Foolish to delay pension one year?

[badatmath]

Foolish to delay pension a year to make $172 a month more?
Everyone is telling me so. . . what do you say.

Retiring due to outsourcing at 55. Or at least laving this employer. (IDK how you even get a job after 30+ years at the same place when your work is kind of specific.)

I thought perhaps I could live off PTO payout for a year and then take the pension since I can't get 5% easily if I put the PTO money somewhere. It should actually come out to be more than the pension does but I don't have an exact figure.

Pretty much without exception everyone I know has told me that is the stupidest thing they have ever heard of.

There is no requirement I can't change my mind in 6 months or anything like that either. Biggest disadvantage I see other than it is making me anxious to have no pay coming in is that how to pay for the retiree health is yet to be determined. I have gotten a couple different answers from benefits and am fairly sure it can be worked out but of course having it come straight out of pay is easier.

If anyone is wondering it would go up 5% the next few years as well but not really down with taking from 401k yet though I'd consider taxable so for today I am only asking about this period.

 

[jazz4cash]

Impossible to say without knowing base amount. You can easily run breakeven calculation. For comparison sake many folks delay SS to get 8% increase per year which is considered a great deal. You could also compare the cost to buy $172/mo using a SPIA.

 

[JoPeter57]

I throw out some silly numbers. If your monthly pension (before waiting the year) is $2000 or less....I would wait the year out. If it's $3000 or more a month today....take the pension now. btwn 2000 and 3000, I'm not smart enough to make a decision, but I'm leaning to taking it today.

 

[badatmath]

Oh I guess my edit left off the approximate amount. $2100 a month or $2272/month gross.

The PTO is subject to change for a variety of reasons but should be more like idk 30K-40K. It should pay out at the 10% more than the salary due to shift work but they can always find a way around things.

I have break even at 68 in my head but IDK that tells me much.

 

[JoPeter57]

Is it 2100 today and 2272 a year from now? Because that's exactly a $172 difference.

 

[badatmath]

Is it 2100 today and 2272 a year from now? Because that's exactly a $172 difference.

Yep. Should be close but last years numbers are not in yet for HR so best I got. I don't get that as being 5% but it is what they say.

 

[stepford]

This may depend on tax rates. Do you get any severance or unemployment benefits during that first year? I actually did delay my pension for a year after retirement (for a similar 7% increase). The breakeven time was far enough out to make the delay not worthwhile in and of itself.

However, because of severance and unemployment I was still in a relatively high tax bracket in my first year and would only have netted a bit more than half of that first year's pension had I taken it. Delaying to the next year lowered my tax rate significantly and allowed me to keep a commensurately larger fraction of the pension. This was (just) enough to make the delay worth it for me.

 

[badatmath]

This may depend on tax rates. Do you get any severance or unemployment benefits during that first year?

No severance or unemployment per se but the PTO lump sum is kind of taking its place in this setting. I have around 800 hours due to be paid out. 3 months of normal salary as well as a bonus of maybe 10k. I almost sound like a good employee don't I i get a raise the next couple paychecks. But this was a sizable layoff by job function and I was not safe unless I wanted to rebadge to the offshore firm. Rebadging would have been temporary at best and would have cost my retiree health benefits so it was a "no".

Hoping to get the bonus in the 401k. Not allowed to put the PTO in there because it is not normal pay according to them.

Not entirely sure why everyone thinks I am nuts to consider this. Maybe the rest will use their PTO to BTD.

 

[38Chevy454]

Break even cross over calculation: 2100 x 12 months = $25200. $24000 / $172 = 146.5 months. 146.5 months is 12.2 years.

Since you are 55, there is good chance you will live more than 12.2 years additional. But given that you are wanting to pay for medical insurance out of company payments, it seems a lot easier to just take pension now and be an official pension recipient, with your medical co-pay taken out of your pension payment. Plus you can let the 401k withdrawals wait to start.

I would take the pension starting when you formally leave. Use the PTO payout to supplement your pension ($2100 less medical) until it runs out. Then next year or whenever PTO money runs out, you can start taking 401k withdrawals since you won't have this year's W-2 income.

 

[badatmath]

Thank you 38.

A good chunk of my family has not reached 60 but I am in average health I suppose. Trying to get blood pressure down ad the meds are not working.

I think neither taking or delaying is glaringly wrong but I was not expecting this to end quite this way and had no plan. Working out the pto at regular pay while earning more pto and paying employee rates was the original plan.

 

[W2R]

Foolish to delay pension a year to make $172 a month more?
Everyone is telling me so. . . what do you say.

Whatever you decide, I think it's YOUR decision, not theirs. I'm sure you agree. So do your best to make the decision you'll feel OK with, and then accept that as the best decision for you. And then in my opinion, if those other people disagree with you, they can just take a hike! It's your life, your retirement.

In my case, if I had retired at 62 rather than retiring 7 months earlier (as I did), then I think I would have got something like $21/month more in my pension. I decided not to wait. I haven't regretted my decision at all. But your case is different.

 

[badatmath]

Thanks W2R. I think everyone at w*rk is still shell shocked our conversations kind of reflect a lot more 2nd guessing on this stuff than normal.

 

[Cortina]

Interesting ..... (semi interesting) : In the UK rules are different - State pension (and note - all figures are approximate here) begins currently at age 66. Delay by a year gets you 5.5% more , and this continues ,year on year (ie 2 years gets you either 11% or 5.5% of 5.5% ... a bit more , and lots more compounded over years and years)
I think people who take this option either have NOT thought it through , or they are just very poor at mathematics. Rate is approx $250 per week. Earliest Break Even point is around 18 years if you delay for a year .... = age 84 !! (Maybe they know something others don't ??)

 

[DrRoy]

Break even cross over calculation: 2100 x 12 months = $25200. $24000 / $172 = 146.5 months. 146.5 months is 12.2 years.

Since you are 55, there is good chance you will live more than 12.2 years additional. But given that you are wanting to pay for medical insurance out of company payments, it seems a lot easier to just take pension now and be an official pension recipient, with your medical co-pay taken out of your pension payment. Plus you can let the 401k withdrawals wait to start.

The math here is correct, although it does not take inflation into account. Since the future $ is worth less, the payout is actually somewhat longer in real terms.

 

[pb4uski]

Is it 2100 today and 2272 a year from now? Because that's exactly a $172 difference.

IMO, smart, not foolish.

Think of it this way. You forgo $[-]2,200[/-]2,100/month for 12 months so that is $[-]26,400[/-]25,200. But you get $172/month or $2,064/year for the rest of your life. That is a [-]7.8[/-]8.2% payout rate.

According to immediateannuities.com a commercial SPIA for a 56yo male in AZ has a 6.46% payout rate and 6.30% for a female... delaying for a year is a good deal IMO.

Or put another way, $[-]26,400[/-]25,200 would buy a SPIA that pays $[-]142[/-]136 for a male or $[-]139[/-]132 for a female and you would be getting $172. Good deal.

Assumes that you are of average health/longevity.

ETA: Fix my early morning faze miscalculation.

 

[finnski1]

IMO, smart, not foolish.

Think of it this way. You forgo $2,200/month for 12 months so that is $26,400. But you get $172/month or $2,064/year for the rest of your life. That is a 7.8% payout rate.

According to immediateannuities.com a commercial SPIA for a 56yo male in AZ has a 6.46% payout rate and 6.30% for a female... delaying for a year is a good deal IMO.

Or put another way, $26,400 would buy a SPIA that pays $142 for a male or $139 for a female and you would be getting $172. Good deal.

Assumes that you are of average health/longevity.

I agree. And technically it is a little better than you stated because it is really $25200 not $26400 so probably less than 142/month annuity making the contrast better.

 

[ERD50]

Foolish to delay pension a year to make $172 a month more?

Everyone is telling me so. . . what do you say.....

Pretty much without exception everyone I know has told me that is the stupidest thing they have ever heard of.
....

Those people have no idea what they are talking about. Most people have no idea what they are talking about when it comes to a decision like this. I see you didn't share any of the reasons they think it is stupid. I'd bet that is because they have not actually worked out the reasons, it's just a (wrong) gut instinct.

It is a decision with some pros and some cons (as discussed by others). But no way is it stupid or foolish to delay under normal circumstances. Any "stupid/foolish" comment applies to those making the claim, not the decision to delay.

I didn't see it mentioned - are there survivor benefits to consider? If so, that moves the decision more towards "delay".

-ERD50

 

[MarieIG]

No - not foolish. As usual, PB did the math (posts #15 & 19).

You also have your PTO and, IIRC, a small stream of dividends.

Did you look into whether you qualify for unemployment?

P.S. Yes, it is possible to get another job at your age - although you may not get the same salary. On the plus side, you have some breathing room due to the PTO and the healthcare and may decide to take a part time job to delay or mitigate withdrawals.

 

[pb4uski]

I agree. And technically it is a little better than you stated because it is really $25200 not $26400 so probably less than 142/month annuity making the contrast better.

Good catch... pre-coffee fog... that's my story and I'm sticking to it. Updated the numbers in my prior post.

 

[pb4uski]

Those people have no idea what they are talking about. Most people have no idea what they are talking about when it comes to a decision like this. I see you didn't share any of the reasons they think it is stupid. I'd bet that is because they have not actually worked out the reasons, it's just a (wrong) gut instinct.

It is a decision with some pros and some cons (as discussed by others). But no way is it stupid or foolish to delay under normal circumstances. Any "stupid/foolish" comment applies to those making the claim, not the decision to delay.

I didn't see it mentioned - are there survivor benefits to consider? If so, that moves the decision more towards "delay".

-ERD50

Yup, the OP's work colleagues are bad at math.

 

[finnski1]

Good catch... pre-coffee fog... that's my story and I'm sticking to it. Updated the numbers in my prior post.

Hah. I was halfway thru my pot at the time so I understand completely.

 

[badatmath]

I see you didn't share any of the reasons they think it is stupid. I'd bet that is because they have not actually worked out the reasons, it's just a (wrong) gut instinct.
.....
I didn't see it mentioned - are there survivor benefits to consider? If so, that moves the decision more towards "delay".
-ERD50

Really weren't any reasons just "WTH are you even doing? I'd never do that. You should save the lump sum or spend it on something fun."

Once i start drawing no survivor benefits. Until then they'd pay a lump sum. Not married, no kids.

PB, thanks for the math.

Marie, it will be coded as resigning by the employer for all under 55 and retiring if over 55 so no unemployment. They claim I was offered a job so I am choosing not to take it. True but it is not a job WITH THEM and came at a significant cost to my benefits.

Pension would continue to increase until I reached 62 but unless I win the lottery (I don't play) or get an inheritance I don't see that being realistic option as it would seem a poor choice to draw on 401k early if it could be avoided.

 

[Gryphon]

Not entirely sure why everyone thinks I am nuts to consider this. Maybe the rest will use their PTO to BTD.

They may be projecting their own anxieties on to you. A lot of people live paycheck to paycheck; if they found themselves unexpectedly out of a job they'd be desperate for any source of income. You can afford to take a bigger view that they perhaps cannot.

If I were in your shoes, I'd wait. A 1 year delay to get an extra 8% for life starting at age 56 seems like a great deal to me.

 

[ncbill]

I'd delay as well.

In today's labor market I'm sure the OP can find something to bring in income even if it's only for a year no matter how specialized their function at the job going away.

May also be eligible for unemployment.

 

[finnski1]

They may be projecting their own anxieties on to you. A lot of people live paycheck to paycheck; if they found themselves unexpectedly out of a job they'd be desperate for any source of income. You can afford to take a bigger view that they perhaps cannot.

If I were in your shoes, I'd wait. A 1 year delay to get an extra 8% for life starting at age 56 seems like a great deal to me.

I agree with all you said. It's typical. All those same people probably haven't prepared for retirement and are like the 90% (I made that number up)of the country in that same boat.

Unlike us all above average Lake Wobegon types on here.