Personal Finance (Not Investing) • When to draw pension?

Currently my spouse and I are 50, and plan to retire at 58 together. (Due to medical issues and just the desire to be done) We have adequate non- retirement savings to pay all our expenses for 18 months now, and I could easily grow that more prior to retirement.
We both work corporate jobs with fixed (no cola) pensions and 401ks. Our pensions are fully funded to the extent the law allows and held by an employee association; I have no concerns about pension solvency like I do with our future Social Security payments. Our company to my knowledge has never offered lump sum buyouts of the pension. My spouse and I are both eligible to keep our employee health insurance (current cost $460 ea.) until Medicare kicks in regardless of starting to drawing from our pension or not at the point of retirement.

My spouse makes 6% more than me with pension payments approx. 5.5% larger than my numbers I am sharing below. My question is.....Assuming I plan enough savings now to live off of through any gap years. 1. When would you recommend we start retirement? and 2. When do we start drawing pensions? and why?

retire and draw @ 58: $49,218.72
retire @ 58 draw @ 59: $52499.88 (6.66% increase)
retire @ 58 draw @ 60: $55.781.16 (13.33%)
retire @58 draw @61: $59,062.44 (20%)
retire @58 draw @62: $65,624.88 (33.33%)

retire and draw @ 59: $55,519.32
retire @ 59 draw @60 $58,989.24

retire and draw @ 60: $62,580.24
retire @60 draw @61: $66,281.48

retire and draw@ 61: $70,331.88
retire @61 draw@62: $78,146.52

Retire and draw@62: $81,672.84
retire @62 draw @63: same
retire@62 draw @64: same

Welcome to the Forum!

If you're just 50, you've got time to do some planning and change your mind about when to retire and when to start drawing the pension. However, it's good for you to get a frame of reference for now.

I focused on the five options that you gave for drawing your pension assuming you retire at age 58 - because that's when you said that you plan to retire.

I went to immediateannuities.com, which is my go-to site for quotes on payout annuities, to see how the increases that you would get for deferring payment by one year would compare to what a commercial annuity carrier would give. At that website, I assumed that you were a male who is "paying a premium" (that is, making a decision on when to start payments) when you're 58. I further assumed that the payout is "single life only"; that it, payments are made while you're alive and cease at your death.

Using the "start payments at age 58" as a base, I looked at how much payments would increase under the SPIA if you deferred payments to start at ages 59, 60, 61, and 62. I then compared the increase in the SPIA payments to what you would get from your pension plan.

For example, you say that deferring payments to start at age 59 would increase your monthly check by 6.66% compared to the age 58 payments. I found that a SPIA's income would increase by 6.0%. Starting pension payments at 60 would increase by 13.33%, while the SPIA would increase by 11.8%. Starting pension payments at 61 would increase by 20% over the base, while the SPIA would increase by 19.7%. And starting payments at age 62 would increase by 33.33%, compared to 28.7%.

Looking at the numbers in the prior paragraph, the pension plan increase for deferring the start date is consistently higher than the SPIA factor. That's the direction that you want to see it. You also note that there's a big jump in the pension payment between age 61 (20%) and age 62 (33.33%). That argues pretty strongly that deferring to age 62 is the best choice for you, if you can handle your finances between 58 and 62.

A couple of other comments -
--- If your health turns really poor, with death not far away, by age 58, you'd want to start the pension payments as soon as possible.
--- You ought to check into what will happen to your accrued pension if you retire at age 58, but then die before your start receiving payments. If the money is just "lost" if you die before pension payments begin, that might argue toward an earlier start date.

Once again, it sounds like you have plenty of time to think this through before you hit your target retirement age.

Post back with questions.

Statistics: Posted by Stinky — Fri Feb 23, 2024 3:50 pm — Replies 1 — Views 135

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