I am eligible to draw a retirement from a govt retirement. I would get around 641 dollars a month if I waited until I am 62. I would lose 5% for each year I draw early. Right now that is 30%. That 5% for each year will be perm and will affect any COLA caculations in the future. I am 56. Would it be better to draw now and invest it or wait until I am 62. I don't need it.. I don"t plan to actually thinking about retiring for another 10 years and maybe not then either. I have no debt. Once I turn 65 I actually will get more in retirement through investments and SS than I do working now. Health is good and family genetics say I will probably live into my 80s
Jerry K2007-05-17T11:24:15Z
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There are several factors to consider when answering a very common question such as this by those approaching retirement.
First of all, let's do some quick math. Since you would lose 30% by taking your pension payments now, your montly benefit would be $448.7. This amounts to $5,384.40 per year, and a total of $32,306.40 over the course of the next 6 years. I calculated this over the 6 years because that is how many years before you could begin drawing full pension of the $641.00 per month.
Before we consider anything else, let's compare just what we have at this point. If you take your pension now, it basically costs you $192.30 per month, but you gain $32,306.40 over the course of 6 years. At this point, we should divide the $ amount lost into the entire gain. In other words, how long would you have to live in order to earn the $32,306.40 from the additional 192.30 per month should you have waited?
32,306.40 / 192.30 = 168 months which equals 14 years. So, it would take you an additional 14 years in which at that time you could look back and say, I made a bad decision, or a good one.
What we haven't considered as of yet is the investment yield that you could earn with the $ invested. You indicated that you don't need it now, so you could invest it in a variety of different methods. Being conservative myself, and also realizing that you are a few years away from retirement, I wouldn't recommend placing these funds in high growth/high return/high risk products. Maybe a bond fund that earns 5 to 7% would be a good option for you. You can find this information out at any of the 2 big mutual fund companies, vanguard.com or fidelity.com.
So, if your money grows at 5-7%, what we didn't factor in is the cost, or expense, of this money.....and that is in the form of taxes. Your effective tax rate is determined by your taxable income, and not knowing what your income level is, it will be impossible for me to provide anything that is accurate.
However, let's assume that your income tax rate is going to be 15% on your new income of $5,384.40 per year. So, you would owe $807.66 in taxes but would also gain around $325.00 per year in investment income.
Since you don't need the income, and to offset the taxes, just up your 401(k) or 403(b) contributions to be the same amount in which you are receiving from your pension.
Sorry for how long this answer is, but the best I could do with the limited amount of information I have.
I would wait if I were you, especially since you're still working and don't need the money.
If you take it now, your benefit will be *permanently* reduced by $192.30 per month or $2,307.60 per year. In order to make $2,307.60 per year on your savings (assuming an interest rate of 5%), you'd need to have $46,152 saved.
If you start taking retirement pay now, you'd get $448.70 per month or $5,384.40 per year, which would be reduced by taxes; so let's say you'd have $4,000 left. If you do this for six years (until you're 62), you'd only have $24,000 saved. The $24,000 would only generate $1,200 in additional income at 5%.
Also, the fact that you will probably live into your 80's is a factor. The longer you think you'll live, the more sense it makes to wait to collect pensions or social security. This is especially true in your case because you plan to work for many more years and do not currently need the money.
And you can always start collecting it at any time if your circumstances change.
The longer you wait the more you get, so if you can wait then you should. You're still to young to apply for retirement benefits, go find a part time job and be out in the world.
I don't really understand. You can't draw retirement unless you retire, but you said you aren't for 10 years or more so I just don't get it. Maybe I missed something.