Help me figure out defined benefit plan with early retirement

[ChipmunkSavings]

Hello! I am 23, and working in the public healthcare sector. I am registered for a ''Defined Benefit Plan'', which means that I can expect 70% of my salary once I retire, if I have at least 30 years of service and 65 years-old.
Also, I am in Canada, where I can expect Old Age Security (OAS) and Québec Pension Plan (QPP) at 65 as well.

I have been doing calculations for early retirement based only on my personal savings, disregarding completely my employer's pension, OAS and QPP. Based on those calculations, I would be able to retire at around 50 years-old, based on 5% annual return on investments.

However, I am trying to figure out how to incorporate the pension plan into these calculations, to see if I could actually retire earlier. I already have 3 years of contribution, so I would be at 30 years of service once I am 50 (assuming I stay with this employer, which is very likely considering the shortage of other employers for my type of work).

So, my questions are :
- Should I try to find out the value of the pension plan and add it to my calculations for early retirement?
- If I determine that this allows me to quit at 45, should I wait to ''claim'' the pension until I'm 65? I believe there are penalties of 5% per year early. If we calculate 20 years early, this means that I would receive zero? Or I guess they just give you whatever amount there is in your account?

I am sorry if this is very vague, but I have a limited understanding of this defined benefit plan, and it is very difficult to find more information (I have searched all our ''documentation'' for the pension). HR apparently doesn't deal with it, considering it is a province-wide plan. I will try to find out more, but I am afraid of not being taken seriously at 23.

Thanks a lot!

[MDM]

1) Should I try to find out the value of the pension plan and add it to my calculations for early retirement?
2) If I determine that this allows me to quit at 45, should I wait to ''claim'' the pension until I'm 65? I believe there are penalties of 5% per year early. If we calculate 20 years early, this means that I would receive zero? Or I guess they just give you whatever amount there is in your account?

1) Yes.  The good news is that you have time to wade through the bureaucracy and get the correct details.
2) Wait until you have the answer to #1 before addressing this.

Pension calculations are typically embedded within a bunch of legalese, but the actual equations are relatively simple (once you find them).  If you can put the pension calculations into a spreadsheet and reproduce the official estimate, then you understand it.  Until that point, you don't.  Good luck!

[PharmaStache]

Good luck, mine won't tell me anything other than what I've put in, what the employer has put in, and the various amounts I'd receive if I worked until my magic 80 date (53) or 65.  They won't tell me how much I'd get as a lump sum if I quit, or what happens if I quit before I can take the pension! 

[ChipmunkSavings]

Thanks! Same as PharmaStache. I receive a statement every year with my ''estimated benefits'' based on retirement at 65, and it says how much I have put into it. Nothing is mentionned about my employer's contribution or anything. Very confusing.

How would I go about finding those equations? HR or perhaps it can be found online?

[MDM]

How would I go about finding those equations? HR or perhaps it can be found online?

In the US, there is something called a Summary Plan Description that must be provided to all employees.  Don't know Canadian law.

[worms]

If it was me, I would work on the basis that the defined benefit pension (and state/provincial top-ups) mean that from age 65, something like 75% of my needs are covered (probably more, asssuming you spend less than you earn) and look at how you might a) bridge the gap between actual retiral date and 65 and b) fill the missing 25% after age 65.

In the absence of detailed projections from your pension provider, I would work on each year of contribution being a thirtieth of that 70% final salary retirement income. So if you plan on retiring at 45, with only 25 years paid in to the pension, I would estimate on 25/30*0.7 which is about 58%.  I would plan to leave that untouched till 65, so would be looking to build investments that were capable of funding 20 years pre-65 and about 40% post retirement.

However, if you are truly moustachian and capable of living on half your income, then your post-65 needs will be covered by 25 years of defined benefit contributions and you only need to build enough to see you through the 20 years from 45 to 65.

[Ziggurat]

I don't know if this is your particular pension, but this document gives a formula on p.12:  years service * 2% * (best 5 yr pensionable salary).  That's a very typical DB kind of formula.  However, over 30 years, that gives 60%, not the 70% you have mentioned.   I would search on your pension name and phrases like are around that p 12 formula, like "average pensionable service", see if that finds the formula online.

[ChipmunkSavings]

Thanks, that sounds like a good way to take it into consideration (calculating a portion based on year of service). Will do that for sure!

Retirement classes have just been announced at work. However, you must be at least 50 years-old, and within 5 years of retirement to participate. Not very handy for ''planning''...

[spicykissa]

Retirement classes have just been announced at work. However, you must be at least 50 years-old, and within 5 years of retirement to participate. Not very handy for ''planning''...

That's ridiculous! I've been given a few raised eyebrows for asking retirement questions in my twenties, but everyone has at least been willing to give me the info I've asked for. They really shouldn't be able to keep you from attending. Nothing like discouraging young people from being responsible! *grumpy face*