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Should I Delay DROP?
Old 01-14-2022, 11:43 AM   #1
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Should I Delay DROP?

Any reason in my situation I should delay getting into the DROP?

October of this year I will be 54 years old and will have 25 years in at the fire department. At that time I can retire without penalty based on years of service. The last benefit statement I received, back in August 2021, estimates my monthly benefit of 85% of my pensionable salary will be $5,851 per month. That figure is based upon an average of my salary over the last 5 years. Each year longer I go adds another 5% up to a max of 100%.

That estimated benefit is lower than what my actual benefit will be because that average includes a hit I took to my pay while out on worker's comp. That period of several low months of pay just fell off from my average. The monthly benefit figure also does not factor in a 6% raise I received in September 2021, an 8% raise I received in October 2021 and a 3% raise I will receive April 2022. Obviously the impact of those bumps in pay will be minimal as they will be in effect for such a short time before I go into DROP, if I enter it at my earliest eligibility.

Those figures above do not include a separate $900 per month retirement benefit from the fire dept. which is completely independent of any pay scale, although that separate monthly benefit will rise by $12.50 per month for each month I delay going into DROP.

The pension board will provide me with a solid figure at the time I make the election to retire and enter DROP. Anytime before that point is nothing more than an inexact estimate unless I want to pay $800 for the actuary. I'm estimating my final number to be just under $7000 per month.

Here's where I go back and forth debating what makes the most sense for me: Every month longer I defer retirement adds to my monthly benefit. That 85% number will increase by 5% for each additional year I delay going into DROP. I could stay for up to 28 years for the full 100% of my last 5 years of pay as my monthly benefit and then go into the DROP. No matter when DROP is entered the maximum allowed time is 5 years. One cannot do anymore time than 5 years in DROP. Had I started my career at a younger age I certainly could have done the full 28 + 5 for a total of 33 years. Having started at 29 years old works against me in that regard.

Using round numbers that are easy for me, if my salary is $90,000, each extra year I stay, up to 3 years, adds another $4,500 per year to my benefit. That's another $375 per month as benefit until I die. On the other hand, each month of DROP will be almost $7,000 per month into my DROP investment account.

So do I delay DROP by a year to help my average, including a 6% bump I'll receive October 2022, to get roughly an extra $4,500 or so per year or do I jump into DROP ASAP and tuck away $7,000 per month? That's $84,000 put into the investment account in a year. The way I am looking at things is I would need to receive the $4,500 increase in benefit for over 18 years before it would equal the benefit of a single year in DROP.

Another thing to consider is that I will receive a 3% COLA annually starting at year 6 after retirement. That 6 year clock starts ticking at the time I enter DROP even though I will still be working collecting my normal paycheck. A paycheck that will be inflated by 8.75% because once in DROP I'm no longer contributing to my pension. I plan to put that 8.75% into my taxable Schwab account as I already am maxing out my 457 and Roth IRA.

Although the longer I work the less time I will need to pay out of pocket for health insurance before reaching medicare eligibility, I am anxious to retire and move away from my current area. A few years ago I would have told you my goal was to reach full retirement without penalty and leave without even doing DROP. As I type this I hope I don't get drawn in by the money and stay for even the full DROP of 5 years. With that in mind, I think it's unarguable that each month in DROP is better than a month not in DROP, meaning if I know I'm going to do any less than the full 5 years in DROP, I need to jump in at the first opportunity. If I had it in me to do another year or two before entering DROP and still had the fuel to press on for a full 5 in the DROP, that would make sense.

I'm now starting to ramble here at the end. I'd be interested to know how the rest of you look at this as to when I should pull the trigger? October of this year or delay?
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Old 01-14-2022, 01:08 PM   #2
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Tough question! When does one get off the accumulation train and board the distribution train? That's why I model my specific situation on FireCalc, Fidelity's Retirement Planner, i-ORP, and other programs. I want to see the probability of success they predict for me. Have you modelled your specific situation, and what do they say about your probability of success? You only described your pension. What about the other two legs of the stool, SS and your nest egg? Put them all in a reputable model, or pay someone reputable to do it for you, and see what it/they says. Doing that gave me a much better comfort level for when I can switch trains.
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Old 01-14-2022, 01:19 PM   #3
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There are other factors at play, like how much you like or hate your job, whether you can live on what you would receive if you retired now, your health and physical capabilities, how greedy you are, etc.

For example, if you dislike your job and can easily live on your pension if you retire now then I would say go... of if you have significant health issues and can live on your pension if you retiren now then I would say go.... etc.
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Old 01-14-2022, 01:29 PM   #4
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First of all, let me thank you for a lifetime of public service. You're coming out of a profession that sees the best in people and sometimes the worst of society. My hat's off to you.

You mentioned that you were out on workman's compensation at one point. I assume that was a job related injury, and did you come out of that fine? Are you holding up physically relative to being 54 years old in what can be a physically demanding job from time to time?

And you said you'd like to relocate elsewhere. Are you considering moving to a less expensive place to live--as you might make up for a slightly reduction in yearly income? Do you have enough interests to keep you busy in Early Retirement?

Your fire department pays a lot more than they do locally. Out in our county, it's all volunteer fire departments. If the job's getting on your nerves, go for ER.

My close friend just retired at the Nashville Metropolitan Fire Department as Asst. Fire Chief/Battalion Commander. He must have enjoyed it, as he must have had 47 years on the job @ 70 years old. My other buddy was the Fire Chief, and he retired 2 years ago.
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Old 01-14-2022, 02:15 PM   #5
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It depends, only you can answer this.
What are your spending needs/budget and how much other investment monies to you have to pull from? If your pension and a 3-3.5%(less than 4 due to your younger age) WD from investments would cover your budget, you want to retire and move, Go for it Now!

If you need to work longer to meet your spending needs, then either choose to work longer or reduce your spending.

How badly do you want to retire now?
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Old 01-14-2022, 05:53 PM   #6
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Thank you all for the feedback.

Latexman, I've played around with FIRECalc some. I will try some of those other calculators you mention. I feel there are so many unknowns that I may not be putting good data in to the calculators when it comes to projected future spending.

I do at least have concrete numbers on what my expenses have been. Looking backwards starting with 2021 I spent $36,456, $46,145, $39,144, and $58,022 in 2018. I try to live below my means so I can sock more away to make up for lost time and recover from some bad situations. I fear a lot of unknown future expenses.

Bamaman, thank you for the kind words. Although I am good at my profession I humbly admit that I am blessed to have done so well for having no more than a high school education. I was on a bad path. A nights & weekend fire school class over 6 months, a semester long EMT class, and then a 10 month paramedic class after I was hired has taken me to a better place than where I would otherwise be.

My workers comp issue was cardiac related. I'm now good following a successful cardiac ablation.

pb4uski, I'm in better shape than most of my peers around my age. I am anxious though to move out of Florida.

pacergal, my motivation to retire increases when it's summertime again here in Florida
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Old 01-14-2022, 06:02 PM   #7
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You're sort of in the catbird seat as your spending would be less than your pensions.

Are you eligible for SS? I'm guessing not.
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Old 01-14-2022, 06:08 PM   #8
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You're sort of in the catbird seat as your spending would be less than your pensions.

Are you eligible for SS? I'm guessing not.
I am indeed eligible for SS. Obviously I will have years of supporting myself without it until I reach the age to avail myself of the benefit.

Although I have concrete numbers of what I have spent over the past few years, there are some big future unknowns I don't have concrete figures for.
Right now I get great employer sponsored health insurance which cost me only $70 a month. When I separate from the department I'll be on my own for funding health insurance.
I currently have my cell phone and monthly cell service paid for. I'm thinking that'll cost me about $100/month once I retire.
I'm still driving my 1999 F-350 that I've had for almost 24 years and my 2013 Elantra that I purchased 5 years ago. Eventually I'll need a new vehicle. That will definitely come with a monthly car payment and higher insurance cost.
I enjoy some other perks that I don't currently pay for at present such as not paying for trash collection and not having to pay for the self defense insurance I carry. When I retire and move those will be small expenses I need to consider.
I also save on utilities currently by being at the fire station 24 to 48 hours at time. When I'm on duty the A.C. is not running and electricity and water are not being used.
The biggest expense I'm guessing on is housing cost. I've been renting for the past 5 years. Back then who could have predicted that the real estate market would have blown up like it has? In the time I have been renting my monthly rent has gone from $950 in 2017 to a current $1080. What I am paying is well below market and I am grateful. For my calculations in FIRECalc I am figuring a monthly mortgage payment of $1,500. I have no idea if that figure will be close to right.
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Old 01-15-2022, 03:23 PM   #9
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Also think about health insurance to carry you over til 65. Fidelity, and other calculators, make you specify detailed expenses. Good luck and thanks for serving the public!
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Old 01-15-2022, 03:52 PM   #10
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I'd head over to ssa.gov to get estimates on what you will get for social security. Include that in firecalc. At a quick glance, if you have $80K/year income and $40K-$60K in expenses, you are set. ACA will guarantee insurability, but it is a little spendy. You can get good estimates out there though. I use an estimate of $1500/month, but it can vary widely (and deductibles can be high).

If you are going to get a mortgage, most of the time you will need to put something down - figure 20%, so $500K house will cost $100K up front plus closing costs. You can do it cheaper, but I'd be conservative on down payment. Obviously, home prices depend on where you want to live, and will vary wildly. But a $400K note at 30 years is in the $1,500 range (you have to add property taxes & insurance, which also vary wildly). Point being, you'd need some cash to make that happen. And I have no idea what kind of loan you could qualify for on $80K income. My wild guess is in the $350K range.

I'd do all that math based on pulling the ripcord in October and see if it works. If it does, happy trails!
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Old 01-15-2022, 05:23 PM   #11
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I am indeed eligible for SS. Obviously I will have years of supporting myself without it until I reach the age to avail myself of the benefit.

Although I have concrete numbers of what I have spent over the past few years, there are some big future unknowns I don't have concrete figures for.
Right now I get great employer sponsored health insurance which cost me only $70 a month. When I separate from the department I'll be on my own for funding health insurance.
I currently have my cell phone and monthly cell service paid for. I'm thinking that'll cost me about $100/month once I retire.
I'm still driving my 1999 F-350 that I've had for almost 24 years and my 2013 Elantra that I purchased 5 years ago. Eventually I'll need a new vehicle. That will definitely come with a monthly car payment and higher insurance cost.
I enjoy some other perks that I don't currently pay for at present such as not paying for trash collection and not having to pay for the self defense insurance I carry. When I retire and move those will be small expenses I need to consider.
I also save on utilities currently by being at the fire station 24 to 48 hours at time. When I'm on duty the A.C. is not running and electricity and water are not being used.
The biggest expense I'm guessing on is housing cost. I've been renting for the past 5 years. Back then who could have predicted that the real estate market would have blown up like it has? In the time I have been renting my monthly rent has gone from $950 in 2017 to a current $1080. What I am paying is well below market and I am grateful. For my calculations in FIRECalc I am figuring a monthly mortgage payment of $1,500. I have no idea if that figure will be close to right.
If you have an idea where you will be living once you retire, you can get an idea of your cost of health insurance by going to healthsherpa.com

We have a very good Motorola G7 Play cellhone that was a one time cost of less than $200 and our airvoicewireless plan (AT&T network MVNO) costs $18/month for unlimited talk and text and 3GB of data (1.5GB high-speed and 1.5GB reduced speed) so cost will largely depend on your data needs.

For housing, look at ads for rentals in the area you think you'll be settling in.

You might look at FIRECalc. You'll input your pension, SS and any retirement savings that you have and then use the Investigate tab to calculate your maximum safe spending at a given success rate (default is 95% and I would not go any lower than that).
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Old 01-15-2022, 05:34 PM   #12
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I'd head over to ssa.gov to get estimates on what you will get for social security. Include that in firecalc. At a quick glance, if you have $80K/year income and $40K-$60K in expenses, you are set. ACA will guarantee insurability, but it is a little spendy. You can get good estimates out there though. I use an estimate of $1500/month, but it can vary widely (and deductibles can be high).

If you are going to get a mortgage, most of the time you will need to put something down - figure 20%, so $500K house will cost $100K up front plus closing costs. You can do it cheaper, but I'd be conservative on down payment. Obviously, home prices depend on where you want to live, and will vary wildly. But a $400K note at 30 years is in the $1,500 range (you have to add property taxes & insurance, which also vary wildly). Point being, you'd need some cash to make that happen. And I have no idea what kind of loan you could qualify for on $80K income. My wild guess is in the $350K range.
Thank you for weighing in. I've been using an estimate of $1,500/month for SS although I am predicting a bigger payout. I'm consciously figuring income/assets conservatively.

You mention the ACA option. I've run some stuff on HealthSherpa using ZIP codes of the LCOL area I am looking to head to. The extremely low monthly premiums being displayed on the site seem unrealistic. My plan is to call an insurance broker in that area to see what to truly expect.

Your comment about financing a mortgage resonates. Not figured into the assets I'm putting into FIRECalc is about $200K (at present and slowly growing) earmarked for a house. My thought is to put down as much as needed to achieve a $1,500-ish monthly mortgage payment. What is left over can in part be used for needed renovations. The other part will be emergency cash reserve.

I believe the right answer for me is to enter DROP at my earliest eligibility, 10/1/22. It's just that if there's something I'm overlooking, not planning adequately for or otherwise just get it wrong, there's no going back.
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Old 01-15-2022, 05:37 PM   #13
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...You mention the ACA option. I've run some stuff on HealthSherpa using ZIP codes of the LCOL area I am looking to head to. The extremely low monthly premiums being displayed on the site seem unrealistic. My plan is to call an insurance broker in that area to see what to truly expect. ...
In my experience, healthsherpa is usually pretty good. The low premiums that you are seeing may be due to the income that you provided resulting in significant ACA subsidies... if you input $500k of income then you'll see the unsubsidized monthly premium.
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Old 01-15-2022, 06:20 PM   #14
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Making sure I understand your pension decision

if you go another 3 years past October, your pension will be another $12K a year? That is a significant amount of coin.

I would take an inventory of what you want to do in retirement and see if there are hobbies or things including the new car you want

then you need to evaluate those things against how badly you want out and can you afford it

if you decide you want to go for 3 more years, that gives you time to plan. Plan for hobbies, plan for expenses, plan for a move to Florida

It isnt a Binary decision, now or 3 years. Only you can trade all the factors and determine what the right balance is to lay out a secure future
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Old 01-15-2022, 08:06 PM   #15
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Making sure I understand your pension decision

if you go another 3 years past October, your pension will be another $12K a year? That is a significant amount of coin.

if you decide you want to go for 3 more years, that gives you time to plan. Plan for hobbies, plan for expenses, plan for a move to Florida

It isnt a Binary decision, now or 3 years. Only you can trade all the factors and determine what the right balance is to lay out a secure future
I think your understanding is kind of right but not exactly. You are correct that it is not a binary decision.

I can leave as early as 10/1/22...I won't.

I can get in DROP 10/1/22 or anytime within the next 3 years from that date. Once in DROP, regardless of when I get in, I can stay in for up to 5 years. The crux of the matter is deciding when to stop building my monthly pension benefit and rather build my DROP earnings?

Any single month in DROP is more beneficial than any single month not in DROP. If I had it in me to do 3 more years building my pension for the additional pay out you cite of $12k a year (it would likely be closer to $14K) and still had the steam to go another full 5 in DROP, that would be the best scenario financially. I cannot see myself doing another 8 years.

Repeating part of my opening post, if I delay DROP by a year to help my average I'll get roughly another $4,500 or so for that extra year of building my pension.

If I jump into DROP ASAP I'll accrue about $7,000 per month each and every month. That's $84,000 put into the investment account in a year. As that investment account builds by a deposit of $7K per month I can decide if I want to leave in 6 months, a year, 2 years, or go all the way to the full 5 years.

The way I am looking at things is I would need to receive the $4,500 per year pension benefit increase for over 18 years before it would equal the benefit of a single year in DROP.

Another thing to consider is that I will receive a 3% COLA annually starting at year 6 after retirement. That 6 year clock starts ticking at the time I enter DROP even though I will still be working collecting my normal paycheck. The quicker I can get the COLA the quicker I make up in part for not padding my pension with extra years.
Once in DROP my paycheck will be inflated by 8.75% since I'm no longer contributing to my pension. I plan to put that 8.75% into my taxable Schwab account. That further mitigates the additional $4500 per year I won't be getting for not staying the additional years before entering DROP.

I don't know if I explained myself any better, or maybe you do understand it and I'm not seeing the forest for the trees.

Oh, and I want to move OUT of Florida.
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Old 01-15-2022, 09:42 PM   #16
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I think your understanding is kind of right but not exactly. You are correct that it is not a binary decision.

I can leave as early as 10/1/22...I won't.

I can get in DROP 10/1/22 or anytime within the next 3 years from that date. Once in DROP, regardless of when I get in, I can stay in for up to 5 years. The crux of the matter is deciding when to stop building my monthly pension benefit and rather build my DROP earnings?

Any single month in DROP is more beneficial than any single month not in DROP. If I had it in me to do 3 more years building my pension for the additional pay out you cite of $12k a year (it would likely be closer to $14K) and still had the steam to go another full 5 in DROP, that would be the best scenario financially. I cannot see myself doing another 8 years.

Repeating part of my opening post, if I delay DROP by a year to help my average I'll get roughly another $4,500 or so for that extra year of building my pension.

If I jump into DROP ASAP I'll accrue about $7,000 per month each and every month. That's $84,000 put into the investment account in a year. As that investment account builds by a deposit of $7K per month I can decide if I want to leave in 6 months, a year, 2 years, or go all the way to the full 5 years.

The way I am looking at things is I would need to receive the $4,500 per year pension benefit increase for over 18 years before it would equal the benefit of a single year in DROP.

Another thing to consider is that I will receive a 3% COLA annually starting at year 6 after retirement. That 6 year clock starts ticking at the time I enter DROP even though I will still be working collecting my normal paycheck. The quicker I can get the COLA the quicker I make up in part for not padding my pension with extra years.
Once in DROP my paycheck will be inflated by 8.75% since I'm no longer contributing to my pension. I plan to put that 8.75% into my taxable Schwab account. That further mitigates the additional $4500 per year I won't be getting for not staying the additional years before entering DROP.

I don't know if I explained myself any better, or maybe you do understand it and I'm not seeing the forest for the trees.

Oh, and I want to move OUT of Florida.
You've demonstrated that you can live on roughly half of your future pension. You also indicated that you've had cardiac issues. DW and I were Florida teachers and she DROP'd ASAP. For a year we ran the numbers over and over and decided to pull the plug a year later when I was 55 1/2. She was in DROP for 2 years. Our numbers are roughly equivalent to yours and that's not including S.S. We did own our Miami home which we traded for a lovely 1940's era one in Eastern Washington. Absolutely no regrets. Loved our time in Florida but are really glad that we escaped. Our stress levels dropped immediately, COL is far less, we love exploring our new region, and we travel regularly.

You're currently living on 1/2 your projected pension and that doesn't include S.S. Were I in your shoes I'd wait until 55.5 so I could tap my tax deferred accounts say sayonara, and enjoy the rest of your life.
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Old 01-15-2022, 10:30 PM   #17
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I think your understanding is kind of right but not exactly. You are correct that it is not a binary decision.

I can leave as early as 10/1/22...I won't.

I can get in DROP 10/1/22 or anytime within the next 3 years from that date. Once in DROP, regardless of when I get in, I can stay in for up to 5 years. The crux of the matter is deciding when to stop building my monthly pension benefit and rather build my DROP earnings?

Any single month in DROP is more beneficial than any single month not in DROP. If I had it in me to do 3 more years building my pension for the additional pay out you cite of $12k a year (it would likely be closer to $14K) and still had the steam to go another full 5 in DROP, that would be the best scenario financially. I cannot see myself doing another 8 years.

Repeating part of my opening post, if I delay DROP by a year to help my average I'll get roughly another $4,500 or so for that extra year of building my pension.

If I jump into DROP ASAP I'll accrue about $7,000 per month each and every month. That's $84,000 put into the investment account in a year. As that investment account builds by a deposit of $7K per month I can decide if I want to leave in 6 months, a year, 2 years, or go all the way to the full 5 years.

The way I am looking at things is I would need to receive the $4,500 per year pension benefit increase for over 18 years before it would equal the benefit of a single year in DROP.

Another thing to consider is that I will receive a 3% COLA annually starting at year 6 after retirement. That 6 year clock starts ticking at the time I enter DROP even though I will still be working collecting my normal paycheck. The quicker I can get the COLA the quicker I make up in part for not padding my pension with extra years.
Once in DROP my paycheck will be inflated by 8.75% since I'm no longer contributing to my pension. I plan to put that 8.75% into my taxable Schwab account. That further mitigates the additional $4500 per year I won't be getting for not staying the additional years before entering DROP.

I don't know if I explained myself any better, or maybe you do understand it and I'm not seeing the forest for the trees.

Oh, and I want to move OUT of Florida.
Thanks for the updated explanation. I have never heard the term DROP before so I was confused. Sounds like you have it well understood. The nice thing about the $84K you cite in a year is it can also grow. You also said thee Pension has a Cola adjustment. Thats nice, wish mine had that.

Maybe I missed it but you didn't mention if you were married and how that would impact social security later on or kids college fund etc.

One thing about being married is your wife would get 50% of your benefit while you are alive as a spousal benefit. My wife is a homemaker so that gives us an unexpected raise when we collect at 67.
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Old 01-16-2022, 05:37 AM   #18
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I have never heard the term DROP before so I was confused.
DROP stands for Delayed Retirement Option. Or Dinosaurs Residing On Payroll.

While in DROP I will continue working at my job. My retirement benefit will be going untaxed into an investment account. My regular paycheck will continue and be bolstered by the 8.75% that is no longer being deducted for my retirement contribution.
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Old 01-16-2022, 06:00 AM   #19
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Originally Posted by OldConch View Post
DW and I were Florida teachers and she DROP'd ASAP. For a year we ran the numbers over and over and decided to pull the plug a year later when I was 55 1/2. She was in DROP for 2 years. Our numbers are roughly equivalent to yours and that's not including S.S.

Were I in your shoes I'd wait until 55.5 so I could tap my tax deferred accounts say sayonara, and enjoy the rest of your life.
Thank you for that experience. It appears you see the things the same way I'm seeing them, that getting in DROP as early as possible makes sense. I'm sure you saw exponential asset growth via DROP versus what had been being saved without DROP.

Regarding the 55.5 benchmark, things are a little different for firefighters because of documented rates of us dying quicker than most of the population. I have a 457 that can be accessed without penalties upon separation from my employer. The DROP money can be accessed without penalty if the person delayed entering DROP until the year they turn 50 years old. Due to the late age I started my career, that's not an issue for me. I'm not sure of what penalties may be for accessing my Roth IRA funds. My plan though is to not access any of those items but rather use a large portion of the cash funds I have been saving for a new house and perhaps augment things with money from my taxable Schwab account, if needed.
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Should I Delay DROP?
Old 01-16-2022, 08:32 AM   #20
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Should I Delay DROP?

Do WEP and GPO apply to you? It’s a formula used to adjust Social Security worker benefits for people who receive “non-covered pensions.” Look into this as they can substantially affect SS benefits. State workers, municipal workers and teachers who both have pensions and live in certain states often are unpleasantly surprised.
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