Delaying pension benefits - what would you do?
Delaying pension benefits - what would you do?
I will be turning 65 in a few months and will be eligible for a pension, 100% J & S, amount $2640/month. If I wait till 66 it increases to $2903/month. My spouse will not have any pension from her job. I am figuring the break even point to be 11 years, based on the following:
Retiring at 65 cumulative benefits after 11 years: $2640X12X11 = $348,480
Retiring at 66 Cumulative benefits after 10 years: $2903X12X10 = $348, 360
If I do not have an issue with cash flow and assuming life expectancy till 85, would I be better off delaying taking my benefit?
Please critique; your feedback is appreciated.
Retiring at 65 cumulative benefits after 11 years: $2640X12X11 = $348,480
Retiring at 66 Cumulative benefits after 10 years: $2903X12X10 = $348, 360
If I do not have an issue with cash flow and assuming life expectancy till 85, would I be better off delaying taking my benefit?
Please critique; your feedback is appreciated.
- Peter Foley
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- Location: Lake Wobegon
Re: Delaying pension benefits - what would you do?
There are many different factors to consider with regards to delaying for a year. Here are but two. Others can add more.
1. Does pension + SS benefits cover most of your living expenses?
2. Do you have substantial tax deferred savings that you could draw on for the year? The thought here is that you might create a low tax rate year where some tax deferred withdrawals may be taxed a low rate.
Yes to both of these would have me leaning towards a delay, but there may be other important factors to consider.
1. Does pension + SS benefits cover most of your living expenses?
2. Do you have substantial tax deferred savings that you could draw on for the year? The thought here is that you might create a low tax rate year where some tax deferred withdrawals may be taxed a low rate.
Yes to both of these would have me leaning towards a delay, but there may be other important factors to consider.
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Re: Delaying pension benefits - what would you do?
You and BHs, won't like this ,
Run two accounts: An Account balance and another discounted Income Account balance. This is similar to pension plans, notably PER s, GWLB deferred annuities/SPIAs/CDs/IRAs and deciding to take SS now or later .
Ymmv
Run two accounts: An Account balance and another discounted Income Account balance. This is similar to pension plans, notably PER s, GWLB deferred annuities/SPIAs/CDs/IRAs and deciding to take SS now or later .
Ymmv
Rev012718; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax TBT%. Early SS. FundRatio (FR) >1.1 67/70yo
Re: Delaying pension benefits - what would you do?
Yes. By forsaking $31,680 (12 * 2640) for one year, you'll get $3,156 (12 * 2903 - 31680) more per year for 19 years (85 - 66). This represents a very good return of 7.4%. [1] The likely return is even higher if your wife is no older than you and you're both in average or better health. [2]ABS wrote:... assuming life expectancy till 85, would I be better off delaying taking my benefit?
- As computed with the Excel RATE function:
Code: Select all
7.4% = RATE(19, 3156, -31680, 0, 0)
- For example, the joint life expectancy of a male / female couple each age 66 is 23.24 years according to the SSA 2013 Period Life Table as computed with my longevity estimator. Over 23 years instead of 19 the return increases to 8.4%.
Code: Select all
8.4% = RATE(23, 3156, -31680, 0, 0)
Re: Delaying pension benefits - what would you do?
+1 I agree with #Cruncher's strictly financial analysis.
From a Risk Control perspective:
(1) Do you have any reason to believe that future pension payments would be at risk of severe reduction or termination? (Example: a public pension paid by Illinois). If so, it might be a reason to start the pension sooner and retain you personal investment funds.
(2) If your pension is covered by the Pension Benefit Guaranty Corporation, you appear to be well within the dollar limits for full protection.
From a Risk Control perspective:
(1) Do you have any reason to believe that future pension payments would be at risk of severe reduction or termination? (Example: a public pension paid by Illinois). If so, it might be a reason to start the pension sooner and retain you personal investment funds.
(2) If your pension is covered by the Pension Benefit Guaranty Corporation, you appear to be well within the dollar limits for full protection.
Investment skill is often just luck in sheep's clothing.
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Re: Delaying pension benefits - what would you do?
If you delay longer, does the pension continue to increase?
Ralph
Ralph
Re: Delaying pension benefits - what would you do?
Ralph,
Yes sir, it does. I have requested the amounts for 68 and 70 and will post them when I get it.
#cruncher,
Thank you for your analysis. I'll re-run it with the additional information I receive for 68 and 70.
ThePrune,
I am confident about the stability of my pension plan.
Peter Foley,
My SS strategy is to collect spousal benefits next year after I turn 66 and then wait for my own benefits until I turn 70.
Yes sir, it does. I have requested the amounts for 68 and 70 and will post them when I get it.
#cruncher,
Thank you for your analysis. I'll re-run it with the additional information I receive for 68 and 70.
ThePrune,
I am confident about the stability of my pension plan.
Peter Foley,
My SS strategy is to collect spousal benefits next year after I turn 66 and then wait for my own benefits until I turn 70.
Re: Delaying pension benefits - what would you do?
I have my corrected pension payment at age 65 and also my estimates for ages 66, 68 and 70. Using #cruncher's guidance I came up with the following rates of return if I choose to delay collecting my benefit (life expectancy of 20 years):
Monthly payment at age 65: $2628
Delaying to age 66: Payment $2903, return 8.08%
68 Payment $3578, return 9.46%
70 Payment $4470, return 11.14%
Assuming my calculations are correct, and I can manage without the need for the payments till age 70 am I on the right path if I wait to collect till reach 70? My projected return for the rest of my portfolio is 5 to 7%.
Monthly payment at age 65: $2628
Delaying to age 66: Payment $2903, return 8.08%
68 Payment $3578, return 9.46%
70 Payment $4470, return 11.14%
Assuming my calculations are correct, and I can manage without the need for the payments till age 70 am I on the right path if I wait to collect till reach 70? My projected return for the rest of my portfolio is 5 to 7%.
Re: Delaying pension benefits - what would you do?
The return for delaying to age 66 is correct, ABS, but the other two are overstated. You appear to have calculated them as follows:ABS in previous post wrote:I have my corrected pension payment at age 65 and also my estimates for ages 66, 68 and 70. ...Code: Select all
Monthly payment at age 65: $2628 Delaying to age 66: Payment $2903, return 8.08% 68 Payment $3578, return 9.46% 70 Payment $4470, return 11.14%
Code: Select all
8.07% = RATE(19, 12 * (2903 - 2628), -1 * 12 * 2628, 0, 0)
9.46% = RATE(17, 12 * (3578 - 2628), -3 * 12 * 2628, 0, 0)
11.15% = RATE(15, 12 * (4470 - 2628), -5 * 12 * 2628, 0, 0)
Code: Select all
Cash Flow For Delay 65 To IRR For Delay 65 To
------------------------- -----------------------
Age 66 68 70 66 68 70
Code: Select all
65.5 (31,536) (31,536) (31,536)
66.5 3,300 (31,536) (31,536)
67.5 3,300 (31,536) (31,536)
68.5 3,300 11,400 (31,536)
69.5 3,300 11,400 (31,536)
70.5 3,300 11,400 22,104
71.5 3,300 11,400 22,104
72.5 3,300 11,400 22,104
73.5 3,300 11,400 22,104
74.5 3,300 11,400 22,104
75.5 3,300 11,400 22,104
76.5 3,300 11,400 22,104
77.5 3,300 11,400 22,104 3.69% 2.96% 1.79%
78.5 3,300 11,400 22,104 4.72% 4.23% 3.41%
79.5 3,300 11,400 22,104 5.56% 5.25% 4.70%
80.5 3,300 11,400 22,104 6.25% 6.08% 5.73%
81.5 3,300 11,400 22,104 6.83% 6.76% 6.56%
82.5 3,300 11,400 22,104 7.31% 7.33% 7.24%
83.5 3,300 11,400 22,104 7.72% 7.80% 7.81%
[84.5] 3,300 11,400 22,104 [ 8.07% 8.20% 8.28% ]
85.5 3,300 11,400 22,104 8.37% 8.54% 8.67%
86.5 3,300 11,400 22,104 8.62% 8.83% 9.01%
87.5 3,300 11,400 22,104 8.84% 9.08% 9.29%
88.5 3,300 11,400 22,104 9.03% 9.30% 9.53%
89.5 3,300 11,400 22,104 9.20% 9.48% 9.74%
90.5 3,300 11,400 22,104 9.34% 9.64% 9.92%
91.5 3,300 11,400 22,104 9.47% 9.78% 10.08%
92.5 3,300 11,400 22,104 9.58% 9.90% 10.21%
93.5 3,300 11,400 22,104 9.68% 10.01% 10.33%
94.5 3,300 11,400 22,104 9.76% 10.10% 10.43%
95.5 3,300 11,400 22,104 9.84% 10.18% 10.52%
96.5 3,300 11,400 22,104 9.90% 10.25% 10.60%
97.5 3,300 11,400 22,104 9.96% 10.32% 10.67%
98.5 3,300 11,400 22,104 10.02% 10.37% 10.73%
99.5 3,300 11,400 22,104 10.06% 10.42% 10.78%
Re: Delaying pension benefits - what would you do?
I always found the calc of payback period to be misleading. I focused on how many years I would get more monthly income. That assumes I can fund the wait and support a nice lifestyle to collect a higher amount from pensions. The best deferred wait is to collect is Social Security so that should be a higher priority especially if spouse has no pension of her own.
I waited to collect my 2 pensions until they reach maximum value (one at age 60 and the other at 65). Wife (with no pension) took her SS at age 62, I took a spousal on her SS when I was 66. Next year I will collect my SS at age 70. I am fortunate to have been able to fund the wait to collect these higher amounts by using my taxable account. Now I will have the maximum income for the rest of my life and my wife will have my higher SS for the rest of her life. Early death would be unfortunate but I don't feel we have sacrificed any lifestyle wishes -- just taxable money. On the other hand a long life for either of us will be better funded as will unexpected expenses.
Luck plays an major role in any decision. Health, inflation, markets, viability of companies paying my pensions, etc. Luck has been good so far in that despite funding for almost 10 years and having a conservative investment allocation, our financial assets have never been higher. But I also feel if our investments were down a lot I would be glad we had higher income and was less reliant on investment assets.
I waited to collect my 2 pensions until they reach maximum value (one at age 60 and the other at 65). Wife (with no pension) took her SS at age 62, I took a spousal on her SS when I was 66. Next year I will collect my SS at age 70. I am fortunate to have been able to fund the wait to collect these higher amounts by using my taxable account. Now I will have the maximum income for the rest of my life and my wife will have my higher SS for the rest of her life. Early death would be unfortunate but I don't feel we have sacrificed any lifestyle wishes -- just taxable money. On the other hand a long life for either of us will be better funded as will unexpected expenses.
Luck plays an major role in any decision. Health, inflation, markets, viability of companies paying my pensions, etc. Luck has been good so far in that despite funding for almost 10 years and having a conservative investment allocation, our financial assets have never been higher. But I also feel if our investments were down a lot I would be glad we had higher income and was less reliant on investment assets.
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Re: Delaying pension benefits - what would you do?
But, what do you want to do? Do you want to work? Do you want to travel? I planned to work longer, then I got a new boss that made really bad decisions. I decided that I would rather retire earlier, and I have not regretted a reduced pension to get out faster. But, if I had kept my old boss, I would have stayed longer and I would not have regretted that either. There is more to this decision than $.
Re: Delaying pension benefits - what would you do?
OP didn't specify whether he's still working or not, but I took it to be a pension plan with a penalty (or bonus depending on how one views it) for delaying. Mine works like that, once you've qualified and left the company you can decide when to take it. You can start as early as 12 years before the full retirment age, or any time between that and FRA as you please. For each year before FRA, there's a 5% penalty imposed on the retirement amount. I'm hoping to be FI around 5 years before the FRA, and if that happens I'll have to make the same type of calculations.retired early&luv it wrote:But, what do you want to do? Do you want to work? Do you want to travel? I planned to work longer, then I got a new boss that made really bad decisions. I decided that I would rather retire earlier, and I have not regretted a reduced pension to get out faster. But, if I had kept my old boss, I would have stayed longer and I would not have regretted that either. There is more to this decision than $.
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Re: Delaying pension benefits - what would you do?
The most important thing in a pension is longevity insurance. The chance your spouse might live a lot longer t h an that.ABS wrote:I will be turning 65 in a few months and will be eligible for a pension, 100% J & S, amount $2640/month. If I wait till 66 it increases to $2903/month. My spouse will not have any pension from her job. I am figuring the break even point to be 11 years, based on the following:
Retiring at 65 cumulative benefits after 11 years: $2640X12X11 = $348,480
Retiring at 66 Cumulative benefits after 10 years: $2903X12X10 = $348, 360
If I do not have an issue with cash flow and assuming life expectancy till 85, would I be better off delaying taking my benefit?
Please critique; your feedback is appreciated.
Assuming there is no risk of plan sponsor going broke in the next 12 months, by delaying one year you have bought your spouse a higher insurance amount.
Usually that is the best thing to do assuming no other financial needs.
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Re: Delaying pension benefits - what would you do?
Very good point. But if with the pbgc multi employer programme that is in serious financial trouble. One should consider taking the pension immediately or a lump sum transfer out if possible.ThePrune wrote:+1 I agree with #Cruncher's strictly financial analysis.
From a Risk Control perspective:
(1) Do you have any reason to believe that future pension payments would be at risk of severe reduction or termination? (Example: a public pension paid by Illinois). If so, it might be a reason to start the pension sooner and retain you personal investment funds.
(2) If your pension is covered by the Pension Benefit Guaranty Corporation, you appear to be well within the dollar limits for full protection.
Re: Delaying pension benefits - what would you do?
My calculus is not about break-even points but rather about how all the moving parts synch.
I am 66, delaying both pension and SS 'til 70. Free longevity insurance. Any day that I read that rules/plans are changing for either SS or my state pension, I'll reconsider and promptly file an application for payout benefits.
My 66-69 years will be minimal income years, so low brackets can filled by Roth conversions, reducing taxable RMDs >70.
Additionally, my state exempts up to $24k of "pension/annuities" income from taxation; definition includes Roth conversions. So I have a 4.63% tax incentive to siphon tIRA money pre-70, when that $24k gimme gets filled by SS.
I am 66, delaying both pension and SS 'til 70. Free longevity insurance. Any day that I read that rules/plans are changing for either SS or my state pension, I'll reconsider and promptly file an application for payout benefits.
My 66-69 years will be minimal income years, so low brackets can filled by Roth conversions, reducing taxable RMDs >70.
Additionally, my state exempts up to $24k of "pension/annuities" income from taxation; definition includes Roth conversions. So I have a 4.63% tax incentive to siphon tIRA money pre-70, when that $24k gimme gets filled by SS.
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Re: Delaying pension benefits - what would you do?
I added the color to "bought" as a highlight.Valuethinker wrote:The most important thing in a pension is longevity insurance. The chance your spouse might live a lot longer t h an that.ABS wrote:I will be turning 65 in a few months and will be eligible for a pension, 100% J & S, amount $2640/month. If I wait till 66 it increases to $2903/month. My spouse will not have any pension from her job. I am figuring the break even point to be 11 years, based on the following:
Retiring at 65 cumulative benefits after 11 years: $2640X12X11 = $348,480
Retiring at 66 Cumulative benefits after 10 years: $2903X12X10 = $348, 360
If I do not have an issue with cash flow and assuming life expectancy till 85, would I be better off delaying taking my benefit?
Please critique; your feedback is appreciated.
Assuming there is no risk of plan sponsor going broke in the next 12 months, by delaying one year you have bought your spouse a higher insurance amount.
Usually that is the best thing to do assuming no other financial needs.
JMO, Use It or Lose It.
However, by waiting 1 year, You will have gained 10% more immediate benefit. Less taxes, of course
We took SS early. Turning on another couple of GWLB annuities for the 20% increase in benefit, age 70. RMD friendly. Don't need the cashflow either.
Next year, I hope to do more traveling, while I got the chance. Health issues, regardless of what spouse says.
Rev012718; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax TBT%. Early SS. FundRatio (FR) >1.1 67/70yo
Re: Delaying pension benefits - what would you do?
Thank you #cruncher for your analysis and guidance and thanks to everyone for your insights. As long as I am comfortable living off my current assets, I'll delay collecting pension payments until 70. SS strategy is to collect spousal benefits at FRA and full benefits at 70.
Re: Delaying pension benefits - what would you do?
I'm puzzled with the above wording ; on a quick read it sounds like "ABS" could anticipate a pretty good investment return by opting to delay a year ; however, to me it says that ABS would have to earn 7.4% on that extra $3,156/year consistently for 19 years to be in the same position in 19 years that he would have been in had he been able to invest that forsaken $31,680 at the same 7.4% for 19 years which is impossible since he gave up the $31,680 ???#Cruncher wrote:Yes. By forsaking $31,680 (12 * 2640) for one year, you'll get $3,156 (12 * 2903 - 31680) more per year for 19 years (85 - 66). This represents a very good return of 7.4%. [1] The likely return is even higher if your wife is no older than you and you're both in average or better health. [2]
Maybe #Cruncher can provide more detail on how ABS would get a 7.4% return ? or maybe someone else understands it and could shed some light ?? II just don't understand who's getting that 7.4% return
Re: Delaying pension benefits - what would you do?
(I'll use ABS' revised figures from this post that show $2,628 per month if start at age 65 or $2,903 per month if start a year later at age 66.)ubermax in previous post wrote:Maybe #Cruncher can provide more detail on how ABS would get a 7.4% return?
If ABS delays his pension from age 65 to 66 he gives up $31,536 (12 X 2628). In exchange beginning one year later he will collect $34,836 (12 X 2903) every year instead of $31,536, an increase of $3,300. If he or his wife live 19 years this is like investing $31,536 and getting $3,300 per year for 19 years in return. This is an 8.07% rate of return as computed with the Excel RATE function:
Code: Select all
8.07% = RATE(19, 3300, -31536, 0, 0)
Code: Select all
Starting 8.07%
Year Balance Interest Withdrawal
Code: Select all
1 31,536 2,545 (3,300)
2 30,781 2,484 (3,300)
3 29,964 2,418 (3,300)
4 29,082 2,347 (3,300)
5 28,128 2,270 (3,300)
6 27,098 2,186 (3,300)
7 25,984 2,097 (3,300)
8 24,781 1,999 (3,300)
9 23,480 1,895 (3,300)
10 22,075 1,781 (3,300)
11 20,556 1,659 (3,300)
12 18,915 1,526 (3,300)
13 17,141 1,383 (3,300)
14 15,224 1,228 (3,300)
15 13,152 1,061 (3,300)
16 10,913 881 (3,300)
17 8,494 685 (3,300)
18 5,879 474 (3,300)
19 3,054 246 (3,300)
20 0
------ --------
Sum 31,164 (62,700)
Code: Select all
Starting 8.28% Add or
Year Balance Interest (Withdraw)
Code: Select all
0 31,536
1 31,536 2,610 31,536
2 65,682 5,437 31,536
3 102,655 8,497 31,536
4 142,688 11,811 31,536
5 186,035 15,399 (22,104)
6 179,330 14,844 (22,104)
7 172,070 14,243 (22,104)
8 164,209 13,592 (22,104)
9 155,698 12,888 (22,104)
10 146,481 12,125 (22,104)
11 136,502 11,299 (22,104)
12 125,697 10,405 (22,104)
13 113,998 9,436 (22,104)
14 101,330 8,388 (22,104)
15 87,613 7,252 (22,104)
16 72,761 6,023 (22,104)
17 56,680 4,692 (22,104)
18 39,268 3,250 (22,104)
19 20,414 1,690 (22,104)
20 0
------- ---------
Sum 173,880 (173,880)
Re: Delaying pension benefits - what would you do?
Your SS starts at age 66, so wait one year then go for the gold! Meantime payoff any outstanding bills and consider downsizing in general. After a year or so of relaxing and being free, look into part-time jobs if you feel like it, or let the wife continue working maybe.
SeeMoe, retired 21+ years and loving it!
SeeMoe, retired 21+ years and loving it!
"By gnawing through a dike, even a Rat can destroy a nation ." {Edmund Burke}
Re: Delaying pension benefits - what would you do?
Not buying it and it's obvious that OP didn't either , he's passing up both early retirement and your great "return" argument to delay until 70 ; put another way if he was giving up a "guaranteed" 8% return on the annual amount he could have had starting at 65 , then in 19 years he would be in the same financial position if "he" could have earned 8% on that extra 3300 hundred - lot of "what if's" and an 8% return is a pretty high bar .#Cruncher wrote:If ABS delays his pension from age 65 to 66 he gives up $31,536 (12 X 2628). In exchange beginning one year later he will collect $34,836 (12 X 2903) every year instead of $31,536, an increase of $3,300. If he or his wife live 19 years this is like investing $31,536 and getting $3,300 per year for 19 years in return. This is an 8.07% rate of return as computed with the Excel RATE function:
Re: Delaying pension benefits - what would you do?
Delaying pension start from 65 to 66 does provide a very good return. This isn't altered because delaying from 65 to 70 provides an even better one. Both delays return about 8% on the age 65 pension that is not taken. But if one delays until age 70, one gets the 8% return on five years of that pension instead of on just one year. This is like choosing to invest $5 at 8% instead of only $1 at 8%.ubermax in previous post wrote:Not buying it and it's obvious that OP didn't either , he's passing up both early retirement and your great "return" argument to delay until 70 ...
Perhaps the options of when to start the pension are better evaluated by calculating the present value (PV) of all four (starting at 65, 66, 68, or 70 presented by ABS in this post) when discounted at the same normal discount rate. The next-to-last row of the following table does this using a discount rate of 4%, which I believe is realistic in today's interest rate environment. The last row shows that the PV increases $12,000 when one delays from age 65 to age 66; but it increases $63,000 when one delays from age 65 to 70. So, delaying to 70 certainly does appear to be the best choice of the four. But if the only options were starting at age 65 or at age 66, then the latter would be the one to choose.
Code: Select all
Row Col A Col B Col C Col D Col E Col F
1 Assumed years 20
2 Pension start age 65 66 68 70
3 Monthly pension 2,628 2,903 3,578 4,470
4 Annual pension 31,536 34,836 42,936 53,640
Rate
6 66 equals 65 8.0686% [320,237] [320,237] 321,114 322,455
7 68 equals 65 8.2046% [317,231] 316,938 [317,231] 317,997
8 70 equals 65 8.2774% [315,640] 315,192 315,177 [315,640]
9 Normal discount rate 4.0000% 437,072 448,649 473,559 499,897
10 Versus 65 11,577 36,487 62,825
The main formula in the table above is the one in cell C6 which is copied down and right to fill the range C6:F9. It uses the Excel PV function.
Code: Select all
C6: 320,237 = -PV($B6, $B$1 - (C$2 - $C$2), C$4, 0, 0) / (1 + $B6) ^ (C$2 - $C$2 - 0.5)
F9: 499,897 = -PV($B9, $B$1 - (F$2 - $C$2), F$4, 0, 0) / (1 + $B9) ^ (F$2 - $C$2 - 0.5)
C6: 320,237 = -PV(8.0686%, 20 - 0, 31536, 0, 0) / 1.080686 ^ -0.5
F9: 499,897 = -PV(4%, 20 - 5, 53640, 0, 0) / 1.04 ^ 4.5
By the way, ubermax, why do you format all your posts in bold-italic? Reading them gets tiresome after a while -- like reading ones THAT ARE ALL IN CAPITAL LETTERS.