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Taking Pensions - timing
Old 09-21-2016, 09:18 AM   #1
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Taking Pensions - timing

I have a couple of pensions (non-COLA'd) and I was trying to determine when to take them as I plan to retire in a couple of months (age 57). I built an Excel spreadsheet. Each pension value increased by about 4-5% per year until the date I start it. To help make the decision, I looked at the cumulative income from the pension based on when I started to take it. Further, I added the ability to add in inflation which changes the 'future value' of each pension.

For reference: Pension #1 = $9.6K at age 58, $11.2K at age 65

What I found was that the crossover point for taking the pension early next year, versus waiting up to age 70, was in my early 80's with no inflation and early 90's with 2.5% inflation. Further, if I looked at the average yearly income with no inflation (best case) the added income was only about $1K/yr even when waiting as long as possible to start!

So ... does this all sound like I calculated correctly?

Seems like I should start these ASAP as part of my income in early retirement.
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Old 09-21-2016, 09:24 AM   #2
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I am in a similar situation.

When I calculated the lost "opportunity cost" of having to spend down (by the pension amount) my savings, it showed that I should go ahead and take it ASAP.

Starting approx. now, mine (also non-COLA) only has a 2-3% per year increase if I waited, so that probably made it swing even more in that direction.
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Old 09-21-2016, 10:26 AM   #3
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DWs pension only penalizes ~ 3% per year for starting early relative to age 62. A huge early retirement subsidy from the MegaCorp. Actuarial fair values are more like 6-7%/ year.

My old Megacorp actually penalizes more than is actuarial fair for ages below 60.

Our strategy, of course, will be for DW to start her's early and for me to delay until 100% is payable.

If you are faced with an actuarial fair reduction, you still may wish to delay somewhat if you think you will beat the country "averages" for life expectancy (of which I expect here for many to do because of wealth, education, and social ties).

-gauss
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Old 09-21-2016, 01:05 PM   #4
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I'm wondering how you defer the pension past age 65 if you've terminated employment?
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Old 09-21-2016, 01:25 PM   #5
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Quote:
Originally Posted by Steelart99 View Post
I have a couple of pensions (non-COLA'd) and I was trying to determine when to take them as I plan to retire in a couple of months (age 57). I built an Excel spreadsheet. Each pension value increased by about 4-5% per year until the date I start it. To help make the decision, I looked at the cumulative income from the pension based on when I started to take it. Further, I added the ability to add in inflation which changes the 'future value' of each pension.

For reference: Pension #1 = $9.6K at age 58, $15.3K at age 70

What I found was that the crossover point for taking the pension early next year, versus waiting up to age 70, was in my early 80's with no inflation and early 90's with 2.5% inflation. Further, if I looked at the average yearly income with no inflation (best case) the added income was only about $1K/yr even when waiting as long as possible to start!

So ... does this all sound like I calculated correctly?

Seems like I should start these ASAP as part of my income in early retirement.
I had to make a similar decision recently. What made it more difficult for me is that I have been doing low tax cost Roth conversions over the last several years and starting my pension will reduce what I can do in Roth conversions dollar-for-dollar.

When I retired at 56 I obtained the benefit amounts at various ages from 56 to 65. For our plan, the benefits increased steeply from 55 to 60 (9.3% annually on average over that 5 year period) and less steeply thereafter (4.0% annually on average.... ranging from 4.6% if deferring from 60 to 61 to 3.5% if deferring from 64 to 65). As a result, I viewed 60 as the sweet spot.

Another view I took was whether the annual increase in the pension was attractive compared to the benefits I forfeited... as if I was buying an annuity for the increase in the benefits by forgoing a year of benefits. Under my plan, after 60 the increases became much less attractive and less attractive than SPIA pricing on immediateannuities.com, so I decided to start my pension and sent in the paperwork on Monday.
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Old 09-21-2016, 01:30 PM   #6
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Originally Posted by Big_Hitter View Post
I'm wondering how you defer the pension past age 65 if you've terminated employment?
Neither pension is deferred past the age of 65; you are correct and I updated the OP. Thanks
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Old 09-21-2016, 01:33 PM   #7
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Originally Posted by pb4uski View Post
I had to make a similar decision recently. What made it more difficult for me is that I have been doing low tax cost Roth conversions over the last several years and starting my pension will reduce what I can do in Roth conversions dollar-for-dollar.

When I retired at 56 I obtained the benefit amounts at various ages from 56 to 65. For our plan, the benefits increased steeply from 55 to 60 (9.3% annually on average over that 5 year period) and less steeply thereafter (4.0% annually on average.... ranging from 4.6% if deferring from 60 to 61 to 3.5% if deferring from 64 to 65). As a result, I viewed 60 as the sweet spot.

Another view I took was whether the annual increase in the pension was attractive compared to the benefits I forfeited... as if I was buying an annuity for the increase in the benefits by forgoing a year of benefits. Under my plan, after 60 the increases became much less attractive and less attractive than SPIA pricing on immediateannuities.com, so I decided to start my pension and sent in the paperwork on Monday.

I'll be juggling income needs/sources, possible ACA subsidies and Roth conversions over the next several years. I do wish there was an "easy" calculator to gave the correct answer ... sigh
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Old 09-21-2016, 07:10 PM   #8
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Originally Posted by gauss View Post
DWs pension only penalizes ~ 3% per year for starting early relative to age 62. A huge early retirement subsidy from the MegaCorp. Actuarial fair values are more like 6-7%/ year.

My old Megacorp actually penalizes more than is actuarial fair for ages below 60.

Our strategy, of course, will be for DW to start her's early and for me to delay until 100% is payable.

If you are faced with an actuarial fair reduction, you still may wish to delay somewhat if you think you will beat the country "averages" for life expectancy (of which I expect here for many to do because of wealth, education, and social ties).

-gauss
That's a pretty good deal. I thought mine was like that until I read the document and realized it was 3% per year PLUS the actuarial reduction so I will wait until normal retirement age (65).
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Old 09-22-2016, 07:38 AM   #9
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Originally Posted by jebmke View Post
That's a pretty good deal. I thought mine was like that until I read the document and realized it was 3% per year PLUS the actuarial reduction so I will wait until normal retirement age (65).
never seen that before - you sure you read the spd correctly?
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