55 and Semi-Retired as of November 1, 2012

[ChateauJoe]

Like many others I have been following this forum for several months but this is my first post. This forum has been very helpful over the past few months and as I have been researching early retirement issues.

Here is my situation. I turned 55 this year. I work in management for a local government. Like many governments, businesses and individuals, we have had to tighten our belts during this great recession. We have been fortunate to not have to make any layoffs, but we have substantially reduced the work force by attrition over the past few years. The local government recently offered an early retirement incentive program to further reduce costs which many employees including myself took advantage of. Several positions are not being filled and others including myself were offered the opportunity to work in their previous positions on a part-time or contractual basis. My plan is to begin part-time work on December 1, 2012.

I recently read the book "Work Less, Live More" by Bob Clyatt and have to say that this is the philosophy that I would like to subscribe to for the next few years. I'm not ready to completely retire, but would like to slow down a bit and hopefully this arrangement will offer me the opportunity to continue to work but enjoy life a little more as I transition into retirement.

Here are some of my financial specifics. My pension will be approximately $4,400 per month (non-COLA). I have approximately $400,000 in 401/IRA and taxable accounts (30% equities, 30% fixed income and 40% short-term). I still have a home with a mortgage which was purchased in 2005 but have a very low interest rate (3.25%). My girlfriend and I also have a mountain home with a very low mortgage balance and low interest rate (3.5%) which we plan on spending many weekends with my reduced work schedule. I don't have any other debts (credit cards, car loans, etc.) I should continue to earn about $75K annually in my part-time capacity which I plan to maximize my 401K and Roth IRA (including catch up contributions) over the next few years. I have used several retirement calculators and all indicate that I should be fine with this arrangement. I had hoped to have a little more saved up by this point in my life, but several minor set backs (divorce, real estate investments, etc.) have had an impact on my asset accumulation. I have health insurance available through by employer with the employer paying approximately 75% of my individual premiums. I'm in good shape health wise.

I do have an opportunity to purchase an additional five years of service credit prior to my official retirement date. The credit will costs me $101,000 but would generate another $950 per month ($11,400 annually) in my pension benefits. This seams like a very good return on my investment, much better than I could get anywhere else including the stock market. One concern that I have is using $101,000 of 401K/IRA funds to purchase these credits reducing my overall cash balance and the fact that I would be putting so much emphasis on the pension plan for the future. My local government is in good financial shape, but there are not guarantees that this pension will be around forever. I would appreciate input on this.

It is good to finally post on the forum and I enjoy reviewing the different topics and posts. I'm looking forward to my new semi-retirement lifestyle.

Chateau Joe

 

[pb4uski]

That's a tough one. As you probably know, the pricing of your pension credit is outrageously attractive. You didn't say where you lived but a SPIA with a $950 non-COLA monthly benefit would cost $204 - $215k depending on where you live according to immediateannuities.com.

On the other hand, your retirement future would be very concentrated in your pension and it would seriously deplete your retirement investments so if for some reason your pension were to fail you would be SOL.

Do you have SS as well?

 

[ChateauJoe]

I live in the Southeast and I do have SS.

 

[obgyn65]

Welcome to the forum, ChateauJoe.

 

[Milton]

I am a bit leery about having so many eggs in one basket. However, if you are confident that your planned part-time work will bring in $75,000 annually, that gives you some extra insurance; so on balance I'd say that the extra pension income is probably worth the risk.

I do have an opportunity to purchase an additional five years of service credit prior to my official retirement date. The credit will costs me $101,000 but would generate another $950 per month ($11,400 annually) in my pension benefits. This seams like a very good return on my investment, much better than I could get anywhere else including the stock market.

It is sweetheart deals like this that are responsible for much of the resentment that private sector workers feel towards public sector employees (no offence meant Joe, I can't blame you for taking advantage of whatever entitlements you have). I doubt that this sort of thing can continue much longer: it's just too difficult to justify to taxpayers in these challenging economic times.

 

[pb4uski]

I think what I would do in your situation is buy the pension credits and then save more of your part time income to replenish the $110k reduction in the nestegg. This assumes that the pension is well funded and you have confidence in the pension payments.

 

[Mulligan]

Fwiw- I was able to buy 4 services at a very advantageous return also, and I had less assets than you did. But I pretty much had to double down because I would never have enough assets to fund a self sustaining retirement anyways. I bought mine before the meltdown problems from 5 years ago, but would probably do it again today anyways. That rate of return is very tempting. And anyways, if you stay on the pt job for 2 years, you have more than paid back the $100k "loan" you gave to yourself to purchase the years.

 

[Katsmeow]

I do have an opportunity to purchase an additional five years of service credit prior to my official retirement date. The credit will costs me $101,000 but would generate another $950 per month ($11,400 annually) in my pension benefits. This seams like a very good return on my investment, much better than I could get anywhere else including the stock market. One concern that I have is using $101,000 of 401K/IRA funds to purchase these credits reducing my overall cash balance and the fact that I would be putting so much emphasis on the pension plan for the future. My local government is in good financial shape, but there are not guarantees that this pension will be around forever. I would appreciate input on this.

Do you have to withdraw the money from your 401k/ira to purchase the pension credit? If so you have to factor in taxes and penalty when you withdraw that much money.

 

[ChateauJoe]

No. There are no penalties or taxes on transferring funds.

 

[WestLake]

Wow You have a sweet deal with the insurance and pension. $75K part time? Where do I apply?

 

[ChateauJoe]

Thanks to everyone for the comments and advice. I have decided to go ahead and purchase the service credits with the plan to work part-time for the next two years or a little longer if needed. Hopefully, with the catch up provision, I can get my IRA/401 accounts back to where they were before the purchase.

Thanks again. This is a great forum!
Joe