rosarugosa
8-7-12, 5:11am
I would welcome some input on a decision we are facing. DH separated from his employer 2 years ago and is vested in a defined benefit plan. They recently sent him a packet offering him choices of an early lump sum or a smaller pension beginning immediately, instead of him waiting until normal retirement age. He is 52 years old, and is currently working at a pleasant, low-stress, seasonal, but not particularly lucrative job. One of our goals is to allow him to continue this job and be “semi-retired.”
We don’t actually need the pension money to live on now. We’ve learned that we can manage on our current earnings, with my full-time job being our primary source of support. We’re not flush, but all of our needs are met, many of our wants, we have no debt, and we have an emergency fund. I also am vested in a DB pension and we both have 401K accounts, although DH is no longer contributing to his.
My immediate reaction was that we should not pursue either of these options and that we should wait and have him collect a larger pension when he is older. But I’ve been giving the matter a little more thought, and I want to make sure we’re making the best possible decision. I guess there are two factors in favor of collecting earlier: 1. he would collect for that much longer and 2. If he doesn’t live to a ripe old age, he gets something from the pension instead of potentially nothing (if for example he didn’t even make it to 65). I believe if he took the LS, that he could open an IRA and roll the money into the IRA and avoid the tax hit. If he took the small pension, perhaps we could start a Roth IRA with it. (I realize that unless we save/invest the money in some way, that it would definitely not be smart to take anything now). I checked an actuarial calculator, and it puts his life expectancy between 79 – 82. (I expect this might be a little optimistic though, because it doesn’t ask if you have a personal history of cancer, it just asked for history of certain types of cancer). We’re also not brilliant investors or anything, so I’ll assume any investment results we earn would be relatively modest.
The current pension would be small, and the pension at age 65 would be almost triple the current amount. I figure he would have to collect from 65 to 72 before waiting makes better financial sense, but after that point, he would lose a significant amount by not waiting if he lived to be 79 or more.
I still think waiting is probably the best choice, but wondered if anyone has any knowledge/insight about this type of scenario to share. Thanks!
We don’t actually need the pension money to live on now. We’ve learned that we can manage on our current earnings, with my full-time job being our primary source of support. We’re not flush, but all of our needs are met, many of our wants, we have no debt, and we have an emergency fund. I also am vested in a DB pension and we both have 401K accounts, although DH is no longer contributing to his.
My immediate reaction was that we should not pursue either of these options and that we should wait and have him collect a larger pension when he is older. But I’ve been giving the matter a little more thought, and I want to make sure we’re making the best possible decision. I guess there are two factors in favor of collecting earlier: 1. he would collect for that much longer and 2. If he doesn’t live to a ripe old age, he gets something from the pension instead of potentially nothing (if for example he didn’t even make it to 65). I believe if he took the LS, that he could open an IRA and roll the money into the IRA and avoid the tax hit. If he took the small pension, perhaps we could start a Roth IRA with it. (I realize that unless we save/invest the money in some way, that it would definitely not be smart to take anything now). I checked an actuarial calculator, and it puts his life expectancy between 79 – 82. (I expect this might be a little optimistic though, because it doesn’t ask if you have a personal history of cancer, it just asked for history of certain types of cancer). We’re also not brilliant investors or anything, so I’ll assume any investment results we earn would be relatively modest.
The current pension would be small, and the pension at age 65 would be almost triple the current amount. I figure he would have to collect from 65 to 72 before waiting makes better financial sense, but after that point, he would lose a significant amount by not waiting if he lived to be 79 or more.
I still think waiting is probably the best choice, but wondered if anyone has any knowledge/insight about this type of scenario to share. Thanks!