Are there countries where you can buy early retirement?

Factual Questions
1

In my country of Serbia once you are 60 years old you can pay into the state social fund for any missing work years and for 5 years in the future and go into early retirement (even though it’s just 5 years early from standard 65 for males) and you will get a 0,34% smaller payout for every month that you’re away from being 65 years old, so if you are 60, you will get about 20% less, then 19% and so on until you reach full retirement age.

However, are there countries where you can get retirement earlier or at least pay for future retirement? Let’s say you’re in your early 30’s and have a lot of money now, but want to be safe in the future and you want to invest in having a retirement, because a million things can happen in the future, is there such an option in any country?

Some professions like military and police officers can get an early retirement, because their work years are counted differently (ie their 10 or 11 months is considered the same as 12 months of people doing other jobs), but I’m asking only about ways where you yourself can invest in your retirement, now or for the future.

2

Well, you can always do this by investing outside of dedicated pension/retirement systems. You can invest in “ordinary” investments - property, security, managed funds, whatever you want - and use the accumulated proceeds to fund your life in retirement between the time you actually retire and the time your social security entitlements/dedicated retirement savings become payable to you.

Even with dedicated retirement savings, lots of countries will allow you to access them at an age earlier than the age at which a social security retirement pension becomes payable. But for public policy reasons there is a trend towards limiting this. Allowing you to draw a reduced level of retirement income from a younger age may be cost-neutral in terms of funding your retirement income, but it reduces the active workforce by one person, and most governments have preference for promoting continued participation in the workforce rather than facilitating early departure from it. More people in the workforce = bigger GDP.

3

I’m in the UK and retired aged 57.

I had three pensions (two from careers, plus the State one.

I took ‘early retirement’ on one career pension, which meant I got the pension itself (plus the lump sum that comes with it) 3 years earlier. As per the Serbian example, I got less pension payments - but the maths worked for me.

I had also been investing for years into an ISA ( Individual savings account - Wikipedia), which is tax-free.

Plus I had paid off my mortgage and had no other debt.

4

You don’t need the state to retire, specially not if you really have a lot of money.

Not necessarily, GDP is a weird measure: as an extreme example, someone in ICU raises GDP by a lot. Totalling your car raises GDP too even before you buy a new one.

5

You don’t need the state, but if you get a pension, then you have a stable income for the rest of your life, regardless of whether you live up to 68 years or 95 years, so I’m wondering what are the alternatives.

Properties are a popular first choice, but there’s two huge minuses, first you have endless additional costs, repairs, renovations, taxes on the property, taxes on income from rent, you have to worry about occupants and so on and second, even if you bought a brand new luxury apartment, in 40, 50 years it won’t make nearly as much and you probably won’t even have occupants all the time.

So in comparison to a state pension, this is neither stable and predictable, neither fixed (technically neither is the state pension, but if you receive a 1000$ this month, you’ll probably receive the same amount in 5 years as well ± a few percent)

6

Lots of money, i.e. Capital with a capital C (no pun intended) is fungible, liquid and highly transferable. I am surprised by your faith in the State, coming as you state (no pun intended either) from Serbia. Any pension from Serbia or Yugoslavia older than 20 years would be worth next to nothing today, would it not? And you write about a 30 yr. old person, so a 20 yr. horizon is not exagerated. But had you been able to invest the principal that gave rise to the pension 20 years ago in an MSCI World ETF or any other well diversified instrument you would be fine today.
In other words: buying into a State pension scheme reduces your future options, buying a diversified portfolio keeps your options open or even increases them. The latter is better.

7

Annuities are the private financial equivalent. You give a lump sum to an insurance agency now and they pay you a regular monthly stipend until you die.

8

But you would not have received your State Pension until your retirement age.

I think the OP is more interested in state pensions than private ones and in the UK at least, there is no provision for getting that early, although you can delay it in return for a bigger payout.

9

A 401K is basically a pension fund that you control yourself. If you have enough money to stop working, you have enough money to fund a retirement account. Granted, if you’re not working you won’t be able to pay into a 401K, but you can set up your own retirement account that can guarantee a return equal to any pension. You can live off the returns without touching the capital, and it will last to any arbitrary date.

And pensions aren’t a guarantee of returns. My wife’s pension from the state of RI was cut drastically because the state spent the money. She’s not retired yet, so we have time to plan, but it was also cut for people already retired and they were screwed.

10

I’ve never heard of that standard about 10 or 11 months of being a cop is the same as 12 months of another job. When I first became a Deputy they had a 25 and out plan and it was available to all full time county employees regardless of position. They then changed it to the rule of 75 (your age plus years of service have to equal 75) also open to all county employees. However, while all the other county employees were vested after 5 years Deputies weren’t vested until 10 years. So that’s kind of opposite of that 10-11 month thing you mentioned. The pension amount for everyone was 2.5% of your highest annual earnings times years of service.

I was grandfathered into the 25 and out plan and was able to bail at age 47. I could have done that regardless if I was a Dep or doing maintenance at a county park. Under the rule of 75 I could have retired at age 50. As can every other county employee depending on when they started.

11

@pkbites , the OP is describing the system in Serbia. The effect is similar to that in the US In that military and police officers can retire at full pension with fewer years of service.

12

I haven’t either, but in my area it’s quite common for different jobs to have different pensions. For example, if I worked as an NYPD officer, I would have had a 20-and-out pension. ( no penalty* if I have 20 years in regardless of my age) Same if I worked as a NYC Correction officer. If I worked as a NYS Correction officer, I would have a 25- and-out pension. Instead, I work as a different type of peace officer in the same agency that runs the state’s prisons, and I have pension plan that lets me retire with no penalty at 55 if I have 30 years. I suspect JakeRS might be referring to something like that - where not every city/county/state job is part of the same pension.

* There’s a formula to estimate your benefits and a penalty reduction - for example, if I had retired at 55 with 29.5 years service, there would have been about a 27% reduction from the benefit if I had retired at 62 with 29.5 years of service.

13

Then you buy a fixed term annuity. If you’re 60, and your full pension starts at 65, you buy a 5-year fixed annuity to fill the gap. IF you’re so risk averse that you don’t trust yourself with just putting that money into an investment account.

14

And just to note - you get absolutely terrible rates on those types of things. A $100,000 5 year certain annuity for a 60 year old male pays out a total of $100,680 (at Charles Schwab - you’ll get similar rates elsewhere). It beats the interest rate at the bank, I guess.

15

In Canada you can opt to receive your CPP (Canada Pension Plan) at anytime between 60 and 65 or as late as 70.

There is a number called YMPE (Yearly Max Pensionable Earnings) that is approximately the average industrial wage. CPP is calculated as the average of how much you contributed every year you worked except the worst 7. The pension is then based on that proportion - currently the YMPE is about $60,000 a year and the max annual CPP about $13,800 a year. People with a decent income typically make more than the YMPE most of their life and collect the maximum. If you choose to retire before 65, the amount you collect goes down by 0.6% each month (7.2% per year) for each month before 65. So if you retire at age 60, your CPP amount is 36% lower than what you would have gotten at 65. (You can also delay collecting until later, up to age 70, and your payout will increase by 0.7%/month when you do start.)

Like another thread here about social security - early pension makes sense if you have severe medical problems and probably don’t need an independent living income in your 80’s and 90’s, since the break-even n total income is late 70’s.

There is also an old age supplement that starts at 65. Note all this is taxable income. If you have a large amount of savings, one strategy may be to delay the CPP (and then get a bigger payout, later) while drawing down your savings instead. Depending on total income, this may reduce the amount of income that falls into higher tax brackets.

Defined benefit pensions plans and early retirement pension plans are a dying breed in North America. Typically only governmental organizations (civil servants, army, police, teachers, etc.) and large heavily unionized industries are the ones that offer them. Some offer 30 years and out which could allow retirement at 48. Most have something like “rule of 80” or “rule of 85” - when your age and years of service total 80 (or 85) then you can retire on a full pension, typically calculated as a percentage of the best 5 of your last 10 years wages.

Many early retirement pension plans offer a higher “bridging amount” until you reach 65, when they assume your CPP will commence and supplement your regular pension. They are forbidden from explicitly subtracting the CPP amount, but they use math tricks to estimate it. The value of this rule, I assume, is that the calculation cannot change after retirement - if the CPP becomes inordinately higher that does not then reduce the amount the pension plan can pay to already existing retirees.

I have heard of pension plans that allow “buying extra years” as the OP mentions (but not government plans), and particularly there are those that allow re-buying: a person is laid off or quits, and takes their pension as a lump sum to manage themselves; then rejoins the company and wants to re-acquire credit for their years they had in the plan - they can buy back their previous “years” by paying back in the “net present value” of that pension credit.

16

Many countries do allow you to make up missing pension payments or to pay in advance, generally up to a certain number of years, and generally you can only get a state pension once of pensionable age. Those who retire early generally do so on a private pension. There are cases where people over about 50 are made redundant with a settlement payment to cover the fact that they will probably not get another real job again.

If you have a lot of money in your early thirties, you are indeed very fortunate, but with that sort of money you have many options, and better ones that just paying into a pension fund. You can invest in a private annuity fund, something I looked at recently, and the rates are slightly better than for bank investments, but still not that attractive, and the payout is usually limited to a certain number of years (15-20) for the surviving spouse, unlike a state pension.

So you want to invest in the state pension system? I’m sure the state would be quite happy. The problem is that you have no guarantee that you will get the extra money back. If things get tight, and all pension systems are under strain, the government could simply declare that everybody gets the same pension, and also regardless of actual payments if you paid in more than the amount that equates to the new standard pension.

In your thirties you can afford to take risks, even if it means starting over. Invest the money as you see fit, or go into some business venture, and simply aim to have suffiicient assets and savings for the time when you choose to retire. You can then choose what sort of pension you want, and when to start receiving it. Unlike the state, which sets all the rules.

17

Or alternatively - Canada wanted to change the standard CPP to start at 67 not 65. I understand the USA is doing this to Social Security.

The first rule of retirement income is - “rely on the government as little as possible.”

18

The CPP also has a “clawback” feature - if your annual income is greater than a certain amount, your CPP pension amount is reduced by a certain amount - and eventually to zero if your annual income becomes high enough.

19

There’s no clawback on CPP. There is a clawback on the supplemental payment, OAS (Old Age Security). As I mentioned, CPP is up to about $14,000 a year, and OAS $7500. If you make over a certain amount - about $79,000 total income - there’s a clawback of a percentage of OAS, and if you make over $129,000 the clawback works out to the total amount. (pay back 15% of the difference between your income and the threshhold)

CPP is however counted in your total taxable income, so the higher your other income, the higher your marginal tax bracket. But… Canada also allows income splitting between spouses for any pension income.

There’s also GIS (Guaranteed Income Supplement) for those with really no other income.

Again, none of these can be bought into, and only CPP can be started early.

20

Correct - it’s OAS with the clawback - not CPP (or QPP). Sorry.