Help me figure out the cost of "early" retirement

[Anonymous]

I understand there are health/emotional/psychological costs to consider but I'm trying to figure out just the financials to best plan for the future - so please just respond with financial advice only.

I'm an employee of a state government (NY) who will have 30 years of service credit when I am 57 years old. At that rate I can:

1) retire with a pension of 60% of my final average salary (calculated by adding the three highest years of my earning); or
2) keep working and earn an additional 1.5% added to the pension amount (so 61.5% after 31 years, etc.)

The pension has a COLA but if I retire before 62 I need to wait ten years to get it, whereas if I wait until 62 I get it after 5 years.

I'm saving in a 457 fund as well but probably not as aggressively as I should. My youngest child will be done with college when I am 56.

My husband can work from anywhere and has no interest in early retirement but I would love to not be tied to a specific location one day. I am just trying to figure out how much I am "missing out on" by not staying another ten years or so until I am of "regular" retirement age. If anyone has a way to figure out the math based on the above criteria I would love to hear it. By the time I retire I will be at the top of my pay grade so I will receive modest step increases but nothing major.

[Anonymous]

Does your pension include health care or; alternatively, does your DH have decent coverage you could use? That would be one easy cost to determine.

You lose money in two ways on the pension by retiring early. The first is as you noted you lose the 1.5% per year that you would stay added to your pension calculation. However, you also "lose" with the lack of a COLA adjustment as well but this depends on how your pay is structured. For example, if you are not at the cap for your job series you would get some raise each year that would increase your high three with such raise potentially being higher nowadays with inflation being higher. It's hard to calculate that though because we don't know your salary information and it is hard tell what will happen with inflation other than it will likely be high for at least another 1-2 years.

[Anonymous]

If inflation stays high like now, you are walking away leaving a lot of money on the table. A lot.

[Anonymous]

Anonymous wrote:Does your pension include health care or; alternatively, does your DH have decent coverage you could use? That would be one easy cost to determine.

Yes, retirees are able to keep their health insurance at the same rate - so I currently pay $228 a paycheck for family coverage. DH's employers have traditionally had more expensive plans. When I'm 65 I have to enroll in Medicare and my employer coverage becomes secondary.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Does your pension include health care or; alternatively, does your DH have decent coverage you could use? That would be one easy cost to determine.

Yes, retirees are able to keep their health insurance at the same rate - so I currently pay $228 a paycheck for family coverage. DH's employers have traditionally had more expensive plans. When I'm 65 I have to enroll in Medicare and my employer coverage becomes secondary.

Why would you have both? Pick one and save money.

I am a fed and our benefit calculation is pretty similar to yours (except you get a lot more). I am 59 and was thinking about retiring this year but if we retire before 62, we don't get COLA adjustment until 62. As the inflation is expected to stay high into next year as a minimum, I couldn't walk away.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Does your pension include health care or; alternatively, does your DH have decent coverage you could use? That would be one easy cost to determine.

Yes, retirees are able to keep their health insurance at the same rate - so I currently pay $228 a paycheck for family coverage. DH's employers have traditionally had more expensive plans. When I'm 65 I have to enroll in Medicare and my employer coverage becomes secondary.

Why would you have both? Pick one and save money.

I am a fed and our benefit calculation is pretty similar to yours (except you get a lot more). I am 59 and was thinking about retiring this year but if we retire before 62, we don't get COLA adjustment until 62. As the inflation is expected to stay high into next year as a minimum, I couldn't walk away.

Thank you! My date is still 5+ years away but I'm trying to get a sense of whether it's responsible or not. I can definitely see deciding to stick it out because of inflation. I like my job but I dream of not being here too.

[Anonymous]

So, what are the two cases you are considering? Walking at 57 vs 62? or else?

[Anonymous]

I don't think you can put a price on your free time. Life is short. Yes, you will miss out on some money...but it sounds like you will also be making enough to have your needs met with 60 percent of your salary and your husband working. I will get my pension in 11 years (also 60 percent) at 30 years and will leave money on the table to do so.

[Anonymous]

Anonymous wrote:So, what are the two cases you are considering? Walking at 57 vs 62? or else?

I'm trying to figure out how to quantify leaving at 57 v. leaving at 62, 63, etc. Like I know I won't get the 40% of my salary if I don't work but I also won't ever get that 60% that year for not working. Say if I live to 100 that's either 43 years of collecting versus 38. I wish there was a way to chart it all out of exactly what it would cost but I'm not a math person so I don't know how to do it.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Does your pension include health care or; alternatively, does your DH have decent coverage you could use? That would be one easy cost to determine.

Yes, retirees are able to keep their health insurance at the same rate - so I currently pay $228 a paycheck for family coverage. DH's employers have traditionally had more expensive plans. When I'm 65 I have to enroll in Medicare and my employer coverage becomes secondary.

Why would you have both? Pick one and save money.

I am a fed and our benefit calculation is pretty similar to yours (except you get a lot more). I am 59 and was thinking about retiring this year but if we retire before 62, we don't get COLA adjustment until 62. As the inflation is expected to stay high into next year as a minimum, I couldn't walk away.

My mom is a retired NY teacher. She has both. She was probably ‘wasting money’ on both until this year when she was hospitalized for a month. The bill was just short of one million dollars and her total out-of-pocket was under $1,000. All of a sudden, all those years of paying over were worth it.

One other thing - the COLA has not actually kept up with the cost of life. She retired 30 years ago at the top of the pay scale and what was a generous retirement then is perhaps half of a generous retirement now.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Does your pension include health care or; alternatively, does your DH have decent coverage you could use? That would be one easy cost to determine.

Yes, retirees are able to keep their health insurance at the same rate - so I currently pay $228 a paycheck for family coverage. DH's employers have traditionally had more expensive plans. When I'm 65 I have to enroll in Medicare and my employer coverage becomes secondary.

Why would you have both? Pick one and save money.

I am a fed and our benefit calculation is pretty similar to yours (except you get a lot more). I am 59 and was thinking about retiring this year but if we retire before 62, we don't get COLA adjustment until 62. As the inflation is expected to stay high into next year as a minimum, I couldn't walk away.

My mom is a retired NY teacher. She has both. She was probably ‘wasting money’ on both until this year when she was hospitalized for a month. The bill was just short of one million dollars and her total out-of-pocket was under $1,000. All of a sudden, all those years of paying over were worth it.

One other thing - the COLA has not actually kept up with the cost of life. She retired 30 years ago at the top of the pay scale and what was a generous retirement then is perhaps half of a generous retirement now.

Yeah, that's not surprising. In fed, we call it COLA light or diet COLA. Less than full COLA adjustment.

[Anonymous]

Assume you are 52 now so in 5 years you will be 57

Let's assume your high-3 will be 100,000 at that point
if you retire, pension will be 60K (then money not today's money)
that pension will stay 60k (no COLA adjustment) until 10 years later when you turn 67. At that point, you will start getting your COLA but your starting point is 60k @ 67. If inflation is high during those 10 years with no COLA, then 60k will worth much less.

if you work until 62, let's say your high -3 has gone up to 120,000k and you get 60%+1.5*5%=67.5%. = 81,000 (your starting point when COLA kicks in 5 years later at 67). So if you can hang on until 62, you get 5 more years of earning + 21k per year higher pension (60k vs 81k) + whatever COLA you get on that (COLA on 60k vs COLA on 81k).

[Anonymous]

Anonymous wrote:Assume you are 52 now so in 5 years you will be 57

Let's assume your high-3 will be 100,000 at that point
if you retire, pension will be 60K (then money not today's money)
that pension will stay 60k (no COLA adjustment) until 10 years later when you turn 67. At that point, you will start getting your COLA but your starting point is 60k @ 67. If inflation is high during those 10 years with no COLA, then 60k will worth much less.

if you work until 62, let's say your high -3 has gone up to 120,000k and you get 60%+1.5*5%=67.5%. = 81,000 (your starting point when COLA kicks in 5 years later at 67). So if you can hang on until 62, you get 5 more years of earning + 21k per year higher pension (60k vs 81k) + whatever COLA you get on that (COLA on 60k vs COLA on 81k).

This is really helpful, thank you!

[Anonymous]

Biggest issue I have as a pre-65 retiree is health insurance. Premiums are ridiculous, copays, coinsurance are very high. Very frustrating that I worked for 40+ years & can get wiped out if I get sick. I had chest pains I took an antacid & then aspirin because I am afraid of the hospital bills. So far, I am still living. Hoping to hold on until 65.