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Should I Work Longer to Increase My Pension?


Should I Work Longer to Increase My Pension?Earlier this month, Mrs. RB40 (my wife) came home from work in a huff and gave everyone a hard time. Turns out, her boss is leaving soon and her job will most likely change. She really enjoys her current job so this upcoming change unsettled her. Luckily, we already achieved financial independence so she has more choices than many of her coworkers. Things have calmed down a bit since then. She plans to stay for a while and see how everything shakes out. For now, she’ll stick to her 2020 early retirement target date. Anyway, it is a good time for us to go over her retirement benefits and see where she stands. Should she work longer to increase her pension and other retirement benefits?

401k Plan

The first part of Mrs. RB40’s retirement benefits is her 401k plan. She started working with her current employer in 2006 and she maxes out her 401k contributions every year. When she retires in 2020, she can rollover this 401k plan into a traditional IRA or just keep it with her employer. Both choices are good. Her employer’s 401k plan has very low fees and it is a great place to park her retirement fund and let it accumulate.

However, if she wants to access this stash before turning 59 ½, then it’s best to roll it over into a traditional IRA. Once there, she can build a Roth IRA ladder by doing a partial conversion every year. This way she can access her retirement fund and avoid the 10% early withdrawal penalty. You can read more about the Roth IRA ladder here.

Her 401k plan did very well over the last 12 years. She started with nothing in the account and now it is worth more than $360,000. This is why I think the 401k plan is awesome. You won’t even miss the money because it comes out of your paycheck before you see it. Most workers should contribute as much as they can to their 401k.

This 401k plan is easy because it doesn’t matter when she retires. She will get to keep the whole amount whenever she retires.

Social Security

Next is Social Security benefits. This one is pretty easy too. Mrs. RB40 has already worked long enough to receive Social Security benefits. She can start receiving the full benefit when she turns 67. Alternatively, she could start collecting when she turns 62, but the benefit will be reduced. Both cases are a long way off so we won’t see these checks anytime soon. I think it’s probably best to delay the Social Security benefit until she turns 67. That way, she’ll get the full amount.

Her current Social Security benefit estimate is around $2,400/month. This Social Security estimate will decrease a bit if she retires early because her future earnings will be less.

Pension benefits

This is the tricky one. Mrs. RB40 is lucky enough to work for an employer with pension benefits. Their pension program is somewhat complicated so I’ll just give an estimate.

When Mrs. RB40 retires in 2020, she will be 46 years old. That’s way younger than the usual retirement age and she won’t be eligible for pension right away. However, she can defer her pension benefit until she turns 62.

From what I understand, Mrs. RB40 will receive about $1,100/month from this program when she turns 62, assuming she retires in 2020 and defers it. At this rate, working a few years longer won’t make a big difference in her pension benefit. Each year will be incremental. She’d need to work many more years to increase this benefit significantly.

I haven’t looked at her pension benefit closely before so this is a pleasant surprise. I thought she wasn’t going to get anything. $1,100/month is a very nice bonus. As a comparison, my pension benefit from 16 years at Intel will be about $350/month when I turn 65.

She won’t get this pension benefit when she retires in 2020, but it will be there when she turns 62. I think that’s fantastic.

Healthcare benefit

Lastly, there is one more great benefit from her employer – healthcare coverage. However, she probably won’t be able to take advantage of this one. If she works here until she turns 57, then she can keep her healthcare coverage into retirement. This is a huge benefit for early retirees. However, Mrs. RB40 is just 44. I don’t want her to work full time for 13 more years. 57 is a long way off.

We are on her health insurance plan right now and it’s great. The premium is affordable and the coverage is good. We’re very happy with this plan and our doctors. This is my biggest worry when Mrs. RB40 retires in 2020. We’ll probably get a silver plan through healthcare.gov. This will cost us about $500/month. Mrs. RB40’s current plan is better, though. It costs less and has better benefits. Too bad she can’t keep it after she retires early.

However, there is a hack. From what I read, she can go back to work when she’s 56 in 2030. She can enroll in the employer sponsored health insurance plan for a year and retire again at 57. Then she can keep this health insurance forever. This sounds like a good trick, but I doubt she would want to go back to work full-time at that point. Also, this hack might not work by then. Things change all the time.

We’ll have to note it down and investigate this again when she’s closer to 57. This trick might come in handy if healthcare cost continues to skyrocket in the US.

Early Retirement Summary

In summary, Mrs. RB40 has a pretty sweet retirement package. She won’t be able to take advantage of everything right away, but the benefits will be there for her in the future. Here are the important dates.

  • Early retirement in 2020 – Mrs. RB40 retires early at age 46, around midyear. We’ll get health insurance from healthcare.gov and go with medical tourism for expensive procedures.
  • Roth IRA ladder from 2020 to 2030 – Over this 10 year period, she can build a Roth IRA ladder to avoid the 10% early withdrawal penalty.
  • Back to work in 2030 – Mrs. RB40 turns 56. Maybe she’ll go back to work for a year to get good health insurance coverage? This is entirely optional.
  • Retire again in 2031 – Mrs. RB40 turns 57. She can retire after working for one year and keep the health insurance.
  • Begin withdrawal from her retirement accounts in 2034 – She turns 59 ½. At this point, she can withdraw from her 401k and traditional IRA with no penalty. My back-of-the-envelope calculation indicates she can withdraw about $2,400/month. This is a very rough estimate based on 4% withdrawal.
  • Receives pension in 2036 – She turns 62 and receives her pension benefit, about $1,100/month.
  • Medicare in 2039 – Mrs. RB40 turns 65 and becomes eligible for Medicare.
  • Social Security benefit in 2041 – She turns 67 and receives full social security benefit, about $2,400/month.

Why she shouldn’t work longer than 2020

Mrs. RB40’s retirement looks great to me. The most challenging period financially will be the first 14 years, from 2020 to 2034. She will need to figure out how to fund her expense while minimizing withdrawal. It looks okay for now because our passive income + blog income are enough to cover our living expense. We will build a Roth IRA ladder and use it to cover any shortfall.

Once we both turn 59 ½, then withdrawal will become much easier. We can withdraw from our retirement accounts as needed. A few years after that, pensions and social security benefits will start rolling in. At that point, our retirement finance looks golden and we’ll probably both fully retire to a life of leisure.

I really don’t think she needs to work longer than 2020 unless she really wants to. Her finances look really good. There is income from various sources and the total amount looks very good.

Adding my retirement fund to the mix

If we take my retirement accounts and various hustles into consideration, the picture looks even rosier. I’m pretty sure our retirement income will be over $10,000/month. That should be more than enough for a comfortable retirement.

For a more comprehensive look, I put everything into the Retirement Planner at Personal Capital. This tool is really neat because it takes our current portfolio into account.

RB40 retirement fund

We are in excellent shape. Our projected retirement spending ability is $25,467 per month. That’s a lot of money. I think 8.6% annual return is probably too high, though. Anyway, our retirement looks good financially.

We might even have some money left over for a small legacy to our son.

Do you have a pension? How long will you have to work to receive it? Will it be enough to fund your retirement?

*Sign up for a free account at Personal Capital to help manage your money. I log in almost every day to check on my accounts and cash flow. It’s a great site for DIY investors. Check them out if you don’t have an account yet.

Image credit: Eutah Mizushima

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Joe started Retire by 40 in 2010 to figure out how to retire early. He spent 16 years working in computer design and enjoyed the technical work immensely. However, he hated the corporate BS. He left his engineering career behind to become a stay-at-home dad/blogger at 38. At Retire by 40, Joe focuses on financial independence, early retirement, investing, saving, and passive income.

For 2018, Joe plans to diversify his passive income by investing in US heartland real estate through RealtyShares. He has 3 rental units in Portland and he believes the local market is getting overpriced.

Joe highly recommends Personal Capital for DIY investors. He logs on to Personal Capital almost daily to check his cash flow and net worth. They have many useful tools that will help every investor analyze their portfolio and plan for retirement.

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{ 92 comments… add one }
  • Mr. Tako May 14, 2018, 12:28 am

    In this day and age, I think pensions are pretty rare. Usually only gov. employees have them at this point, but I know few large corporations still do. It’s cool that Mrs. RB40 has one.

    You guys seem like you’re in great shape if Mrs. RB40 quits! Thank goodness for financial independence, right?

    In my mind, flexibility is one of the most valuable parts of reaching financial independence. If a FI person doesn’t care for an employer, they can just move on with little financial repercussions!

    That there is *true* freedom.

    • retirebyforty May 14, 2018, 9:06 am

      I think she is in pretty good shape by herself too. If something happens to me, she will still be okay. That’s good to know.

    • Jay of 5to9 Living May 14, 2018, 10:20 am

      My thoughts exactly re: pensions being rare these days.

      I recently had this conversation with my mother and aunt, where I was filling them in on my plans to retire early and discussing some of my saving and investing strategies to help me get there. When they asked what my pension would be and I explained that pensions are rare these days, they were surprised to hear this and also more skeptical of my plans. We just have different mindsets is all, but they are rooting for me 🙂

  • Accidental FIRE May 14, 2018, 2:53 am

    I will get a pension when I turn 62 and after 24 years at my job it will be pretty nice, I’m happy for that. For healthcare, I’m in the same situation as your wife – I’d have to stay until I’m 57 to get our healthcare for life. A small part of me is tempted by it, but I don’t think I can in reality. If I could go down to extreme part time, like 8 hours a week and still get it then I would. But at 20 hours a week I’m already at the minimum for part time to keep my benefits.

    • retirebyforty May 14, 2018, 9:08 am

      How old are you now? Early 40s, right? I think most people can tough it out for 2-3 years. If it’s 10 years or longer, it doesn’t make much sense. Between that, I don’t know.
      Great to hear that you’re getting a pension. Will it be a significant amount? 24 years is a long time to work for one employer.

  • Half Life Theory May 14, 2018, 3:09 am

    Awesome post, my wife has a pension as well, and even though we are still many years away from pulling the trigger of early retirement, i’m very excited about it’s potential.

    If the healthcare hack works as planned, you guys will be golden! Either way you’ll still be sitting pretty in retirement. Congrats Joe!

    • retirebyforty May 14, 2018, 9:09 am

      Thanks! How does your wife’s pension work? Does she still get the pension at a certain age (62?) if she retire early? It seems pension rules are all over the place.

  • Chris Urbaniak @ deliberatechange.ca May 14, 2018, 3:26 am

    Good morning Joe,

    Your wife has got some sweet cash coming down the road – congrats! $2400 + $1100 + $2400 = $5900/mo. That alone is plenty to live on.

    If you’re concerned about the 14 years from 2020 to 2034, then why not consider just spending a large chunk of your collective portfolio to bridge those years? (I know, I know, spending capital probably breaks the most sacrosanct FIRE rule out there!)

    But as you said, once you bring in your own portfolio, you two will collective end up with far more than you’ll ever need. So why not spend a bit more now and optimize your lifetime spending and lifetime tax bill, and still have plenty to bequeath?

    • retirebyforty May 14, 2018, 9:12 am

      I didn’t figure in the inflation. $5,900/month will be worth much less in 20 years. But I think it will still be enough.
      We will withdraw from our portfolio as need over that 14 years period. I’m pretty sure it will be minimal because we have passive and blogging income. I set it up that way. Passive income is one kind of withdrawal. It’s not compounding if we use the money.
      Why not spend a bit more? I’m not sure. I guess being frugal is a habit now. I’ll try to loosen up in 2034. 🙂

  • Wow you will live like kings with income like that … I wrote about the kings part a bit this week from an overseas perspective … but seriously you have it made … from my country Social Security only kicks in if you work more than 15 years in the home country … so I have been overseas too long … though I am F.I. … but my wife is from overseas so she will get a pension too from her country … Asia has some good places for cheap medical care like Taiwan, China and …. etc South Korea and … Cheers, Michael CPO

    • retirebyforty May 14, 2018, 9:16 am

      I didn’t take inflation into account in this post. The cost of living might increase quite a bit too in 20 years.
      I wouldn’t mind living oversea for a bit. This kind of income would be awesome in Thailand or Malaysia.

  • Roseanne May 14, 2018, 4:28 am

    Hi Joe,
    I was SO thrilled to see this topic this morning. I am 59 and already am receiving one of the pensions I have earned. I can also earn a second pension worth more than the current one if I work five more years. At this point, while that sounds like an eternity my plan is to continue for those five years and then retire. Not early but with the additional benefits like healthcare it is too enticing to give up. I am glad to see that Mrs RB40 has calmed down and is staying for a bit. It may be a good change! Often change is resisted but once you live through it and come out on the other side, you often find it was for the best. Keep up the great work Joe! ~smile~ Roseanne

    • retirebyforty May 14, 2018, 9:18 am

      Good luck! I think it’s worth pushing on for 5 more years. That’s long, but you can do it.
      Healthcare benefit will be worth it.
      Thanks for the kind words for Mrs. RB40. I think her new boss will be just fine too. 🙂

  • Tom @ Dividends Diversify May 14, 2018, 4:39 am

    Nice benefits and retirement analysis. No pension here Joe. The last time I was covered by a pension plan was many years ago and I was to young to benefit from it when I left the company. Tom

  • [email protected] May 14, 2018, 4:55 am

    No pension here unfortunately. My wife had a small one. We were able to roll it into her 401(k) and take a bit more control of that money.

    The health care hack is fascinating. It would be amazing if it works. Can a nurse really get a job back after not working for 10 years?

    • retirebyforty May 14, 2018, 9:21 am

      I don’t know about Nurses. Maybe if they get some kind of retraining. Mrs. RB40 is in HR so I’m pretty sure she can get back in without too much problem. Low paying positions would be fine because pay wouldn’t be a consideration, just healthcare. I doubt she will want to go back to work after that long, though. It’s good to have that card in your back pocket, just in case.

  • Ms. Frugal Asian Finance May 14, 2018, 5:05 am

    I don’t have a pension. Somehow I thought that only the government offers that benefit.

    Hubby and I only have 401k as an investment for our retirement, and we just started maxing it out last year.

    Sounds like you and Mrs. RB40 have a solid foundation when you retire. 😀

  • Mr. AE May 14, 2018, 5:08 am

    Glad to hear Mrs RB40 has the option to do what she wants. If the new work situation causes to much stress she can say bye with minimal financial impact. Has to be a pretty good feeling.

    I agree on the healthcare piece, keeping that seems more important than any of the other financial impacts. It’s unfortunate how big of an impact that is making on people’s decisions – everyone getting close to FI has to do a ton of research before pulling the plug

    • retirebyforty May 14, 2018, 9:23 am

      Healthcare is so crazy here in the US. I don’t know why we can’t have healthcare like in Europe. I wouldn’t mind paying more taxes in exchange for moderately good healthcare.

  • Dave in Sunny FL May 14, 2018, 5:11 am

    “This 401k plan is easy because it doesn’t matter when she retires. She will get to keep the whole amount whenever she retires.”

    Well, sort of. The amount she gets to keep will be net of ordinary income, which charges some of the highest taxes. Even using the Roth conversion ladder, Mrs. RB40 is swimming upstream against a decade or two of gains, that will now also be taxable. Only a reduced percentage of the 401k account is actually available for the needs of the beneficiary. This is why I think everyone needs to STOP contributing to their 401k, beyond meeting any employer match.

    By accepting the salary and paying the tax, an employee has several better options: (1) Put the money into a Roth IRA, where all gain is forever tax free, and the principle is available to retrieve without penalty (following the timing rules). (2) Invest the money in an after-tax brokerage account. With long-term stock market returns, the gain would be subject to capital gains rates, which are lower than ordinary income (and could be zero, depending on the person’s tax bracket). (3) Invest in real estate, and any gain on sale can be deferred–potentially forever–using the 1031 exchange. The last one is my favorite, since real estate also gives you untaxed appreciation, cash flow, depreciation benefits, operating cost write-offs, and principal paydown by your tenant(s).

    I just can’t fathom the benefit of a 401k; the ultimate costs are too high. Yes, it’s automatic; but you can set up auto-deduction for option (1) Roth IRA as well. And even higher gains are available, with a little bit of work and dedication, using options (2) and (3).

    • retirebyforty May 14, 2018, 9:28 am

      You’re right. I didn’t take taxes into account in this post. We’ll probably do partial conversions as soon as she retires. If we keep the total within the first 2 income tax brackets, it should be fine.
      The reality is if a person doesn’t contribute to their 401k, she probably isn’t contributing to her Roth IRA either. Roth is a better option for people in lower tax brackets, but it’s secondary for most other people. You can’t contribute that much.

      Mrs. RB40 also contributes to her Roth IRA every year. Her account is worth about $100,000. That’s for over 20 years of work.

      401k is the easiest way to invest and workers should use it.

      Real estate is a very good option. I like that one.

      • Dave in Sunny FL May 14, 2018, 11:58 am

        “Roth is a better option for people in lower tax brackets, but it’s secondary for most other people. You can’t contribute that much.”

        Joe, the average wage in the US is somewhere between $51-55k; and the average savings rate is under 6% total. So, putting aside 10% of a typical salary for retirement–a pretty standard aspirational goal–would still be within the contribution limits of the Roth IRA. I entered the labor force when the IRA limit was $2k. Yeah, that was easy to hit and not sufficient for retirement. Now, I think that an annual $5500 added to an IRA ($6500 over 50) is more than most people are setting aside per year. And having Vanguard automatically pull the IRA money from the checking account was no different from an employer taking 401k (or 403b) contributions from a salary check, for me. Admit it, Joe–You’re exceptional! For those of us schlubs in your audience, however, the Roth IRA is superior to the 401k (absent an employer match).

        • retirebyforty May 14, 2018, 10:21 pm

          Thanks for elaborating. I think you’re right about average workers not saving enough.
          I also forgot about the catch up contributions. The extra $6,500 is not bad.

        • Pennypincher May 15, 2018, 4:27 am

          Dave, you know, I too question the 401K route to investing. There are hidden high costs that busy workers don’t consider. 401Ks are expensive. That and most times they come w/lousy options that seem to be benefiting the administrators of the funds through those high fees. Go to pbs/frontline, season 31, episode 8, “The Retirement Gamble”. 8 minutes into the film pretty much sums up this gamble. Everyone should watch this!

  • Dividend Diplomats May 14, 2018, 5:11 am

    My wife actually has a pension from her employers as she has worked for hospitals her entire career. Like you, it was a pleasant surprise when adding these items into our retirement equation. To answer the article’s question about working longer to receive a pension benefit, based on your description, it may not be worth it. Especially if the incremental increase is marginal and it would take many years to make a significant difference as you mentioned. If you are going to be comfortable with what you have in 2020, then I don’t see the need to incur those long hours!


    • retirebyforty May 14, 2018, 9:29 am

      I don’t think it’s worth it either. She will have to work at least 6 more years to reach 20 to have any meaningful increase. We’ll see how she feels in 2020.

  • Doc G May 14, 2018, 5:12 am

    Hey Joe. You guys look like you are in great shape. My wife has been strongly considering retirement soon. Health insurance is the biggest concern!

    • retirebyforty May 14, 2018, 9:29 am

      She can get on your plan, right? It’s a lot bigger issue when you both retire.

  • Pennypincher May 14, 2018, 5:39 am

    If Mrs. RB40 goes back to work at 57 for a year, she can have unlimited health insurance until Medicare kicks in? Wow. I can’t imagine what that would even look like the way the work environment changes.
    Looks like there are good options in rolling her 401k over into an IRA. And aren’t SS benefits even better if she waits until 70? Jr. will be out and on his own someday, and this will lessen your expenses as well. Whew. The Roth ladder is looking better by the day, for so many reasons.
    All I can say is, you just never know what the future will bring. None of us do. It’s out of our control. Major home repairs/improvements and new (or newer!) cars will be needed. It’s hard to factor it all in. Great post Joe!

    • retirebyforty May 14, 2018, 9:31 am

      Yeah, that’s what I think too. The rule will probably change by the time she is 57.
      I’m not sure about SS benefits. We’ll look at it again when we’re older. I think we will defer benefits unless we need it.
      Thanks for your input.

  • Lazy Man and Money May 14, 2018, 5:50 am

    The right time to take Social Security is always an interesting question to me. For the last several years I’ve thought the best plan for people who are FI is to take it as soon as possible and invest it. That 5 years of money coming in and investing makes it about the same the same as if you wait.

    However, by taking the money right away you get to have the money. If you wait until 67, but get hit by a bus at age 64, I don’t know how much your estate gets.

    • retirebyforty May 14, 2018, 9:32 am

      I’m not sure either. It is still a long way off so I’m not going to worry about it much.
      If we don’t need it, we probably will defer the benefits.
      On the other hand, we could take it and use it as a donation fund. My FIL does that. I think that’s a really good idea.

  • Todd Weitzman May 14, 2018, 6:08 am

    Depends really what you want out of life as you mentioned. More work is less time with friends or vacationing elsewhere. It also depends how you like your job, or if it’s stressful. I think if it’s not as stressful I’d consider it.

  • michael May 14, 2018, 6:08 am

    My wife works for a pseudo gov’t entity (its a utility, kinda screwy on the ownership) and had access to a pension. However, she took this as a second career when our second kid was born (its no travel and down the street from our house). In her pension, to get the reduced benefit you have to work 25 years and the full benefit doesn’t kick in until 33 years. Given that time-frame we chose the “member directed” plan which is essentially a 401(k) that is managed by the pension company; the downside is obviously that its not defined so you can lose all your money and the match is less (but still VERY nice). On the pension website there is a calculator that lets you play with the options/returns/inflation to determine which is the best option; when I did that, the only way to make her pension worthwhile was to hit full pension age (which in her case would be 63…or 15-20 years after my goal retirement age) AND very conservative returns on the 401(k).

    That aside, when we ran through the numbers, I just could not see how a pension is beneficial for most people as most do not stick with a job for that long, and if you don’t meet your time, you could end up with nothing. I just do not see that as valuable for most people.

    • retirebyforty May 14, 2018, 9:34 am

      Thanks for sharing. Your wife’s plan sounds very complicated.
      You’re right about pension in general. It doesn’t work that well anymore today. People change job too often.

  • Angela @ Tread Lightly Retire Early May 14, 2018, 6:24 am

    SS benefits max out at 70, but I think you have to live past 84 or so to make that deferral worth it, so it all depends. And even the $350/month pension you have is pretty awesome, considering most places don’t have one at all. You guys are sitting pretty and it has to be a good feeling for her to realize she can step away sooner if work really goes downhill.

  • Helen May 14, 2018, 6:28 am

    Joe, very good analysis. In the long run, you folks are in a great shape financially.

    I plan to take out social security at 62. In this way, I can reduce the IRA withdrawal, and let it grow for longer. I have a tiny pension, and plan to take it for reduced amount at 55. You are right. Those years before hitting 59 1/2 need some planning.

    • Dave in Sunny FL May 14, 2018, 8:14 am

      If the choices are accessing Social Security to preserve an IRA nestegg, or accessing the IRA to defer taking Social Security, I would tap the IRA first (first the regular IRA, then any Roth). The monthly increase in the size of the Social Security benefit for delaying between 62 and 70 is good for LIFE. If you lock that payment in early, it will always be small. An IRA is more iffy–subject to the ups and downs of the market. Guaranteed money from Social Security (or pensions) replaces a giant amount of accumulated cash in retirement planning. Working backwards on the 4% rule, for example, a $1,000/month payment is roughly equivalent to the expected withdrawal from $300,000 of savings. From what I saw online, that monthly payment would permanently go up about a half a percent, for each month you wait. Getting advice on claiming strategies for Social Security is one thing I’m willing to spend time and money on, when we get closer to that decision.

      • Pennypincher May 15, 2018, 3:54 pm

        Remember folks-there will be a RMD, or required minimum distribution, on traditional IRA’s at age 70 1/2. That’s why I don’t feel so bad tapping into it a bit now to lower the balance. I don’t like surprises.

  • Financial Samurai May 14, 2018, 7:29 am

    I think you should encourage her to work for as long as possible to get as large a pension as possible since she still likes her job. This way, you’re hedged. If she ends up regretting working so long for the money, at least you enjoyed the freedom early retirement has to offer.

    Once she leaves, her pension gets cut. Keep on encouraging her to work, but downplay in your future posts how awesome early retirement is.


    • retirebyforty May 14, 2018, 9:36 am

      We’ll see how she feels in 2020. If she still like her job, then she might stay on.
      She and you have similar personality. I don’t think early retirement suits you guys.
      Some people want to feel relevant and contribute to society/economy.
      I’m very laid back so ER is a good fit.

    • Joe May 16, 2018, 10:03 am

      LOL, Sam swings from encouraging her to retire to believing she should work every other comment. I think he’s just yanking your chain…

      • David @ VapeHabitat July 25, 2018, 5:44 am

        I wish I could work less and rest more, at the moment I can’t quit my job, no matter how badly I want it

  • Jonathan May 14, 2018, 7:39 am

    However, there is a hack. From what I read, she can go back to work when she’s 56 in 2030. She can enroll in the employer sponsored health insurance plan for a year and retire again at 57

    If my guess for your wife’s employer is correct, in order to continue health benefits into retirement, I think you’d need to have been continuously enrolled in their insurance plans for the five years before you separated from service.

    • retirebyforty May 14, 2018, 9:38 am

      I think you got it. 🙂 The continuously enrolled rule only applies for the years they are eligible for enrollment. This means a gap in employment is fine. She’s enrolled from 2006 to 2014. Then take 10 years off. Back to work and enroll in the health plan for a year. That still counts as continuous. From what I read.
      They could change the rule anytime, though.

  • susie815 May 14, 2018, 8:16 am

    im 57 and my husband 55, we got married at age 40-we met with no debt what so ever, and even though we know nothing about investing, and we could be way better off if we werent smart, but we were smart at saving once we met-in 15 years we were able to save 350,000 cash saving, I know who does that:( could be millionaires if i was smart with investing , I was 3 years short of my dod 20 years full retirement, and could carry over my insurance also if I could have physically stuck it out, 31 years of nursing, I physically could not make it , I had to quit 3 years ago. my tsp only has 70,000 in it, my husbands 457 has 197,000 in it. I have put 13,000 into ira after I left my job, still put in. my husband a 25 years in with the county and took a job with the city and has 5 years there, both have pensions, ters. I receive 1800 a month SSDI- my husband is still working, but he is leaving his job, I need more and more help physically. we are going to draw 1000 a month from the 457, no penality, just taxes, he can actually draw from the 5-year city job when he quits it will be $600.00 a month, which gives us $3200 a month to live on. we cant afford to live here on that because of healthcare. we looked at the difference in pensions leaving after 30 years and only 55, plug it out for 10 more years, when my health declining. we are moving to Mexico for the next 10 years-till pensions kick in. our tsp and 457 will be depleted and my tsp. who knows how much of the 350,000 left in our savings we are really going to touch as little as possible, but its there, and we are hoping to be able to afford Mexico, their costs are rising fast also. at 67, with husbands other 25-year pension and the one he’s going to draw on when he quits. his SS my 17-year federal pension,my 1800 disability, we should be at 6000 a month, we will live where we can afford health care. if worse comes, hubby can always return to one of his old jobs. right now i need the help physically and we have worked hard at saving, our plans had to change. we would be in a smarter position if i could have physically pushed thru the 3 years to grt my 20 and our heathcare..you never know when your health will mess up your plans, i hope we can do this

    • retirebyforty May 14, 2018, 8:30 pm

      Thank your for sharing your story. Have you investigated further south? I read that Ecuador and Panama are pretty good. The cost of living is probably lower there. Healthcare would be the big issue. I don’t know how good healthcare is down there.
      I hope you can make it work somehow. I think you should be okay. Good luck!

      • susie815 May 16, 2018, 4:24 pm

        healthcare is good, but need to be wise, like in usa..our second choice chang Mai- we went there for two weeks this past year and I’m amazed by the culture, respect, safeness… I didn’t like the fact we had to deposit 25,000 each in a Thai bank account for retirement visa and i think that language a lot harder to pick up, if it wasn’t so far…

  • [email protected] May 14, 2018, 8:31 am

    I work in government and we have a pension plan which is pretty lucrative and I call it my golden handcuffs. If I retire at age 45 with 20 years of service I will get about 35% of my income at age 55. But if I wait until age 55, I will get 60%! Plus, they will provide some subsidized healthcare or something like that. That’s tough to give up but 10 years is a long time too.

  • Jim @ Route To Retire May 14, 2018, 8:54 am

    I wish I was getting a pension! Oh, well – we’ll make it work with the defined contribution plans instead. 😉

    That’s really a nice benefit for you guys. But even better is that you’re in a position that, although nice, you’re not reliant on the pension. It’s awesome that she can decide if she wants to stay or go in 2020 without money being the main motivating factor. That’s a great situation to be in!

    — Jim

  • Jason in Vancouver May 14, 2018, 8:55 am

    I have a Defined Contribution plan that will kind of roll into my retirement savings. However, the missus has a Defined Benefits plan from a her quasi government job. Unfortunately, they’ve had to make major changes to their plan because too many people were taking their pension early and living longer. Unfortunately, her benefits are significantly impacted if she starts her pension before around age 62. The goal is for her to retire at at 50 so the main plan is to build up her investments savings in her taxable account. However, I’m also working a bit longer so my investments can provide a bit of a buffer in the event her numbers don’t pan out as expected.

  • Matt May 14, 2018, 9:24 am

    Medical tourism shouldn’t be necessary with an Obamacare plan – they all have maximum out-of-pocket expenses of about $13,000/year, so even if you’re faced with a $50,000 procedure, you won’t be responsible for all that.

    I’d expect the challenges of finding a good doctor abroad combined with the unreimbursed cost might not make medical tourism worthwhile. Just my 2 cents though.

    • retirebyforty May 14, 2018, 10:11 pm

      We’ll have to see how it goes with Obamacare. Thanks for your input.

  • My Early Retirement Journey May 14, 2018, 9:40 am

    Wow what a big difference in the two pension benefits! Curious.
    Also, I think it would be kind of cool to work for 1 year to get healthcare for all of retirement. I’d certainly do it. Getting something for nothing generally appeals to me. While anything could happen between now and then, I certainly wouldn’t discount it.

    Working for a finite amount of time for me would certainly present a different psychological profile. To each his own!

    Also didn’t realize/remember your wife had a planned FIRE date. Congrats!

    • retirebyforty May 14, 2018, 10:13 pm

      Thanks. 2020 is somewhat arbitrary. We’ll talk about it again in 2 years. I think if she feels good about her job, then she might stay bit longer. We’ll see how it goes.

  • Lily | The Frugal Gene May 14, 2018, 10:12 am

    What in the dinosaur is a pension? Haha, just kidding. My father in law has a pension plan that gives him $60k a year. That’s a good living even after taxes. It doesn’t pace with inflation but he’s lucky it’s still funded really.

    Healthcare expenses sounds scary and the risk goes up with the years. That hack sounds too good to be true! I hope it sticks around haha.

    • retirebyforty May 14, 2018, 10:16 pm

      Oh wow, $60k/year pension. That’s awesome.
      I don’t know how long that hack will be available. They’ll probably change the rule by then.

  • Jaime May 14, 2018, 10:38 am

    Not all of us are under 40 years of age. For that reason, I think you should share that there is another option to avoid penalty on early withdrawal from the 401 K. It’s call the Rule of 55. Under this IRS provision, you can start taking withdrawals penalty free at age 55 provided you are retiring at age 55 or older, the 401k plan is with the employer that you are retiring from and you worked at that company for at least 5 years. To go this, you must leave the funds in that same 401k aside from the distributions you will take, meaning you can’t roll it over to another 401k, broker or IRA. At least that’s how I understand it. A simple Google search on Rule of 55 will produce meaningful results.


    • retirebyforty May 14, 2018, 10:17 pm

      You’re right. I’ll put a note in the main post.
      Thanks for the reminder.

  • jim May 14, 2018, 12:41 pm

    The longer she works the better the retirement picture will be. But of course many of us would prefer not to work at all much less work forever. Its a trade off. OK I’m stating the obvious.

    It all comes down to : How long can she tolerate to work?

    If I was in her shoes the fact that I could retire in 1-2 years would probably change my mindset at work some. If things at work get on my nerves then the thought “I’ll be out of here in a year” would probably soothe those nerves. 🙂

    • retirebyforty May 14, 2018, 10:23 pm

      It varies. Usually she likes her job, but sometime she gets exasperated too. We’ll see how she feels in 2 years.
      She likes to be productive so I’m not sure if early retirement is the right move. She can try it and see. If she doesn’t like it, she can always go back to work.

  • [email protected] May 14, 2018, 1:54 pm

    We were interested to read recently that Oregon–just like our own state–has a major pension shortfall problem, so this is a timely post and one that I can relate to.

    Yes, I do have pension benefits through my employment. I had to choose (about 17 years ago?) whether I would stay on a more lucrative traditional pension plan or opt for a more 401(k)-ish plan (with defined contributions but not defined benefits). Since my husband and I were not at all confident that my public/traditional pension would still be around by the time I was ready to retire, we opted for the much less lucrative 401(k)-type plan. It looks like I chose wrong, since the pension system is still around (so far) and most of my colleagues will benefit from much more generous traditional pension payments than I will.

    The only thing I can comfort myself with is the fact that I don’t have to be worried that the state will somehow reduce my pension benefits–since my own pension benefits are so small that I’m not counting on it much… ; )

    • retirebyforty May 14, 2018, 10:27 pm

      That’s very interesting. I’ve never heard of this choice. I’m not sure what Oregon will do about the pension. they’ll probably have to cut benefit or something like that.
      Thanks for sharing.

      • jim May 15, 2018, 10:12 am

        Oregons state pension funding level is actually better than most states. New York Times story highlighting the states pension woes make it seem unusual but its really not. Not that OR doesn’t have problems and need to fix the funding but its not really unusual or all that bad.

        “they’ll probably have to cut benefit”

        They’ve already cut benefits in 2003. That fixed a problem but didn’t fix the whole problem. Problem is that 80% of the costs are for the people in the older tier 1 program and you can’t just take away the benefits from the people who already earned it. 64% of the cost is for current retirees. They can try and cut benefits for newer members further moving forward but that won’t save all that much.

        The pension fund has ~70-80B in the bank and pays out ~4B a year. Its not bankrupt or even close to it.

        • jim May 15, 2018, 10:13 am

          Another point about OR vs other states. OR pension is funded around 70-80%. There are 10 or so states below 60%.

          • [email protected] May 15, 2018, 10:46 am

            Sadly, my state is definitely on that list of the worst pension-funded…

        • retirebyforty May 16, 2018, 8:11 am

          Thanks for the detail. I haven’t looked closely at this. Seems like OR is in okay shape for now.

          • jim May 16, 2018, 10:27 am

            Yeah it really seems to me that the problem for OR is overblown.
            OR is certainly not as bad as many other states and I thought it was odd that NYT highlighted OR as a pension in trouble when there are so many others in much worse shape.

            I think the problem in OR is that individual cities and school districts and other govt. participants don’t have the means to come up with more money (due to property tax limits measure 5 & 47). So to fund the pension they mostly have no choice but to cut services and fire teachers.
            There should be a state wide fix instead.

  • FedSpotter May 14, 2018, 4:13 pm

    So your wife is a FERS employee. 62 immediate, or an MRA+10 retirement at 57. If you can make the finances work, I’d quit now. Or consider moving laterally, there’s plenty of opportunities to that the government.

  • [email protected] May 14, 2018, 5:15 pm

    I am totally in the middle of this Joe. I wrote about it recently when I took the maternity leave teaching job I’m doing right now. If I don’t earn 30 years, my pension will be $14K less per year when I turn 55. I could just keep earning retirement system time slowly online and I’d probably be able to retire with my full pension around 58 or 59. A little extra work when we’re in NY will hopefully keep me closer to finishing at 55 though. I could go back to work full-time for 2 years – but I don’t want to. I gave up health care too – I would have had to work until 55 full time and I’ve enjoyed being “free” to do more of what I want the last 3 years. Glad you have a good plan for Mrs. RB40!

    • retirebyforty May 14, 2018, 10:29 pm

      Yes, I read your post. It’s pretty complicated for you. I hope you make it work. Good luck!

  • FullTimeFinance May 14, 2018, 5:51 pm

    I’m fully vested in my pension plan and my employer cut off new contributions so it’s only inflation adjustments going forward.

  • [email protected] May 14, 2018, 8:05 pm

    We are lucky in that both my wife and I have pensions from our employer that will kick in at either 55 or 65. The biggest issue is that although we worked for the same company our whole career we worked for multiple entities within the company so it means we actually have something like 5 or 6 small pensions. Of course the HR dept. is not organized enough to give us a summary.

    We have a rough idea but basically they told us get in touch about 6 months before your 55th birthday to discuss options.

    • retirebyforty May 14, 2018, 10:30 pm

      Oh wow, that’s pretty strange. Having 2 pensions sounds great. I assume you also get social security benefits. You’re set!

  • MrFireby2023 May 14, 2018, 8:45 pm

    You mentioned enrolling in the Silver plan at the ACA website, then “Medical Tourism” for expensive procedures. Where would you go? I’m curious because other countries like Mexico for instance do not have the most desirable sanitary conditions in a hospital setting. Their medical training is also suspect… just curious.
    I’m a type 1 diabetic and take several prescriptions so as for healthcare in early retirement I’m screwed….

    • retirebyforty May 14, 2018, 10:33 pm

      We’ll probably live in Thailand. They have good hospitals in the big cities. From what I know, it’s not cheap, but still much more affordable than here. My uncle has diabetes. My other older relatives seem to have pretty good healthcare over there.
      The silver plan is okay for us. I’m just afraid that might go away.

  • David @iretiredyoung May 14, 2018, 10:10 pm

    “Should I work longer to increase my pension?”, that’s a good question. Talking generally, a lot depends on what is important for the person, but I’m coming to the conclusion that money isn’t the be all and end all. Sure, we need to have enough to live the life that we want (and a little buffer is probably sensible), but we don’t really need more than that.
    I realise now that I worked extra years to save more for retirement than I probably need. That’s fine if you’re happy with work, but if it is stopping us doing what we really want, then what’s the point?
    As I said, just talking generally here, not about your wife’s situation – I have a feeling you guys have it all under control?

    • retirebyforty May 16, 2018, 8:10 am

      I think a few extra years is generally good. It’ll shore up your finance.
      If you really don’t like your job, then 2 years is the max. Longer than that and you’ll make everyone around you unhappy.
      Thanks. I think we have it under control. Hopefully, everything stays on schedule for 2020.

  • Ashley May 15, 2018, 6:06 am

    I’ve never had access to a pension to considet, but I haven’t worked enough to qualify for social security. At some point I plan to get back into some type of W2 job to qualify, but I’m in no rush.

  • GYM May 15, 2018, 11:36 pm

    Mrs. RB40’s pension is awesome! Your expenses are very low in retirement! I would also be concerned about the healthcare cost of $500 a month 🙁 but your idea of living in Thailand sounds good. I was there recently and went to a hospital to check it out, they offered a “full meal deal” including an MRI for like $240 or something like that lol.

    • retirebyforty May 16, 2018, 8:13 am

      $500/month is not bad. We can afford that. I just hope it doesn’t increase much more than that.
      I’ve been to a few nice hospitals in Thailand too. They are not bad at all.

  • JCI May 16, 2018, 6:40 am

    Joe, in that personal capital graph you have at the end of this post, you still have your retirement age set for 65. Assuming this includes both you and your wife’s income/assets, if she decides to leave work, shouldn’t you set it to something less? Would changing that assumption materially impact your chance of success as calculated by personal capital?

    • retirebyforty May 16, 2018, 8:37 am

      The retirement age is for when we both will start withdrawing.
      My wife will retire in 2020, but we won’t start drawing down yet.
      I’ll check my assumptions again. It’s a bit complicated.

  • Steve May 17, 2018, 3:50 pm

    My wife has a pension but I do not…We are considering downsizing our house to save additional funds for retirement especially in the hot real estate market in Canada, and thinking of putting those funds towards our RRSP’s. There are always concerns about future costs and expenses with health care and in-home care/old age homes… I recently read this article and I found it very interesting as it talked about a variety of issues one may face if you were to retire unexpected ie. loss of job, injury, dismissal.

    Read the article here by Lori Pinkowski from CKNW:

  • Dan K May 18, 2018, 10:05 am

    I don’t have pension, but had a profit sharing plan with one company I worked for. Used some of it to buy a house. the rest went into an IRA, which I contribute to each year to cut down taxes. As a freelancer, it is much harder to save for retirement. But I try my best to not fret about it.

  • Hollywood May 21, 2018, 4:58 pm

    Hi Joe – I follow your Retire by 40 blog in the past several years before I retired about 1/12 year ago from the federal government. I continue to carry my Federal Employee Health Benefits (FEHB) under my immediate retirement based on Voluntary Retirement at 20 years of creditable service at age 60.

    You stated, “However, there is a hack. From what I read, she can go back to work when she’s 56 in 2030. She can enroll in the employer sponsored health insurance plan for a year and retire again at 57. Then she can keep this health insurance forever. This sounds like a good trick, but I doubt she would want to go back to work full-time at that point.”

    In reference to the Federal Employee Health Benefits (FEHB), in my opinion, Mrs. RB40 will not receive FEHB even if she reemploy with the federal government at the age of 57 for one year in which where she had separated (resign or quit, not retired based on Minimum Retirement Age or Voluntary Retirement) from the federal service at age 46 in 2020. She may apply for pension (deferred annuity) under the Deferred Retirement at age 62 or Minimum Retirement Age (MRA).

    Here is the answer to a question from the Office of Personnel Management (OPM): When can I keep my health insurance after I retire? The key word in the sentence is “retire”, not separated from federal service.

    Answer: You may continue your health insurance coverage only if you meet the following conditions:
    • Your annuity must begin within 30 days or, if you are retiring under the Minimum Retirement Age (MRA) plus 10 provision of the Federal Employees Retirement System (FERS), health and life insurance coverages are suspended until your annuity begins, even if it is postponed.
    • You must be covered for health insurance when you retire.
    • You must have been continuously covered by the Federal Employees Health Benefits Program, TRICARE, or the Civilian Health and Medical Program for Uniformed Services (CHAMPUS):
    • for five years immediately before retiring; or,
    • during all of your federal employment since your first opportunity to enroll; or,
    • continuously for full periods of service beginning with the enrollment that started before January 1, 1965, and ending with the date on which you become an annuitant, whichever is shortest.
    I would suggest Mrs. RB40 contacting the HR Department on the Federal Employee Health Benefits (FEHB) before she separates from federal service in 2020. For more information, please visit the Office of Personnel Management (OPM) at OPM.gov

  • Danny May 23, 2018, 2:16 pm

    Love your articles, Joe. One thing I would recommend is to put a date on your blog posts at the top. I’ve noticed that FI bloggers, for some reason, tend not to list dates. As a result, when there is a reference to, say, how the stock market is doing, the reader is challenged in understanding the context. Is the blogger referring referring to the market as of May 2018 or maybe December 2012?

  • Reverse Engineer May 28, 2018, 3:21 pm

    Just one of the eight companies I worked for had a pension. Luckily there 10 years, long enough to earn a benefit worth more than peanuts, but still pretty modest. Of course, a few years after I got laid off they froze it, and axed retiree health care. This is tantamount to a pay cut, although most won’t save extra to make up the difference. I never counted on it, always figuring I was on my own to insure a decent retirement.

  • Andrew McKee June 11, 2018, 10:41 am

    Good article, thanks. I might be wrong; however, it sounds like your wife is a Federal Employee. If so, I don’t think your hack of going back to work for one year in order to get health insurance would work. According to OPM:

    FEHB law requires a retiring employee to be covered under FEHB for the 5 years of service immediately before retirement or, if less than 5 years, for all service since the employee’s first opportunity to enroll in FEHB. In the above situation, the employee’s 2 years of previous FEHB coverage would count toward his 5-year FEHB coverage requirement if he had a break in service and therefore could not have had FEHB as an employee.

    For example: The employee was enrolled in FEHB from 2003-2005 and then separated from Federal employment. He returned to Federal service in 2010 and was enrolled in FEHB from 2010-2013. The 2 years he was enrolled in FEHB from 2003-2005 along with the 3 years he was enrolled in FEHB from 2010-2013 enable him to meet the 5-year coverage requirement.

    However, if the employee had been continuously employed and eligible for FEHB, but had a break in his FEHB coverage from 2003-2009 because he cancelled his FEHB, he would have to begin the 5-year period over again.

  • Mrs. 50 @ By50Journey June 28, 2018, 11:07 am

    Great post. I’m glad I found your blog. I have the same question and have been struggling with decisions. My employer also offers pension and health coverage similar to your wife’s employer. From what I understand, I need to work for 30 years to get the benefits. If I keep working here until I turn 57 I can defer the benefits and get the partial benefits when I turn 62. My estimate pension would be around $2,600/month plus health coverage for life. I am 41 meaning I need to work another 16 years…. Is it worth it to work that long to get the pension and the health coverage?

    • retirebyforty June 29, 2018, 8:15 am

      16 years is a long time. I don’t know the answer. Personally, I wouldn’t put the benefits into the equation. If you can retire early comfortably, then go for it. It’ll be a bigger dilemma if the time is less. Like working 3-4 years longer.

      • Mrs. 50 @ By50Journey July 2, 2018, 12:10 pm

        Thanks for your reply. You’re right that I shouldn’t put the benefits into the equation and 16 years is a long time. Everybody I talked to (family, friends and co-workers), they gave me a weird look as to why I wanted to retire early (especially, the great benefits I receive from my employer). They don’t understand the concept of FI and that sometimes, the “time” is more important than the “money”. If I can retire early comfortably, I’ll definitely ignore the benefits. Thanks for your input!

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