pension?

[tmspitz]

Hi,

I am recently starting to follow this site.  We are in a pretty good position, but would like to be better off....my husband and i are both teachers with about 7 years in the system....we have a pension coming but (1) there are big penalties for retiring early (before 30 years of service), and (2) you can't withdraw until I think age 55? ...anyway....how does this impact our plans for saving and planning and/or early retirement? 

I'll be glad to share more info if it helps. 

[arebelspy]

Use Firecalc - www.firecalc.org - to plan an early retirement with pension kicking in later.

Look into the key aspects of your pension: when do you get vested (often different pensions vest at different ages), when can you retire, what amount of pension will you receive, what are the penalties for retiring early, can you purchase years, do they have lump sum option, etc. etc.

The wife and I are also teachers, and we have pensions lined up as well.  Ours (and they all vary, so don't assume yours is like mine unless you live in Nevada) requires at least 5 years to vest and then lets you retire at age 65, lets you retire at age 60 if you have at least 10 years, and lets you retire at any age with 30 years of service.  You can buy a max of 5 years.  Each year you take it before that retirement age cuts it by 4%

I have a spreadsheet mapping out a bunch of different options (retiring with X years of service and buying 0 and retiring at age 45, same but retiring at 50, same but retiring at 55, same but retiring at 60, retiring with X and buying 5 and retiring at 45, 50, 55, 60, etc)

All the graphs have different crossover points where it's best to do action X depending on how long we will live, assumed rates of return, etc.

Our current plan based on that info, plan A , is to buy 5 years (which we can purchase rolling over from a 403b/457b, so tax free).  We'll stop working at about age 35 to early retire.  Then at age 50 we'll "retire" from the district (though we won't have worked for them for 15 years at that point) and start collecting the pension (even though it will only be 60% of what we would get if we waited until age 60).  Even if we don't need the money at that point, it's mathematically superior to start taking it then and investing it.

Our plan B is to work until age 47. Then we can fully retire, get our pension (cause we'll have hit the 30 years to retire at any age with no penalty - 25 working years since age 22, plus purchase 5 years).  Would rather not have that one happen.  Although I do love my job, the kids are so awesome.

Anyways, that's a little about my pension, but as you can see there are many, many variables.  Check out the details and report back and maybe we can help you figure out a course of action.

[tmspitz]

Ok,

Here's a little more info about where we are, and about NYS teacher's pension:

- we are both 34, with about 7-8 years of teaching experience (time into the pension)
- we  are vested after 5 years.
- We are first eligible to receive a benefit at age 55
- Pension benefit is calculated as follows:

Pension Factor (x Age Factor for Tiers 2-5) x Final Average Salary =
Maximum Annual Pension

With these notes:

• Pension factor is calculated as 1 ⅔% per year if you have less than 20 years of service, or b) 2% per year if you have between 20 and 30 years of service
  
  If you retire before age 62 with less than 30 years of service, the pension factor is reduced based on your age.
  If you retire prior to age 57 (regardless of how much service you have), or if you retire between ages 57-62 and have less than 30 years of service, the pension factor is reduced based on your age.
  No age reduction applies to Tier 2-4 members who retire either at: age 62 or later; or, at age 55 with at least 30 years of service credit.
  Your FAS is generally the average of your highest three consecutive school years of salary earned.
  

Hope that helps. 

Otherwise we have:
a car loan of about 5K (1.75% interest)
student loans of about 12K (2.75% interest)
mortgage (20 year, 120K at 4%)

529 for my boys of about 10K
inheritance in a brokerage acct of 180K
previous IRA of about 25K
403B for myself and my husband together of about 107K - we are currently contributing 10%.  My husband had a lot in a 401k from an earlier job that he rolled over.

definitely open to suggestions as to how to analyze this, or what the next steps would be best..

Thanks! 

[arebelspy]

Need a few more details:
1) Can you buy/purchase years of service? If so, is there a limit, and what is it, and how much do they cost?
2) Re: Early retirement, you say "the pension factor is reduced based on your age" - right, but what is the reduction per year early?
3) What are the "Tiers" as specified in the pension calculation
4) Is your pension COLA'd or tied to inflation increases in some way?

Also, another important note: find out about the funding level of your pension.  Many are in trouble right now due to being underfunded.

Seems like you'll likely take your pension at age 55 (at a reduced rate) or 62, and which one will depend on some of the answers to the above questions (and I'd guess 62 is likely).

Meaning if you want to retire before that, you'll need to be saving a bunch outside the pension to get you to age 62 and beyond, and just have the pension kick in at 62 as an extra little bonus boost to your income then.

Do you pay in to Social Security as well?

[tmspitz]

Thank again! 

1) I can't find anything about purchasing additional time, so I think no.
2) here is what it shows for that
"you may retire at age 55 if you have at least 5 years of NYS service credit.  However, if you retire before age 62 with under 30 years of service, you receive a percent of the pension factor, prorated by month:
age 62 - no reduction
age 61 - 94%
age 60 -88%
age 59 - 85%
age 58 - 82%
age 57 - 79%
age 56 - 76%
age 55 - 73%

example: if you retire at age 55 with 29 years of service, you pension factor would be 42.3% (29 years @ 2% per year @ 73%).  If you were 55 with 30 years of service, your pension factor would be 60% (30 years x 2% per year).

It gives an example if I stopped working for NYS now, I would collect 8.3% when I am 55.

3)The tiers just have to do with when you started (every once in a while they change how the pension works -- a new tier).  We are both tier 4 based on when we started teaching.

4) i can"t find anything about this so again, i might guess no.

We do pay in to SS as well.

Thanks

[arebelspy]

A 6% reduction per year is pretty harsh.  I've seen as low as 3%, mine personally is 4%.

Definitely call about #s 1 and 4, as they're pretty crucial.  No rush, but you'll want to know for planning purposes.  A fixed pension that never rises is worth much less than one that is COLA'd.

From what I'm seeing, you'll have to wait until 62 to get your pension.  So you'll want to start massive savings in other vehicles to early retire.  What sort of retirement investments are available to you?  403b? 457b?  I'm assuming - as two teachers - you'll qualify for a Roth, so go ahead and start maxing that out (you can withdraw the money put in without penalty before age 59.5), and then you can use some before tax accounts (like a 457) and the 72t rule to access that early without penalty.  Then you'll likely you'll want to use after-tax investments to help bridge the gap.

Firecalc.org will be your friend for planning the "do we have enough" question, as it can take into account the pension at age 62, future SS, etc.

[TheDude]

I just left a comment in another thread about a 457 plan. Do you have access to to 457 plan? If so I would use that over a 403.

[arebelspy]

I just left a comment in another thread about a 457 plan. Do you have access to to 457 plan? If so I would use that over a 403.

Yes, they're the same except you can access the 457 when you sever employment, if you wish.  Just gives you more flexibility/options.

[TheDude]

I just left a comment in another thread about a 457 plan. Do you have access to to 457 plan? If so I would use that over a 403.

Yes, they're the same except you can access the 457 when you sever employment, if you wish.  Just gives you more flexibility/options.

Which make them awesome vehicles for saving for early retirement. Plus if you really want to go nuts you can put 17k in the 457 and 17k in the 403b.