I've recently been working a fair amount of overtime thanks to a co-worker's retirement and some staff vacations. It has been a great way to knock out debt. My co-worker retired, then waited the minimum amount of time and was re-hired. Same employer/same job/same pay. He did it in order to start drawing the pension(defined benefit). Another person did this last year as well. What are the pros and cons of doing this? Do the pros generally outweigh the cons? More info: I would be able to take full retirement at age 57,(as far as the defined benefit plan "rule of 85" is concerned) but would not be in a financial position to retire by that age. Is it wise to consider the same path as my co-workers so that I could draw the pension and also go back to work? The monthly flow from the pension could all go to retirement investing. The plan's estimate for my monthly benefit would be just over $2400, minus whatever reduction for surviving spouse benefit option. Of course I wouldn't have to return to work with the same employer, but that may be the easiest, most lucrative option. Apologies if I am not using board approved terminology. I'm not well versed in this stuff. Thank you!
Depends - does your pension go up if you put in more years before you take it? Some companies buy you an 'annuity' when you retire. Does your company 'self fund' from a pension plan system? If it does go up with more years, might not be worth getting in. HR might be able to help you there. If it doesn't - well......then it probably would be worth taking it - but you might not be able to get hired back - depending upon the economy......and the company. If you get hired back, do you get any pension benefits again, matching 401K or whatever? Or none of that? Most other companies probably have an 401K for new hires these days - and if you don't put in 5 years you don't get fully vested......t.
The questions that arise from your post are a few, bu the most important one has to do with the pension plan itself.Was there a change to the plan in recent years, or are there talks about coming changes?The advantage of doing this are that you lock in the pension amount and start collecting earlier. The disadvantage is that you loose potential growth within the plan over the next few years. What does that growth look like for you?As far a spouse pension benefits , The depends to a great extent on the ages of you an spouse. Again you need to know the plan specs for how it will affect you.Next, Are you sure they would take you back at current salary and other benefits?How would this affect Medical Benefits, Insurance Benefits, 401K benefits?If these other coworkers are 65 they go on Medicare for medical. You can’t do that. Could you get another job in todays job market, in the same salary range? Lot’s to think about.
"Was there a change to the plan in recent years, or are there talks about coming changes?"Where are you going with this Mike? I welcome your thoughts. The biggest change in recent years is that 3 or 4 years ago they stopped offering it to new employees, as I understand it. That created a lot of staff turnover, as new employees are now mostly college grads who work for a year, gaining experience as a stepping stone and then moving on. "The advantage of doing this are that you lock in the pension amount and start collecting earlier. The disadvantage is that you loose potential growth within the plan over the next few years."My thinking is that collecting earlier would be a way to greatly increase retirement investing. That would remove the disadvantage mentioned, and may well increase the overall growth. At age 57 I qualify for full retirement-unreduced. I don't know how much the monthly pension amount would increase if I postponed retirement for a year or ten. That's something else I need to look in to, as well as the medical bene. I'm not sure how that works. Thanks for your input!!
ManyBills,I was simply trying to make you aware of all the implications if you were to leave. 1. Pension- Does the pension still grow at a decent rate? What type of pension is it? Defined Benefits or Cash Balance. The difference - A defined Benefit plan ( Older Pensions) Give you a set amount for years of service and Salary. In General they tend to give higher payouts for longevity in the company. People working 30, 35, 40 + years getter bumps in pension amounts at certain milestones. A cash balance plan gives you a fixed amount which increases every year of service. Generally they are a bit smaller but they grow evenly as a percentage of salary each year.In General Defined Benefit Plans increase more in later years. If you have a Defined Benefit Plan you are probably giving up more pension growth than if you have a Cash Balance Plan. Read the plan Doc from HR.2. Company Health- Is the company in good shape? Is it a larger or smaller company? Is it in a growth industry or a declining one?3. Other Benefits- Medical, Insurance, 401K , etc. What do you loose if you leave?4. Will they hire you back at same salary? Will you get a job elsewhere at same salary. If you get another job with a pension, will you work another 5 or 10 years to see some benefit from that?Not trying to steer you one way or the other. Just want you to make an informed decision.************************I did this myself many years ago, but not by choice.Had a defined benefit pension for 23 years. Company changed pension to cash balance. Everyone with 25+ years stayed on original plan. Everyone from 2 - 24 years got the newer cash balance plan. This benefited the company because they now knew what the pension amounts would be looking forward. New Hires and those not yet vested in the plan got No Pension.When I had 32 years in they sold the division that I worked for. I retired at 32 years and started collecting my Cash Balance Pension. The older pension would have gotten me $800- $1000 more per month.I went to work with the company that bought us. Worked there for 11 more years. I was making my same salary, Had Medical and Insurance with them. Had 401K. Put a lot into 401K for those years and lived on Pension. After 43 years still have the pension and have decent balance in 401K so doing ok.***************************Best of Luck to you in your decision.Mike
I pretty much agree with Mike. All good points.Let me offer a couple of finer points....Pensions are actuarially rated such that whether begun at the earliest age or at the plan's full retirement age (usually 65), if you live to your life expectancy, the amount you receive will be about the same regardless of beginning age. It sounds like your pension is closed to new employees but you continue to accrue benefits as long as you work the minimum required number of hours per year. As long as your monthly benefit is below the max insured amount, the financial health of the employer really doesn't matter, as PBGC will insure the accrued benefit. But keep in mind, unless you take the joint survivor benefit (50% to 100% to surviving spouse, depending on the plan), if you die, your benefit will stop. Some plans may offer a guaranteed period of payments, say 10 years, such that if you die within 10 years, the plan will continue paying for the full 10 years. Again, this option depends on the plan.Medical coverage will likely be the major financial factor in your decision on whether to separate or continue. Have you priced the least expensive Bronze plan on the exchange in your area lately? You don't mention a family, but with premiums and deductibles, these things can get very expensive, until you hit 65 and switch to Medicare.Some plans will offer in-service distributions, such that you can begin reduced benefits after attaining age 59.5 while working.BruceM
I retired after 32 years to get out a lump sum in place of annuity. This option was part of a deal for the current company to buy the original company I worked for. I also get an annuity from the new company post-purchase. The annuity covers the retiree health insurance cost after tax for my family, though I will have to go off that plan and on to Medicare at 65.I was contacted by the same company a month after retirement to let me know they were set up to bring me back as contract labor. Took some negotiations but got my original salary plus cash equiv of benefits (insurance, vacation, stock savings match...). I was watching my wife spending way too much after that retirement bundle so was happy to go back to work! Plus teens heading to college.I retired early for few reasons,1. The lump sum retirement benefit was somehow being manipulated (they froze it for years-of-service increase, for example) and I was worried they might eliminate the option completely.2. The lump sum increased with age until 60, but then decreased due to actuarial tables.3. The lump sum amount was also inversally-linked to a corporate bond rate that was low, and I was afraid it would go back up.4. They eliminated a bonus which resulted in my first-ever salary decrease. Last straw!I chose the lump sum since I felt I could do better than 5% or so corporate bond rate that the was used to calculate the lump sum (present value of the annuity). Thanks to the Fools, that has been working out!Just chiming in incase any of this applies to your decision.
Best Of |
Favorites & Replies |
Start a New Board |
My Fool |