are doing is breathing then you probably will not know what is going on around you.... so you would not care...