take reduced pension at 55 or stay longer get more

[share88]

Just a theoretical question as I am not yet 55.

But my company allows you to retire at 55 with a reduced pension benefit which goes up a little (maybe 5% a year) til you reach their magical retirement age.

I have long thought I would do this but too far away to say with certainty yet.

What would you do?

[Regis]

It depends. If I had enough other retirement, in addition to the pension, to live out another 40-45 years, I'd take it. Otherwise, I'd keep working.

[The Walk of the Penguin Mich]

Depends wholly on the health insurance situation.

[philly1]

I have a similar situation. At age 50 I can retire with about $3000/mo pension plus my health insurance. But if I wait just 7 more years for full retirement that amount goes up to almost $5800/mo. I could live off of the lesser amount but it's a no brainer to stay for almost double the money. I mean I'll only be 57 at that point so more than likely I'll stay.

[Savoir Faire-Demogague in NJ]

I think the other key, besides having health insurance is if the pension has any sort of inflation/cost of living annual or periodic adjustment.
A $3000 per month pension benefit, will lose 1/5 of it's purchasing power in 10 years with merely a 2 1/2% inflation rate.

[alabamagal]

Also, when you retire young, you need money to keep you occupied. When you do not work, you have more time, which means more time to spend money. If you enjoy gold, you have more time to golf so more golf greens fees. Same for travel.

[Gardening Grandma]

What would I Do?

It depends on
1) Whether health ins was included
2) Whether the pension had a cola
3) How I felt about my job
4) What other resources/options I had

The longer the retirement period, the bigger the challenge of not outliving your savings. Learning to find activities and interests that are not expensive helps too. Not every retiree travels and plays golf... Some work part time, many volunteer, many garden, visit the library and socialize.

[Deleted]

I agree with GG's points!

Being able to retire early gives you the gift of time.

[TheOtherMe]

May 17, 2011 8:56:40 GMT -5 Gardening Grandma said:

What would I Do?

It depends on
1) Whether health ins was included
2) Whether the pension had a cola
3) How I felt about my job
4) What other resources/options I had

My pension includes health insurance
Pension has a COLA
I was ready to leave my job
I have worked on and off since my retirement

[iono1]

I retired at 56 from the State of NY last year because I could get out with no penalty. If I had stayed past September, I would have had to wait another 2.25 years to retire with no penalty after the 2010 incentive expired. I figured out if I had stayed, my pension would go from $46,200 to $54,300. I didn't think the $8,100 year which after taxes would be close to $600 more a month was worth working another 2+ years. Before the incentive, I could have retired with a 21% cut which would have been $9,700 less per year. I would never have taken that, because while I was comfortable with the $46k a year, going down to $36,500 would have made things too tight. My health care is taken care of because I saved my sick time from the time I was 1st hired because when I came in I knew I could cash the hours in for future health care. Others blew all their sick time either out of necessity or carelessness & don't have the option I had.

So I think it's more how much you feel comfortable receiving every year than what the difference is. If you have enough in the bank that you are comfortable with the pension you receive, get out. Unless you're a Type A who has to have something to do all the time, retirement is great & a lot less stressful than working.

Now in NY State there is one other thing to consider. It didn't affect me because as a State employee my pension is exempt from NYS income tax regardless of my age, but there is a $20k exemption on NYS income tax on pensions, but it doesn't kick in until you reach 59.5 years old. I have a friend who retired & thought he was eligible for the $20k exemption & he found out he wasn't & now has to pay more in taxes than he originally thought.

So if you're retiring early, make sure you know the tax consequences of retiring early before you do it and if you find out you're paying more than a level you're comfortable with, you might not want to retire around 55.

I also plan to take SS at 62 for an extra pre tax $18,000 a year. I did things like buying a new car so that I should be repair free most of the time until I hit the additional income. The only unexpected expenses should be house repairs.

[tskeeter]

Getting a pension increase of 5% for each additional year worked seems inconsequential. But if you do some math you get a better idea of the impact. If you assume our theoretical 55 year old qualifies for a pension of $15,000 per year at age 55 and that the retiree will live to age 90, the math works like this. If the retiree waits until age 62 to retire, their pension will increase by $6,106 a year. Multiplying the $6,106 by the 28 years the additional pension will be paid yields $170,968. Not an inconsequential sum of money.

The value of the additional pension obtained by delaying retirement would be even greater if our retiree's pension includes a COLA feature. Assuming an average COLA to the pension of 3%, the seven year delay in retirement would have a value of more than a quarter million dollars ($262,137). Now that ain't just chicken feed.

[spartan7886]

On the flip side, my pension will have a social security offset, instituted at my full retirement age. In this case, taking it early will result in more of the higher pre-SS payments. I'm way too far out to be doing the exact math, but that's just one more variable to juggle.

[share88]

Health insurance is still provided. No COLA. There is no way I would live another 40 years after that LOL. Most of my family has not made it to 65 despite healthy lifestyles.