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Reader Case Study – Work 5 More Years to Collect Full Pension?

by retirebyforty on January 21, 2014 · 54 comments

in early retirement, financial independence, goals and milestones, readers

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Early retirement case study municipal bonds pension 401k social security

Hey Everyone,

Today, we’ll take a look at an early retirement case study. Adam wrote me a couple of weeks ago to see if he can get a second opinion on his family’s early retirement plan. Let’s go over their info and see if we can help them make up their mind.

The Current Situation

  • Adam is 49 and his wife Jane is 48.
  • They do not have kids and no one is relying on them financially.
  • Adam and Jane are ready to leave their corporate jobs. Their jobs are stressful and Adam has been assigned to 24×7 support for a long time.
  • They have pensions with their jobs, but if they quit before 55, then the pension payout will be 50% less. The company will also help with healthcare ($9,000 each per year) if they can hold on until they are 55.
  • Home is paid off.

Early Retirement Plan

Adam and Jane have been saving for retirement for many years and they are in a good position to quit their jobs now. They tracked their expenses closely and have a good idea of how much income they will need each year. Here is their tentative plan.

Age 49 to 55 – They have municipal bond income to cover their basic expenses including health insurance and one to two vacations/year.  As a municipal bond matures, even beyond age 55, Adam will try to get another 5% individual bond.

They also have about 3.5 years of expenses saved up in a saving account that they can use to supplement their expenses. They will probably need to dip into this savings to account for inflation.

Age 55 – When they turn 55, they will collect their pension and add $64,000 (pretax) per year to their income. This is 50% of the full pension they would get if they stay with their employers until 55.

Age 59 ½ – Adam projected that they can start withdrawing from their 401k for an additional $70,000 (pretax) per year. They hope that they can do this without depleting the principle. Total extra income $134,000/year (pension + 401k).

Age 62 – They will start collecting social security benefit valued at about $36,000 pretax. Total extra income $170,000 pretax from pension, 401k, and social security.

Age 65 – They will be eligible for Medicare and will save about $20,000 from health insurance.

RB40’s take

Now, I am not a financial planner and I am biased toward getting out early, so everyone will have to take my advice with a grain of salt.

To me, it looks like the sticking point is leaving 50% of their pension and the company sponsored healthcare coverage on the table. However, 5 years is a long time to endure a stressful situation especially if you don’t have to.

Here are some ideas

  • Call and talk to the retirement department and see if there are any other options. Some companies will occasionally vest pensions early to reduce their workforce. For example, Intel is cutting 5,000 people this year through attrition, buyouts, and early retirement offers. Adam might want to let his manager and HR know that he is really stressed out and would be open to an early retirement offer. (Adam responded that some employees were able to collect their pension at 50, but the company is trying to save money and he doesn’t think they will give any additional early buyout packages.)
  • Try to transfer to a less stressful position so he doesn’t have to be on call 24×7. A change of scenery might be what Adam needs to hold on a little longer.
  •  Take a sabbatical to see if they can really handle early retirement. Early retirement really isn’t an easy transition. I think they should try to take a 3 month sabbatical or something like that to see if they can adjust to not working. At my old job, you can take 1 month off unpaid and it wouldn’t interrupt any of the benefit or vesting schedules. This is a good option if they need to stretch out a little time to meet bonus deadlines or other vesting schedules. Check with HR.
  • One spouse works full time a little longer. This worked really well for us because we all signed on with Mrs. RB40’s health insurance and we have one stable income. Adam responded that his wife said NO WAY will she stay until 50. They are both ready to go out the door so this option isn’t realistic for them.
  • Work part time after retirement. I’m self employed part time in an enjoyable hobby and I think that’s a great option for anyone. Adam doesn’t want to do this because he wants to spend more time on home projects. Jane wants to pursue her baking hobby and take some classes. She may consider getting a minimum wage job having something to do with baking.
  • Financial Samurai’s book. I think Sam’s book, How to Engineer Your Layoff, is a great fit for Adam. You can read my review here. It shows that working with HR and your manager can be mutually beneficial and the payoff can be huge in Adam’s case. An early retirement package at 50 would set their minds at ease and make life very comfortable for them.

After a little more back and forth, it became clear that Adam and Jane will not be able to keep working in their stressful jobs until 55. The focus then became how much longer they should work.

Adam’s Exit Strategy

Milestones – one step at a time.

  1. Both will definitely try to work through March 2014 to get the bonuses. This will increase the saving to 4x annual expense.
  2. Both will try to work through May or June 2014 to increase savings.  This will increase the saving to 5x annual expense.
  3. I will try to make it to my 50th birthday in 3rd qtr of 2014 to protect my current pension.
  4. Will try to work through December to double savings. By then we will have the equivalent of 6.5 years of expenses if both work until then.  (Jane will NOT commit to this!)
  5. If we make it to December 2014, then we should stay until March 2015 to collect the bonus. If Jane makes it this far then she will work a couple of months to reach her 50th birthday in the 2nd quater in 2015.

 RB40’s take on Adam’s exit strategy

Working until March sounds like a good plan to me. It’s not long and they should be able to make it without irreversible physical and mental anguish. Adam probably should encourage his wife quit after they get their bonus. He can try to stay a bit longer if he’d like to be more secure. I think they are in a very good position already. It might be a bit tight with just the muni income for a few years, but they already have an additional 4 years of expense stashed in a saving account assuming they work until March. They can dip into this backup fund as needed. They might want to build some CDs or I bonds ladder to at least get a little interest from this liquid saving.

If I was in their position, I would leave earlier rather than later. That’s just my personality, though. I know I can make a little money on the side to cover any shortfall. I also don’t mind a little uncertainty. Adam is worried about the amount of saving they need, but I think they already have plenty at 4x annual expense. The municipal bond payout and saving should be more than enough to carry them through 55. After that, they will start collecting their pensions and should have plenty of income to play with.

Parting words from Adam and Jane

Several years ago, we went to Hawaii and it was a life changing experience for both of us.  We realized how much we can do without and how much simpler life could be.  All we had were two backpacks and we were HAPPY!  We even spoke of possibly retiring there one day.  When we returned home, we simplified our life by putting a stop to non-essential purchases that would make us happy just in that moment.  We practiced living on just basic necessities (give or take a few splurges after stressful incidents).  We tracked our expenses for the first time EVER and we brought our expenses down to less than 25% of net income – changed over to pay as you go cell phones; dramatically reduced clothing purchases, etc.

Hawaii is still just a pipe dream unless we can retire at 55 in order to buy a home there but it made us see how different life could be. We can’t see us working for another year or until 55.

If we stop working before 55 then we need to sell our home in order to move to Hawaii. For now, we will just plan to stay put to be near our family.

Adam: I DO NOT want to work EVER again!!!!!   I have been doing 24×7 supports for close to 25 years and I hate the stress. Being called after hours and on the weekends burnt me out.  I’ve had enough of getting up at the crack of dawn; working weekends/week nights.

Jane: 10 years ago I had informed Adam I’ve had enough!!!  I continued to put up with this for the past 10 years since I promised him I would stay as long as I can to build up the pension and personal savings.   I am at my limit.  Part time in minimum wage position purely for enjoyment is fine by me as long as we do not need to rely on it for income.

What do you think? Do you have any advice for Adam and Jane? Personally, I think congratulations are in order. They worked hard and saved for many years. It’s time to live a more fulfilling lifestyle and enjoy the fruits of their labor. Thank you to Adam and Jane for sharing their inspirational story!

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{ 54 comments… read them below or add one }

[email protected] January 20, 2014 at 12:27 am

They could retire next year and convert $12,400 tax free using the Roth IRA conversion on a 401K. The muni bonds cover their living expenses and that’s a zero tax and doesn’t count as income.
Or they can take $30,000 and pay only $1810 in taxes, ($30,000-12,400 deduction) The $18,000 is a 10% tax rate. Add that to their Muni and their good.

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Dividend Growth Investor January 20, 2014 at 1:12 pm

That sounds like a very good advice. Taking a tax deduction today to put money in a 401K, and then converting it into a Roth IRA while taxable income is low, is a win-win strategy for more efficient nest egg accumulation.

Honestly, it seems to me that they are relying way too much on fixed income like Muni Bonds and Pensions, while other assets that can protect them from inflation might are not as focused on.

Actually if they were earning $72K/year in qualified dividend income as a couple, and had no other source of income, dividends would be tax-free using current tax laws. Hence, the couple will get tax advantaged income, while also generating income that maintains or increases purchasing power over time.

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Adam and Jane January 20, 2014 at 5:54 pm

Thanks, we will look into a Roth IRA conversion.

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Nextbiteoflife January 20, 2014 at 1:10 am

We did it, and don’t even have the house paid off. I am the same age as him and my husband is a bit younger. We are living off our savings till early social security kicks in (if needed). Fear is the mind killer though and it took a while to get to that point. I like the HR idea, there is no harm in trying. Your advise is sound. They have enough to get by and there are no dependents. Good luck to them. Charles has said it all above. Enjoy life, it’s too short.

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retirebyforty January 20, 2014 at 9:36 am

Fear is definitely a huge deal. I think they will do very well, but it’s hard to walk away from a steady paycheck and lose 50% of the future pension.

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richard January 20, 2014 at 1:19 am

I would say quit.
Sound like they have had enough of work, and have enough not to work.

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Chadnudj January 20, 2014 at 5:01 am

Maybe this is my conservatism here talking, but I’m surprised sticking until 55 isn’t a higher priority.

As RB40 notes, there’s a LOT of ways to step down the stress of the job short of outright quitting — take a long sabattical, explore an alternative work schedule (3 or 4 days a week), take a lower salary for less hours/days/stress, maximize your vacation/sick days, letting HR know you’d be willing to take a buyout to leave early, etc. Since you COULD retire early, you have a lot of leverage with your employer here…..leverage it correctly, and you could end up with that 100% pension (or damn near close to it) without killing yourself for 5 more years. The difference between your health now and at 55 isn’t/shouldn’t be much (most people are physically in the same shape at 49 as they are at 55, in other words)…whereas getting that 100% pension would be pretty awesome to your bottom line, etc.

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retirebyforty January 20, 2014 at 9:39 am

That is one option. It really sound like they had enough, though. They would have a much better quality of life if they retire now. 6 years of freedom when you’re 50 is priceless. It just doesn’t seem like they need 100% pension to me. It probably won’t make a huge difference in their quality of life.

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Cindy @ GrowingHerWorth January 20, 2014 at 10:42 am

I would agree. Talking about losing 50% of a pension sounds rough. But you have to consider what “enough” is. It seems like they have enough to live comfortably for the rest of their lives. So why suffer to have more than enough? Sure, something could happen, and “enough” could prove to not be enough. But then, they could decide to stay until 55, and one of them could die at 53. None of us have any certainty about what the future holds. It seems they’ve planned well to this point. Might as well enjoy what they can and take a chance!

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Holly@ClubThrifty January 20, 2014 at 5:23 am

Question: Why do they need over $134,000 per year at age 59.5? That seems like a lot. If they could just live off of the reduced pension they would be much better off. It shouldn’t be that hard since they are mortgage-free.

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Adam and Jane January 20, 2014 at 4:45 pm

Holly,
Since muni will cover expenses and healthcare, the 64K pension will be used for the fun stuff in life. We expect inflation will increase expenses and will eat into the pension at some point. We agreed with you that if we don’t need to withdraw $70K yearly from our 401K at 59.5 then will leave it so that it will continue to grow.

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EMJ January 20, 2014 at 5:25 am

I’d try to find a way to stay until 55. Assuming they live until 85, leaving 64k on the table for 30 years is almost 2 million dollars. That will make up for any bumps along the way. I know it seems like an eternity, but 5 years is just 60 months… I’d find a way! I’d take extra vacations, try to transfer to another role, anything…. I’d just a cross that finish line.

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retirebyforty January 20, 2014 at 9:42 am

5 years is a really long time when you don’t like your job. I stuck around an extra year at my old job and time crawled by so slowly. Counting down the days really stretches it out.

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[email protected] January 20, 2014 at 6:24 am

I think we all can see that 50 percent of their pension is a LOT of money to leave on the table. I like the idea of engineering a layoff the best, or even looking for a demotion at their companies.

However, both Adam and Jane sound like they’ve had it. Six and seven more years of work at jobs you hate and are exhausted from sounds like torture. I say leap away into early retirement and enjoy. Just keep an eye on the munis as they aren’t completely risk-free.

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Green Money Stream January 20, 2014 at 6:27 am

It certainly sounds to me like they can retire early. I don’t see what their expenses are, but if the interest from the munis will cover expenses until age 55, I have to imagine that the pension at 55 and then adding in the deferred comp withdrawals at 59.5, will cover expenses. The only concern for me would be health coverage. Just make sure they could get adequate coverage if they retire early and that their estimated expenses take those premiums into consideration.

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Adam and Jane January 20, 2014 at 5:33 pm

Healthcare cost is a MAJOR expense. Our muni bond income covers expenses which includes 20K for healthcare. We plan to continue buying muni bonds when they are called or matured to provide a constant source of income for the rest of our life.

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Moneycone January 20, 2014 at 6:31 am

I agree with Richard! Quit and enjoy your golden years!

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EL @MoneyWatch101 January 20, 2014 at 6:40 am

Yes Congrats, you have saved enough to walk away. If it were me, I would work until the bonus and then begin talks with HR for a possible early retirement.

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mike January 20, 2014 at 8:39 am

Hi Adam and Jane:

1. congrats. You’ve done a great job at savings for your retirement. you are in a way better position than millions of other people your same age. In my mind you’ve made it.

2. not sure what second opinion you are seeking. but it seems like you’ve already made your mind in leaving. I think its an excellent idea, and you should go for it. I do agree waiting til March would be beneficial.

3. As far as waiting til 55 , don’t do it. Its just money. You can’t really put a price tag on time. Time is a limited quantity. once its gone, its gone forever. Money in mind is something you can always make more of it need be. Say you stay those extra 5 years and make more money so what? You basically lost those 5 yrs of your life that you will NEVER EVER get back. You could have been doing so much more those 5 yr, instead of toiling away.
It seems like you have plenty of money currently, and if its not enough it seems like you already know how, are willing to, and have been able to scale back.

Mike.

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retirebyforty January 20, 2014 at 9:44 am

5 years of freedom at 50 is priceless. You are still healthy and can do a lot of activities. Who knows what can happen in 5 years.

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Passive Income $amurai January 20, 2014 at 8:49 am

They have done a fantastic job over the course of their lifetimes saving, however I’d probably stick it out for a couple more years just to see what the heath care situation is going to be. With all the stories coming out about changing premiums, deductibles, and coverages, that $9000 assistance could be extremely beneficial to them.

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davidmichael January 20, 2014 at 9:58 am

Great article and debate. As one who gave up a pension and retired early, I’ll share my own experiences after being retired for 20 years.

Expenses add up in retirement. Just because one quits their job does not bring Nivana. The sad truth is that once you leave your professional job, your options are very limited, and they get worse over time as the age factor kicks in and few companies want to hire 70 year olds. I just finished three months working at Amazon as a seasonal workamper at age 77. Overall it was a gratifying experience. But…it was also like working as a slave for long hours (50 hours a week), ten hours a day of hard, physical work in a warehouse setting. And, I feel fortunate to have had the job. And, I have three advanced degrees.

Like Adam and Jane, I was fed up with work, and it was my own company! I sold it and retired at age 57. Built our dream house, and then a fanancial disaster hit us as our insurance company went bankrupt along with our retirement annuity, $650,000 down the tubes. There’s hardly anything out there that is guaranteed except US Treasury Bonds, assuming we don’t have an alien invasion from outer space.

We have had a wonderful retirement but we ended up working much more than we expected and never matched our professional salaries during our earlier years. So…hang in there, negotiate a way to make the work easier and less stressful, and reap the rewards of your hard work. Believe it or not, most likely you will have a good 30 active years of retirement starting at age 55. Municipal Bonds can go belly up as well. Breathe, enjoy each day, and do something special like longer vacations each year until full retirement.

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Petra January 24, 2014 at 8:22 am

Your story is, to say the least, a warning that you shouldn’t put all your wealth in one basket (the insurance company). Maybe you had more baskets anyway, but $650k down the drain, that must have hurt. (I’m sorry that that happened to you).

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Little House January 20, 2014 at 10:22 am

Based on how miserable they are in their jobs and the fact that they starting planning for retirement years ago and are in a good financial position, I’d say QUIT in March. Good luck Adam and Jane!

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Susan January 20, 2014 at 11:21 am

While I agree that this couple seems to have done an excellent job at planning to step away from their corporate jobs – davidmichael and EMJ have valid points as well. Pension payouts can change (example is a pension freeze) and in 6-7 years a lot can happen. Reducing pensions have become a popular area to increase a company’s bottom line As previously mentioned, MUNIs are not guaranteed. The corporate subsidy towards retiree medical can be reduced, or even taken away completely (these are voluntary, there are no “retiree medical” guarantee funds). Funding your own unsubsidized medical for 15 years will be expensive. Finally, if their 401Ks are invested in equities, as we all know there are bound to be fluctuations in the markets. And finally, there is a possibility that their social security benefits could be reduced in some way (or delayed past 62).

I guess it all comes down to how much risk this couple is willing to take – again, with a paid off house and many (potential) sources of income, it seems like they are in a good position if they have a strong risk tolerance. Good luck to you both!

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SavvyFinancialLatina January 20, 2014 at 11:28 am

Wow! Excellent case study! I’m a risk averse type and would probably find a way to stick it for another five years. I would take long vacations, use up all my sick days, etc. I would try to figure out how I could move to another position. I think they are lucky to have that pension. 50% is a lot they are missing out on. I probably would not need the money but I could definitely think of ways to donate to charity.

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Erich January 20, 2014 at 11:32 am

I can’t believe the company will cut their pension by 50% for 5 years of servitude. How can only 5 years be worth that much difference? This is why I hate the concept of pensions, you don’t have control over when to retire and how much payment to take, etc. Worst of all, it’s not even really your money. It all magically vanishes once you die (or only 50% for your spouse).

Let that be a lesson to all readers. Avoid fixed payment pensions, handle all of your investments you can on your own.

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jim January 20, 2014 at 12:41 pm

Erich, The effects of compound interest can make nearly that much difference. If you save annually for 25 years then you’ll have about 60% as much money as if you saved for 30 years. Plus if you retire early then you’ll have to spend more on the pension since they’d get paid 5 more years. So yes that extra 5 years can be worth 50% difference. MOST people would be a lot better off with a pension than handling their money on their own. Most people don’t handle their money all that well.

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Adam and Jane January 20, 2014 at 4:22 pm

Erich,
I did not believe it too when I heard this years ago from co-workers planning for retirement. When I use the company’s pension calculator with a date of one day before 55, the pension will be about 50% less then when I am 55. 55 is the magic number. I know a co-worker in the company that was eliminated two months before 55.

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Kevin January 21, 2014 at 10:12 am

That is new information. Eliminated 2 months before 55?

I don’t think it is worth the risk to your marriage and your sanity.

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jim January 20, 2014 at 12:37 pm

It sounds like they have enough funds and future money coming that they should be able to retire pretty comfortably. So if quitting now is really what they want then I say go for it.

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Done by Forty January 20, 2014 at 12:52 pm

What’s tricky with the exit plan is that there’s always a milestone just a few months away that makes the situation all that much sweeter. Hard to walk away when there’s always another benefit around the corner.

Great case study and I’m with you, Joe: I lean towards leaving early. But, man, that 50% extra and healthcare expenses does make it a harder decision than it normally would be. That’s a huge boon.

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Adam and Jane January 20, 2014 at 3:34 pm

Joe, RB40, Thank you for reviewing our situation and for posting it!

Thanks also to everyone for your comments!  Since we don’t know anyone that retired earlier than 62 in our family, we appreciate your different points of view.  It gives us different perspectives and alot to think about.

When we first reach out to Joe, we wanted to know how we are doing and if we saved enough.   

At this point, we will stay at least through March.  We will then see if we can make it to the next milestone(s).  Adam wants to stay a bit longer to June to save money if case we need to replace our 15 year old vehicle.  Since we are leaving so much pension money on the table, we will try continue our munis for the rest of our lives if possible.  We calculated yearly 2% inflation on expenses and when we are 90 there is still a positive cash flow assuming our munis continued.  We still plan to live frugally and travel when there is extra money to do so probably after we collect our pensions. Not working ever again will be our vacation :) 

 It is comforting to hear that many think we have enough.  There will come a time when enough is enough at work and we would be compelled to call it quits. The comment from davidmicheal age 77 scares us about not having enough money. The thought of working another 5+ years to reach 55 is torture but we agree that reaching 55 is more secure.  We will definitely consider speaking with our managers and HR.

Adam and Jane

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Doug @ The-Military-Guide January 22, 2014 at 6:28 pm

Congratulations, guys, for working through the hard questions. This situation comes up all the time in the military, where retirement cliff vests at 20 years.

The right answer is leaving before you damage your health (or worse). It’s only money. If you can declare victory at the March milestone and leave after that, the odds are on your side. You can always find part-time income in another field (if that’s even necessary), and your personal inflation rate may be a lot less than 2%.

You’ll also have the time to figure out how to set up your life in Hawaii. It can be done for less than most people think.

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retirebyforty January 23, 2014 at 8:39 pm

Thanks for sharing your experience. I has to be tough for the military especially if you’re working in a hazardous zone. I bet they’ll be able to set up in Hawaii too if they get creative.

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Bryce @ Save and Conquer January 20, 2014 at 9:48 pm

I would work the additional years just to get the healthcare as well as the additional pension money, but I am neither Adam nor Jane. It sounds like they have enough savings & pension to call it quits, and the desire to do the same. That being the case, congrats on reaching early retirement.

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Nicoleandmaggie January 21, 2014 at 5:35 am

My mil was in a similar situation. She finally changed jobs losing her vesting. It was like a completely different mil–her kids had never see her so happy.

Besides, who is to say they won’t eliminate you at age 54 and 10 mo? Illegal, but sounds like they did it to your former coworker.

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retirebyforty January 22, 2014 at 8:42 am

It’s great that your MIL was able to change job. Losing her vesting is a small price to pay for happiness. Life is too short to be miserable.

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Pam January 21, 2014 at 12:31 pm

davidmichael,

I am really sorry to hear about your annuity. I was under the impression that immediate annuities are insured against insurance companies not paying for any reason; and bankruptcy seems to fall in this category. If so, how did you lose your $650,000 due to insurance company going bankrupt? Was it another kind of annuity that isn’t insured?

Pam

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davidmichael January 30, 2014 at 8:23 am

Pam…
Not sure what it was called, but the annuity was purchased at age 45 based on a payout beginning 20 years later (at age 65 for my wife.) This was the largest bankruptcy at the time for an insurance company as I understand it due to bad investments in junk bonds, a la the Michael Milkin era (who went to jail for a short time.) Wikipedia has a brief summary of what happened to Executive Life Insurance Company, the largest insurance company in California at the time, although nothing related to what happened to the holders of an annuity.

The whole subject of annuities is complicated. But…long story short, annuities are not protected by the federal government. If your annuity company goes bankrupt more than likely you will receive cents on the dollar in return. Maybe a 10% purchase of retirement monies might work out, but 50% of your funds is asking for trouble…big time.

The only safe investment is Treasury Bonds. Despite the glamour of everything else, there is risk to every investment. In my three months of working at Amazon this past year, about 100 seniors (out of 400) who were working with me had lost their homes, their equity, and for some, their life savings due to the 2008 Financial Meltdown. Something to ponder when hoping to retire at age 40.

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Dividend Mantra January 21, 2014 at 5:38 pm

This is an easy one for me. I’d quit. Giving up 50% of a future pension doesn’t really matter much if you already have more than enough. I plan on giving up MILLIONS of dollars by retiring at 40 years old – millions of dollars in earnings I would have otherwise received if I were to continue working from 40-65.

Time is the only commodity you can’t buy more of, so why give it away so freely if you’ve already secured your future? I look at a guy like Mr. Money Mustache as the model here. Sure, he could have amassed a fortune worth millions of dollars had he kept working as an engineer, and his wife as a real estate agent. However, they have something worth more than money: time. And time is something you’ll never be able to get back once it’s spent. You can always go back to work if you miss it or you need the money.

Easy choice, in my opinion. I wish them the best of luck either way!

Best wishes.

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Renee s January 22, 2014 at 8:19 am

well put and these are exactly my thoughts!

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retirebyforty January 22, 2014 at 8:46 am

I agree 100%. If you don’t need it, why work so hard for it. Time is limited. I gave away millions of dollars too, but I am much happier and I don’t regret it at all.

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Evan January 21, 2014 at 6:23 pm

It is so hard to argue when the participants feel so strongly, but I would defer to a monte carlo analysis with and without pension income (with living expenses taken into consideration). I think the high and low number could provide a gut check.

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Maverick January 21, 2014 at 11:25 pm

Jane and Adam (ladies first):

You may want to take a close look at your company retirement plan publication. At my company, there was an interesting incentive at 53. At 53, if you were laid off, the pension plan was vested in full as if you were 55. Very few folks in my company knew of this feature. You may have something similar in your pension plan. This is one reason why Sam at Financial Samural says, don’t quit, get laid off.

I would also suggest you look at monte carlo analysis (like FIRECalc) using 5% return on a 60% stock/40% bond portfolio and 3% inflation on your future budget before making a final decision. (caveat: I’d suggest an 8% inflation on the healthcare budget portion) And finally, plan no more than 3% withdrawl on your first year of financial independence. If you can meet your budget projections based on these numbers, I’d say, pull the trigger.

Good luck in your final decision!

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Stef January 23, 2014 at 9:06 am

If I were you I would make very calculated moves. Like every decision there are many factors that influence your decision. Since I don’t know the specifics of your budget it is hard to say you have enough for retirement. But it seems like something has to change. But there are many options. When you laid out the plan for how long you would work you only addressed that aspect of your life. Lets say that you didn’t like work because by the time you got home and cooked and cleaned the house you had no energy left and your spouse was stressed. The question is would you like your job enough if you got home and it was clean with dinner ready and a happy spouse? Or if you took an hour lunch and went for a walk? So maybe by changing those things you might find you have enough in you to work a few more years. Someone to clean and cook for you is cheaper in the long run. Also maybe one of you can change positions in the company and the other can quit. That might give your life enough of a shakeup to make it worth it. I guess 50% pension is enough for me to look at outsourcing a lot of my chores to see if I could work longer. Five years can be both not very long and forever. The freedom of 50% more pension excites me it could be the difference between retiring and having an adventure in your retirement. Just food for thought.

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Joe January 23, 2014 at 1:57 pm

I would love to see more details about the pensions. I would not rely on a pension calculator. I would go directly to HR for an estimate. The pensions are very generous. For comparison, I worked for a company from 1986 to 1996 and since I left, I can’t collect my pension until I’m 65 – about $7200 a year. (10 years times 1.5% times 48k avg. salary).

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retirebyforty January 23, 2014 at 8:43 pm

That’s a great pension. I worked at my old company for 16 years and I can get $20,000 lumpsum when I turn 60. Pretty pathetic.

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Adam and Jane January 25, 2014 at 6:19 pm

Our pension calculator is very accurate. We are able to enter the exact last date of employment and the future date to collect(min age 55). My co-workers retired recently and they recalled that the numbers on our pension site were correct. They are in upper 50’s and are quite happy not working anymore. We are lucky that we are allow to collect at 55 which I verified with HR. When we are ready to go then we will call HR to verify the amounts. If we quit this April then pension will be 32K each at age 55. Every year that we delay then it increases by 1.1%. At age 60 it would be 48K each for example. At age 65, it would be 68K each. These amounts account for giving 75% of pension benefit to the spouse. Reading your comment about you only able to collect pension at 65 made us think what if we delay collecting our pensions for a year or more. Maybe we just collect one pension around 55 and let the other spouse’s pension grow larger. With these options, we need to play with the numbers to see what is good for us.

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Andrew@LivingRichCheaply January 24, 2014 at 7:40 am

A very tough decision. I will have a pension when I retire and my wife (who just started) will have a pension as well. They truly can be golden handcuffs because it kind of forces you to stay. I don’t have to make that decision for awhile, but I can see how taking a 50% reduction would be hard to swallow when you can get the max in 5 more years. But based on their feelings about their jobs, 5 more years probably isn’t worth it if their jobs are that stressful.

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Bridget January 25, 2014 at 2:08 pm

Great post with lots of interesting responses! Adam and Jane, I’d walk but I’m biased because this is what I plan to do when I turn 50 next year. Employers expect you to give them your life: no lunch (eat while you work), get to work very early so you can get a head start on the day, stay late so you can attempt what you started very early along with the newly acquired work during the day, work weekends to play catch up, attempt to take vacation while you remotely “check-in” to “stay on top of things”. Time is more important than money. There will always be a reason to stay longer to get just a little more. At some point you have to, as Nike says, “Just Do It”! I wish you all the best in early retirement.

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Adam and Jane January 25, 2014 at 6:54 pm

Bridget, we wish you the best when you retire at 50! We totally agree with you that more is demanded from workers. With layoffs and outsourcing, there are less people to do the work resulting in more stress for those who are left behind.

Time and health are more important than money. Money can’t buy health. This is the biggest decision in our life that will affect the quality of our remaining years.

Yes, the responses are VERY interesting!! We read them each a couple of times to gain as much knowledge as possible. It is good to see different view points. We are running our numbers with a doomsday scenario to see if we can survive if 1 or 2 sources of income cease to exist. We will post our findings when completed.

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Roger H January 26, 2014 at 11:45 am

Your assumption of a 2% inflation rate is very optimistic. This makes me think that your other assumptions may also be too optimistic. You need the extra money and the group health insurance. You want to be certain that your savings will last 40 years or so. A lot has changed since 1974. A lot will change by 2054. Find a way to work the 5-6 years.

Can you work 32 hr weeks and still qualify for the pension? Can you take a different position within the same company? Stick it out 6 years is not a long time to sacrifice.

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Marvin March 24, 2014 at 10:02 am

I absolutely love the fact that they have municipal bonds. I personally think the bond market is ripe for a crash but even at my young age I plan on piling into secure municipal bonds when they trade at a discount after the bond bubble pops.

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