Author Topic: Optimizing state pension  (Read 2105 times)

gaja

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Optimizing state pension
« on: March 15, 2015, 05:35:20 AM »
This might only be interesting for a very few members of this board, e.g. the math nerds and other Norwegians, but I could use some help with my calculations and hope some of you will give me some input...

State pension in Norway ensures that everyone gets something to live on in their old age. But it is designed to motivate people to work as long as possible. To get a full pension, you need 40 years of taxable income over "G" ("G" is calculated yearly and adjusted for inflation. in 2015 it is ca $11000). To calculate how large your pension will be, they use an average of your 20 best years. Then you get 42 % of that sum as a yearly pension. DH has 19 of the 40 years, I have 12. His average so far is 5G, while mine is at 4.2G. That would equate to a yearly pension for me of $21000, $25000 for DH.

I might want to work for 28 more years, but neither of us like having to. And we do want to get as high state pensions as possible to complement other retirement income. So we need to make sure that we as soon as possible get other types of taxable income exceeding $11 000/year (each). That could be interest, dividents, royalties, rental income, or stuff like that. Also, DH should aim for four more high income years to keep the average at (or above) 5G. I can get above 5G if I get 13 more high income years.

The plan:
-hold savings, investment accounts, property and royalty income in joint accounts. That way we can manipulate the tax returns in the most favorable way.
-make sure both of us has at least $11 000 of taxable income every year.

DH's income is more likely to decline in the years to come, than mine. So I think we should prioritize to boost his taxable income in the next four years. Then he only needs to make minimum for 17 years to claim a decent pension. But on the other hand; as our nest egg increases, so does that part of the income. So maybe he could get some very good years just before he can start drawing the pension.

MDM

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Re: Optimizing state pension
« Reply #1 on: March 15, 2015, 12:33:55 PM »
To get a full pension, you need 40 years of taxable income over "G" ("G" is calculated yearly and adjusted for inflation. in 2015 it is ca $11000). To calculate how large your pension will be, they use an average of your 20 best years. Then you get 42 % of that sum as a yearly pension.
What is the calculation for a "less than full" pension?  E.g., if one works for 25 or 30, etc., years, how is the pension calculated?

gaja

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Re: Optimizing state pension
« Reply #2 on: March 15, 2015, 04:46:02 PM »
@MDM: It is complicated. There is one part that is the minimum pension at 2G, that you can never go below, even if you don't work a day in your life. And then it is the part above it, where I think they do fractions. E.g. 25/40 or 30/40.

Just found out that the entire system has changed, and that all my calculations were in vain. The new system is even more difficult to predict, since it now depends on the calculated survival age of your age group at retirement. Looks like the end sum will probably be the same, but it will require more working years to reach the top dollars.

This really makes it difficult to calculate our FIRE numbers...

MDM

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Re: Optimizing state pension
« Reply #3 on: March 15, 2015, 05:57:33 PM »
This really makes it difficult to calculate our FIRE numbers...
Ouch.  But...if the government can calculate the pension, so can you.  Might require some spreadsheet work and longevity estimates.  Ultimately, however, it is likely to require only addition, multiplication, subtraction and/or division so the hard part is peeling away the government "documentation" to reveal the actual equations. 

I'd like to help but my reading comprehension of Norwegian is nil.