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Private Pension Question
Old 11-06-2020, 08:17 PM   #1
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Private Pension Question

My wife is due a small monthly pension (around a max of $1000/month depending on when she claims it óBUT NOT INDEXED TO INFLATION) When is the ideal time to claim such a pension? It is gravy not crucial to our budgets. But what sort of calculus enters into ideally timing the start?
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Old 11-06-2020, 08:41 PM   #2
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I'm not sure if there is any magic. I deferred starting mine as long as the annual increases were decent. You could compare the yearly increases with the increases in a similar single premium immediate annuity.
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Old 11-06-2020, 09:23 PM   #3
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Also you can compute a break even age. If that age is far off (and approaching your life expectancy) then there's no benefit in waiting. If it's much shorter than you might want to wait a while (assuming you don't need the money sooner).

Just remember to account for inflation in the calculation - my breakeven occurred at around age 70 using the simple calculation, but was well into my 80s when I discounted future payments using a 3% expected inflation rate. So I took mine relatively soon in my second year of ER.

A final note is to consider taxes and ACA subsidies. If you need to control your MAGI then it may again be useful to delay the start date of your pension.
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Old 11-06-2020, 11:32 PM   #4
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Some pensions don't increase in amount after a certain point, it's a waste to wait past that point.
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Old 11-07-2020, 07:46 AM   #5
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IMO, if you're going to spend it, I'd wait as long as the annual increase beats the current inflation rate; the longer you wait, the longer the increased amount will last you. If you are well off enough that you're not planning on even spending it, I'd start right away, because I would assume that (in the long run) I'd make more investing it than the annual increase rate.
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Old 11-07-2020, 08:19 AM   #6
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See if there is a lump sum option. Since it is not adjusted for inflation and it is gravy, you could always take it and invest it yourself.
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Old 11-07-2020, 09:58 AM   #7
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Another approach, albeit a bit wonky, would be to try to use opensocialsecurity.com with no COLA increase to compute the expected present value of each alternative using an appropriate mortality table.
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Old 11-07-2020, 11:12 AM   #8
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Quote:
Originally Posted by urn2bfree View Post
My wife is due a small monthly pension (around a max of $1000/month depending on when she claims it —BUT NOT INDEXED TO INFLATION) When is the ideal time to claim such a pension? It is gravy not crucial to our budgets. But what sort of calculus enters into ideally timing the start?
Since it's not indexed to inflation I think you need to subtract the inflation from the increase the pension gets.
Example: pension increase is 5% for each year waited, but inflation is 2%, so the net increase is 3%.
Now if you wait say another 10 years, for that 3% increase, you will miss out on ($$ x 12months x 10 yrs) worth of money.

How many years will it take to get that missed money amount due to the higher payout ? Possibly it is never, depending upon the increase.

Since SS increases around 8% per year of delay and it's breakeven is median expected lifespan, off-hand I'd say unless the pension has a bigger increase after subtracting for inflation to take it now.
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Old 11-07-2020, 11:45 AM   #9
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Thanks all for an interesting discussion. I have a small-ish pension I've been putting off taking based on some calculations I did back in early 2016. It is also in the "don't need" category, but since my primary pension is non-COLA, I figured I'd tap it when I want to give myself a "raise."

Although I looked at the numbers and the break-even point, I never looked at the percent annual gain, so I put a new row in my old 2016-era spreadsheet.

It looks like my gut instinct on this was correct. I'm getting almost 9% now, going up steadily to over 10% if I wait until 2024 to take it. After that the annual increase drops to 6.6%. Which I guess is why I stopped my spreadsheet with the 2025 column. No point in not taking it after that.

If I took it now, it would go into cash, not investments, and only for a few years until it was needed. So no point in comparing it to potential investment returns. Inflation happens no matter where I keep it, so that's a wash. On a low fixed income, taxes aren't a huge issue. Might as well keep it where it is. I suppose it could be considered something like a really good (for the current market) bond fund.
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Old 11-07-2020, 11:47 AM   #10
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Just went thru this with my wife. She could wait till 65th birthday to get max amount. each year of waiting increased her benefit by about 5.5%.
It is a modest pension amount but we didn't need it so just waited.

We waited for that and she will receive her 1st check on Dec 1st.
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Old 11-08-2020, 08:07 PM   #11
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Take it early as possible and bank the money.
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Old 11-08-2020, 09:18 PM   #12
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Do you have any health benefits tied to the pension? I had a modest non-COLA pension that I could start taking at 55, but it maxed out at age 60. But in order to qualify for my retiree medical plan (under-65) and to have a portion of DW's Medicare supplemental plan subsidized by the company, I had to start my pension payments.

When DW retired last, I was 58.5, so I started then. I lost a little on the maximum monthly pension, but it was worth having the under-65 retiree medical plan and not having to deal with ACA.
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Old 11-09-2020, 10:40 AM   #13
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My pension will grow (~8% IIRC) until age 70 (maybe 72 now with the recent changes in law?), so I'm holding off on it and SS as long as I can in order to do Roth conversions.

-ERD50
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Old 11-09-2020, 12:54 PM   #14
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Quote:
Originally Posted by urn2bfree View Post
My wife is due a small monthly pension (around a max of $1000/month depending on when she claims it óBUT NOT INDEXED TO INFLATION) When is the ideal time to claim such a pension? It is gravy not crucial to our budgets. But what sort of calculus enters into ideally timing the start?
You will want to look at the annuity options at the first of the month following each future birthdate from now till age 65 and make a call.

If you post those I will opine.
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Old 11-09-2020, 02:42 PM   #15
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Quote:
Originally Posted by ERD50 View Post
My pension will grow (~8% IIRC) until age 70 (maybe 72 now with the recent changes in law?), so I'm holding off on it and SS as long as I can in order to do Roth conversions.

-ERD50
I checked my pension account online today, and the decision deadline has been
pushed out to April of the year following turning 72. So my pension has updated
to the new rules. One consequence of the RMD start age being pushed out to 72.
If the RMD is further pushed to 75, perhaps the pension start age will be moved
out as well.
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