Author Topic: Take pension early?  (Read 1878 times)

meadow lark

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Take pension early?
« on: June 09, 2017, 11:09:00 AM »
My wife and I just retired.  She is 55.  She has a very small pension ($500/month starting at 65.). She can start taking it now, at 55, and get 48% of the $500.  We are trying to make the best decision, including this info
1- the company is a healthcare non-profit that has always been financially successful andis heavily dependent on Medicaid and Medicare reimbursements.  I think they probably will never declare bankruptcy, but it is certainly possible in the next 50 years.
2- DW and I are in pretty good health, and I am 42, so a 50 + year pay out is very possible.
3- any money we get in the present will just allow that much more to grow in the stock market for the next 10 years.

I am inclined to leave the pension alone for the next 10 years, but because of inflation, risk of any company jettisoning pensions via bankruptcy, and what the money could do in the market, I don't want to make this decision by just intuition. Does anyone know of any calculator or rule of thumb?

pbkmaine

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Re: Take pension early?
« Reply #1 on: June 09, 2017, 11:13:08 AM »
Is there a lump sum option?

meadow lark

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Re: Take pension early?
« Reply #2 on: June 09, 2017, 12:45:02 PM »
No, unfortunately.  I called and asked this morning.

plog

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Re: Take pension early?
« Reply #3 on: June 09, 2017, 12:48:21 PM »
Does it have survivor benefits?  If she eats it do you get to keep receiving the pension until your death?  Factor that in. 

meadow lark

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Re: Take pension early?
« Reply #4 on: June 09, 2017, 12:50:12 PM »
Yes, I believe it is 75% survivorship benefit - that is why I mentioned that I am 42 yo, but I should have been clearer.
Thanks!

pbkmaine

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Re: Take pension early?
« Reply #5 on: June 09, 2017, 01:00:05 PM »
You can calculate it yourself using Excel and the PV function. You just have to pick an inflation rate.

https://support.office.com/en-us/article/PV-function-23879d31-0e02-4321-be01-da16e8168cbd

sirdoug007

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Re: Take pension early?
« Reply #6 on: June 09, 2017, 01:12:55 PM »
My wife and I just retired.  She is 55.  She has a very small pension ($500/month starting at 65.). She can start taking it now, at 55, and get 48% of the $500.  We are trying to make the best decision, including this info
1- the company is a healthcare non-profit that has always been financially successful andis heavily dependent on Medicaid and Medicare reimbursements.  I think they probably will never declare bankruptcy, but it is certainly possible in the next 50 years.
2- DW and I are in pretty good health, and I am 42, so a 50 + year pay out is very possible.
3- any money we get in the present will just allow that much more to grow in the stock market for the next 10 years.

I am inclined to leave the pension alone for the next 10 years, but because of inflation, risk of any company jettisoning pensions via bankruptcy, and what the money could do in the market, I don't want to make this decision by just intuition. Does anyone know of any calculator or rule of thumb?

Besides the uncertainty of the company pension, it's basically a present value calculation as pbkmaine mentioned.

At 2% inflation (which it has been recently), the break even between taking it at 55 vs. 65 is a life expectancy of 73.  Live to longer than 73 and waiting makes sense.

The average life expectancy for a 55 yr old woman is nearly 29 years (28.74) according to social security actuarial tables (https://www.ssa.gov/oact/STATS/table4c6.html) or about 84 years old.

If you use that age, it's a no brainer to wait til 65.  Inflation is a small factor so if you just look at the cash amount paid out you have $114,000 taking at 65 ($6000 for 19 years) vs. $83520 ($2880 for 29 years).

Especially since you don't need the money now, I'd delay until you get the full amount.




meadow lark

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Re: Take pension early?
« Reply #7 on: June 09, 2017, 02:26:03 PM »
Thanks for the help everyone!  Obviously I am not a financial professional (as proven by my inability to figure out the PV function) but this is what I am thinking.  I used this calculator:
http://www.bankrate.com/calculators/savings/simple-savings-calculator.aspx

And compared a monthly $500 with a 4% interest (going basic) for 15 years equals about $123k.  A monthly $240 at 4% interest for 25 years equals about $123k.  So I think the crossover point is 80, or 25 years from now.  We will probably live more than 25 yrs, so we will probably wait.