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[quote=Anonymous][quote=Anonymous]Very broadly speaking, the actuarial reduction for commencing a pension before a pension plan's normal retirement age (generally age 65) is 6% for each year.  So for someone to commence at age 55 instead, his pension will be cut by more than 50% of what it would have been had he stayed on to retire at age 65.

A someone mentioned though, some plans provide an encouragement of sorts for older, long-service employees to take early retirement -- i.e., 30 years of service and at least age 55.  Generally, such an early retirement benefit is subsidized (i.e., there is no actuarial reduction and the individual is entitled to the "full" pension benefit as if he'd worked until age 65).  Alternatively, instead of a 0% reduction, the plan might provide for some other reduction (i.e., subsidy), but in any case less than 6%.  I have to assume your sister is referring to a pension plan that includes a special subsidized early retirement benefit for someone who attains a magic number under the terms of the plan, such as 30 years (or 25 years), in order to be eligible for a full subsidized pension.  If she's just referring to the normal 6% actuarial reduction for commencing early, then her concern is still valid (6% per year adds up!) but less so.[/quote]

This is very well explained and helpful.

I think what some posters are missing, though, is that the decision of when to retire vis-a-vis a pension computation might not come down to a strictly numerical calculation.  Many pension systems are part of a "3-legged stool" along with SS and 401k (or other self-directed plans).  If someone has "enough" prior to reaching full pension benefits (via their 3 legged stool of SS/401k/and a reduced pension), they may simply prefer to retire early rather than work the extra 5 years (or whatever) simply to optimize their pension (which would provide them more than "enough").

As a thought experiment, take the pension out of the equation (as it is for so many people).  Under the logic of many PPs, nobody could ever retire, because another year working would provide them with "more" in the 401k, so they would be foolish to retire "early" before accumulating that extra 401k money.  Of course, that doesn't make sense, and one may in fact be wise to retire without fully optimizing all of their retirement incomes -- as long as they have "enough."[/quote]

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