Author Topic: Pension/Soc. Sec./Stash Withdrawal Strategies (especially Feds)  (Read 4965 times)

DoubleDown

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Pension/Soc. Sec./Stash Withdrawal Strategies (especially Feds)
« on: November 07, 2014, 09:10:14 AM »
I'm curious what strategies others are using or plan to use if they expect a future pension (however small), and balancing that with Soc. Sec. and other savings. I go back and forth on this quite a bit, but the current strategy I'm entertaining is this:
  • Start pension as early as possible, at a penalty (for me, this is age 56)
  • Wait until full retirement age (67) for Social Security to get larger benefits (or maybe even defer longer)
  • Use other savings as needed to fill gap years and for added income later in life.
As I see it, the advantage to this approach is it serves as a middle-of-the-road solution to the "when will I die?" question. By taking one guaranteed income stream early (pension), and the other later (Soc. Security), you somewhat cancel out the "When will I die?" question. I'll get a reduced pension amount, but for more years up front. On the flip side, I'll get a higher Soc. Sec. amount, but will have to wait more years to start. Whether you die early or late, you made the right call on at least one of the choices.

Another advantage: Federal pensions are only indexed to inflation after you start taking them. In the intervening years before you start taking it, it's getting eaten up by inflation. Therefore, taking early can be a hedge against this, while letting Soc. Security benefits increase.

Finally, since pensions and social security benefits can't be passed down to heirs (other than possibly giving survivor benefits for some time), then "using up" the guaranteed income streams seems preferable to burning through other savings, if you care about passing money on to others one day.

What do you think? Do you have different strategies or ideas?

SunshineGirl

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Re: Pension/Soc. Sec./Stash Withdrawal Strategies (especially Feds)
« Reply #1 on: November 07, 2014, 10:21:33 AM »
I wonder about this, too. Does it depend if you have a spouse to consider? With the pension, you can take it in a way that the payout is a little lower, but the pension lasts through the lifetimes of both partners. This is key in our case. Social security, though, doesn't work that way. Having said that, I don't quite know how it works.

kendallf

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Re: Pension/Soc. Sec./Stash Withdrawal Strategies (especially Feds)
« Reply #2 on: November 07, 2014, 10:38:26 AM »
I'm planning on roughly the same route (right now planning to work until 56/4mo, then take pension).  The pension will be my "bridge money" and I hope to leave my TSP invested and growing while I live on the pension amount alone.

I've been reading the various "Roth ladder" summaries and thinking I need to figure out exactly how the pension income would affect this.  I'd like to spend the years after retirement converting money over but I obviously won't have zero income.  Does anyone know how or whether pensions count as earned income, investment income, or (?).

The mention of survivor benefits made me Google because I didn't remember how that worked.  Good summary here:

http://www.plan-your-federal-retirement.com/fers-survivor.html

Basically, 10% "cost" to provide the full survivor benefit, which is 50% of your pension.  The other thing to note there is that without any survivor benefit, if you die, your spouse is no longer eligible for health coverage.

Bart1ma3u5

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Re: Pension/Soc. Sec./Stash Withdrawal Strategies (especially Feds)
« Reply #3 on: November 07, 2014, 11:31:28 AM »
Following for reference in the distant future when this topic may more directly apply to me.

Cheddar Stacker

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Re: Pension/Soc. Sec./Stash Withdrawal Strategies (especially Feds)
« Reply #4 on: November 07, 2014, 11:51:46 AM »
Sounds like a good plan to me DD. You didn't mention a Roth pipeline out of the TSP but make sure you get that going to reduce any future RMD's later, whether you need the funds or not.

If you haven't already done so, read Dr. Doom's Drawdown Series. I don't believe it really addresses pensions much, but it's a great read, particularly part 3: Strategy.

I've been reading the various "Roth ladder" summaries and thinking I need to figure out exactly how the pension income would affect this.  I'd like to spend the years after retirement converting money over but I obviously won't have zero income.  Does anyone know how or whether pensions count as earned income, investment income, or (?).

Pensions are not earned income. I'm not sure if they're investment income, but I really don't think they qualify as that either, I think it's just sort of "other" income. Some pensions might have an employer or Roth portion and that wouldn't be taxable, but anything else should be fully taxable. It shows up on line 16a on your tax return and adds to your AGI and taxable income.

DoubleDown

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Re: Pension/Soc. Sec./Stash Withdrawal Strategies (especially Feds)
« Reply #5 on: November 08, 2014, 08:56:31 AM »
You didn't mention a Roth pipeline out of the TSP but make sure you get that going to reduce any future RMD's later, whether you need the funds or not.

Thanks for the heads up. Yes, I'll be starting the pipeline next year. This year I cashed out on some stocks, and that used up all my "taxable event allowance" I wanted for one year! I'll have to do the whole TSP ---> Rollover IRA ---> Roth conversion maneuver.

DoubleDown

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Re: Pension/Soc. Sec./Stash Withdrawal Strategies (especially Feds)
« Reply #6 on: November 08, 2014, 09:07:28 AM »
I'm planning on roughly the same route (right now planning to work until 56/4mo, then take pension).  The pension will be my "bridge money" and I hope to leave my TSP invested and growing while I live on the pension amount alone.

The Washington Post the other day reported that with the Republican takeover of the Senate, their budget plan calls for (among other things hostile to Feds) eliminating the Social Security supplement between Min. Ret. Age and age 62. There were no details on when/how this would be implemented -- for example, if anyone would be grandfathered through it, or if it would just be eliminated outright. Personally, I don't foresee a Democratic filibuster or Presidential veto stopping this, so I think it's likely just a matter of time before this benefit goes by the wayside.

Other plans are to increase employee retirement contributions to 5.x%, and possibly cut other benefits. Republican leaders (e.g., Issa) have already formally asked OPM to do a "study" of how benefits can be reduced, costs can be cut, and other ways of calculating things to reduce costs and benefits.

Hopefully you'll hit MRA soon before these things go away! Personally I'm glad at least I've already decided to forego these benefits in favor of early retirement. I won't be getting them anyway, and increasing contributions won't matter to me, but it's going to be an even rougher time to be a fed.

dude

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Re: Pension/Soc. Sec./Stash Withdrawal Strategies (especially Feds)
« Reply #7 on: November 10, 2014, 11:50:34 AM »
yeah, didn't take long for the GOP to go on the attack against federal employees. Because clearly THEY are the biggest problem this country faces!  I'm so fucking cynical about politics these days I can't stand it.

But to your original question -- I plan to retire at 54 (but in the year of my 55th birthday).  I'm Fed LEO, so I'll get my full pension (with COLAs) right away (well, once OPM gets to it in the backlog, anyway), and I'll get my SRS -- which, from what I've heard will not be eliminated for FF/LEO, etc. retirees who have a mandatory 57-y.o. retirement age.  SRS is free and clear until 57, at which point it gets means tested after about $15k of earned income or so.  I'm planning to do some part-time "fun work," but have calculated that I can cover my shortfall (i.e., pre-retirement salary vs. post-retirement) with a less than 2% withdrawal rate from my TSP.  I'm planning to go out with about 2 years' leave saved up, and will probably use that check in Year One in lieu of TSP withdrawals (just to give my full TSP balance another year to grow), and then take those withdrawals from Year Two onward (depending on how the pt fun work pans out).  Whatever money I don't need from those withdrawals, I'll use to build my cash buffer.  As for Social Security, I'm planning to hold on til at least 67.  Reason #1 is my wife is 7 years younger than me, and hasn't earned the money I have, so waiting will give her a much larger check down the road when she gets old.  Second reason is, even with the SRS going away at 62, I should be able to make up for it with a higher TSP withdrawal rate that should still be south of 4%.  I'll take that 8% guarantee on the SS money.

The thing for me is timing/planning my wife's retirement given the age gap and her not having a pension.
« Last Edit: November 10, 2014, 11:54:29 AM by dude »

dude

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Re: Pension/Soc. Sec./Stash Withdrawal Strategies (especially Feds)
« Reply #8 on: November 10, 2014, 11:52:54 AM »

Basically, 10% "cost" to provide the full survivor benefit, which is 50% of your pension.  The other thing to note there is that without any survivor benefit, if you die, your spouse is no longer eligible for health coverage.

Exactly, and on the flip side, if your spouse pre-deceases you, your pension goes back up to the full amount it would have been without the survivor benefit.

dude

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Re: Pension/Soc. Sec./Stash Withdrawal Strategies (especially Feds)
« Reply #9 on: November 10, 2014, 11:56:54 AM »
Does anyone know how or whether pensions count as earned income, investment income, or (?).

Don't know the classification, but it's taxed as ordinary income.  Check your state though -- some states, including where I live in Mass., don't tax pension income at the state level (Mass. doesn't tax SS income, either).

DoubleDown

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Re: Pension/Soc. Sec./Stash Withdrawal Strategies (especially Feds)
« Reply #10 on: November 10, 2014, 12:17:22 PM »
I plan to retire at 54 (but in the year of my 55th birthday).  I'm Fed LEO, so I'll get my full pension (with COLAs) right away

I'm jealous! Well, I'm jealous about the full pension at age 54, not as much the working-until-then part ;-)  Federal LEO's have it made in my book.

I'm planning to go out with about 2 years' leave saved up
I wrote about this in a different thread, and I don't know to what extent it's Agency-specific, but at mine they give 6 mos. credit toward retirement when taking one year of LWOP. That means, in effect, you can take off a half-year early (in addition to tacking on all your unused leave), as long as they don't balk about you doing it too close to your retirement I suppose. I probably shouldn't be advocating gaming the system, but it was a nice discovery I stumbled across when I was approved for my LWOP.

As for Social Security, I'm planning to hold on til at least 67.  Reason #1 is my wife is 7 years younger than me, and hasn't earned the money I have, so waiting will give her a much larger check down the road when she gets old.  Second reason is, even with the SRS going away at 62, I should be able to make up for it with a higher TSP withdrawal rate that should still be south of 4%.  I'll take that 8% guarantee on the SS money.

In addition to the reasons you've mentioned, I'm concluding that taking the smallest payout earliest, and the biggest one latest, is likely a winning strategy. For me, SS will be larger than my pension amount. Therefore, I plan to take the (reduced) pension as early as possible as a hedge against dying early, while letting SS get bigger as a hedge against living a long, long life. Like you said, let the 8% accrue on the larger payout.

juuustin

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Re: Pension/Soc. Sec./Stash Withdrawal Strategies (especially Feds)
« Reply #11 on: November 10, 2014, 12:31:17 PM »
I am a young Fed LEO who will actually be leaving the ranks of the Feds in a few months.  I am still considering a return after a few years in private industry, but the landscape for Feds (even LEOs), is bleak unless you are closing in on retirement (I have 21 years to go).  A small amount of regret creeps in every time I think about the benefits I am leaving, but then I realize that public employees are going to be the scapegoat for years and years to come.  I will truly only miss my access to the TSP, because my 40% FERS pension at age 47 isn't looking as great as it once was.

randommadness

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Re: Pension/Soc. Sec./Stash Withdrawal Strategies (especially Feds)
« Reply #12 on: November 10, 2014, 01:42:19 PM »
Jealous of that LEO retirement!

I wish for us regular employees we had some option to start collecting sooner, especially those of us who would hit 30 years at 49-50 years of age. Even if it was a lower amount.

Not that I'm anywhere near there...

easton

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Re: Pension/Soc. Sec./Stash Withdrawal Strategies (especially Feds)
« Reply #13 on: November 10, 2014, 04:11:15 PM »
Yea, it would be awesome if us non-leo feds could do something to collect earlier than MRA at 57 without a VERA. I should hit 25 yrs with the feds at age 45 if I stick around. In theory that's when I can start applying for early retirement. With the way my numbers are looking currently, I will be hoping they have some sort of VERA going when I'm 45 and apply every year until they give it to me haha.

Full Beard

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Re: Pension/Soc. Sec./Stash Withdrawal Strategies (especially Feds)
« Reply #14 on: November 10, 2014, 07:57:29 PM »
I'm planning to go out with about 2 years' leave saved up, and will probably use that check in Year One in lieu of TSP withdrawals (just to give my full TSP balance another year to grow), and then take those withdrawals from Year Two onward (depending on how the pt fun work pans out). 


Dude, how can you have 2 years worth of leave saved up?  I thought you could only carry over 240 hours without losing anything.