These guys [u]**https://www.pbgc.gov/**[/u] are in charge of defunct pensions. They were created by Congress in 1974 in response to a bunch of high profile pension failures that left retirees and soon-to-be retirees flat broke.
Check with them about the details of your #1 pension. Not all companies are covered and the details are arcane.
As to #2: That’s a big question.
They can at almost any time freeze the pension. Which means that upon your eventual retirement you’d be entitled to the benefits you’ve earned as of today, but would not continue to accrue any increasing benefits during your remaining years of employment. I personally have a pension that was frozen in 2012 and although I’ve worked there ever since, my benefit isn’t growing; it’s frozen as of that fateful date.
If your management can arrange to declare bankruptcy, perhaps as part of an arranged merger, they can also terminate the pension plan.
If terminated and the plan was underfunded versus its needs, then PBGC would take over. And would pay out some fraction of the value you thought you’d earned. PBGC stretches the available money to cover all the people owed by two means:
Limit anyone entitled to a large pension to only collecting a small one instead.
Divide the total money available by the total owed (after the adjustment in step 1) and pay everybody their “fair” share. Which might be 80 cents on the dollar or might be 15.
All the above is a massive oversimplification.
But the short version is your pension is only safe if your employer isn’t merged, sold, hostilely taken over, bankrupted, or run by crooks. And that has to stay true until the day you retire and take your money as cash, not as a monthly payment.
The dollar 20 years from now is increased by the additional money you get by waiting until 70.
There is another factor. If you have investment money, you want to sell high not low to finance your needs. In the current market if I sell something instead of using SS I’m profit taking. When (not if) the market falls, if I could use SS to live on my investment will be preserved for the eventual recovery.
This isn’t timing the market, since it is based on the current market not expectations of what the market will be.
Sure it’s more money per month, but it’s a long time coming. Here’s some numbers from my social security calculations. At 66 I could get $2,504 dollars per month. By waiting until 70 I increase my payout to $3,305 dollars per month, an extra $801 per month.
But if I collect at 66 I will have collected $120,192 dollars before my first enhanced check comes in. That extra $800 starts coming in every month, but it’s 150 months before I break even, and that’s assuming I did nothing but spend the payout I started collecting at 66 rather than investing it.
In my case I’m married, so my wife could start collecting on my record as well as hers. She took a reduced payment at 62. Half of my full benefit is only an extra $76 on her reduced benefit, but 48 months of that would push off the break even point an additional 4 and a half months, so I’m actually 83 before I’m made whole.
So there I am, 83, finally enjoying the profit I’ve made. I’ve elected to wait until 70, mainly because my wife chose her grandparents wisely and has a lot of nonagenarians in her family tree and the widows benefits will include the enhanced benefit, but I’m already 10 years older than the age my oldest grandparent lived to.
In my case, I don’t need the money anyway. I’m trying to spend down my Individual Retirement Arrangement (IRA) before I start taking Required Minimum Distributions (RMDs). I convert as much as I can each year while making sure I stay below the threshold where the Medicare Income-Related Monthly Adjustment Amount (IRMAA) kicks in.
That’s the critical thing, and where marginal utility matters. Anyone who would have a worse life by delaying SS shouldn’t. Then there is life expectancy.
But if those don’t matter, then the question is whether a dollar spent from your investments to support your life will reduce your income by more or less than a dollar spent from SS. Chances are that a dollar left in SS which is getting an 8% return, safely, is a better investment.
It sounds like for you, as well as me, that taking SS now would not affect my life at all. I’m taking money out of my IRA to reduce my RMD also, but I ran the numbers and found that it won’t make that much of a difference even if I didn’t, especially with the age where you must begin distributions delayed.
When I did the hack I mentioned above my wife wasn’t quite 66, so I ran the numbers to see if she should wait. It turns out the situation of her taking money until I hit 70 is identical to her dying when I hit 70, so taking the money early was well worth it.
But it’s not all about the bottom line dollar. I can guarantee that I will enjoy that dollar a lot more at 65 than I will at 85. And I think that’s the point that Bill_Door is getting at. Sometimes we are too fixated at the spreadsheet and not enough at life.
My father at the end of his life bemoaned that he had money (early eighty’s) but didn’t have the energy or physical ability to enjoy it, but he could have 20 year previously.
On the spreadsheet side, as I discussed up thread, one forgoes as lot of SS money by delaying taking it. You can catch up if you live enough, but my breakeven point is when I’m 82. Honestly, what are most of us going to do with the money then?
The thing to consider is how your life would change by taking the money early. The extremes are that you would get to eat three meals a day, in which case take it, or that you’d just have an equivalent dollar in your investment account with no change in lifestyle, in which case don’t. My FIL live to almost 101 and was active, taking cruises, until his mid-90s.
A few other factors. By waiting, I maximize my estate, which will be useful for my kids and grandkids. My kids don’t need any money now, but my grandkids might in 20 years.
Also, with the market high, I figure there is a good chance that a dollar I take out now might be worth 80 cents in a few years. SS will keep its value. I learned this during the Bubble when we went on an expensive cruise with money that would have disappeared if we had kept it where it was. If I had been smart I would have cashed out more.
There is no right answer for everyone, but for me it is waiting until 70 since there is not one thing I’d do with the SS money that I’m not doing now.
It’s possible that your old pension will be worth something, possibly everything it otherwise would have been worth. The pension plan is separately organized from the company, so the company going bankrupt doesn’t necessarily bust the pension (although it, obviously, stops new people from joining and stops the company from making additional contributions). If the pension plan was well-funded at the company’s bankruptcy and has been well-managed since, the pension may still be able to pay all of its obligations, including the money that it owes to you.
If the plan went bust too, either with the company or later, the Pension Benefit Guaranty Corp. may be able to make at least partial payments. The PBGC is a government agency that effectively charges pensions for insurance. It uses the premiums to pay retirees some benefits when their pension plans go bust. I’m not that well-versed in how PBGC support works for people who hadn’t yet retired when the plan went bankrupt.
The length of time it existed in the past isn’t particularly relevant. What is relevant is how financially stable the employer is (so it can keep making contributions as needed), how solvent the plan is (that is its assets versus its future pension obligations) and how well-managed it is (which can always change, even for the best plan).
I ran several scenarios using various assumptions of rate of return and inflationary increases in the ss payout. I was surprised to come to the conclusion that I need to live past 90 to benefit from waiting until 70 to collect. Otherwise 62 makes more sense for me. I’m assuming I compound after taxation at 5% with 3% inflation. The higher assumed rate of return the more it argues for starting early. And if you believe the doomsdayers saying ss will run dry in 10 or 15 years, it becomes an even easier decision.
I don’t believe the doomsdayers (or even the doomsayers), but I’m going to be out at 65. After carefully weighing the 2 million+ variables and considerations, this sorta-middle ground seems to be the right combo (for me) of safe enough and early enough.
As someone who has never actually appeared on one, welcome leaderboard.
About 5 years ago I did a similar analysis and figured: heck yeah, take SS at 62!
But then as I approached that age I realized:
A) I’m still working, and expect to continue to do so, at a decent salary
B) I believe SS can be reduced before full retirement age if you are getting other earned income
C) taxes would eat away much of anything left, due to my tax bracket
With the Mrs. planning to take hers as half of my SS payout, every month I delay taking SS means an additional $27 a month in rest-of-my-life income.
Sorry but I had an error in my analysis due to using monthly payments where I should have used annual on the compounding. I reviewed for hours to be sure everything else is right in my spreadsheets. It appears that I’m better off having waited until 70 to collect if I end up living more than 79 to 82 years depending on the assumptions I use for inflation adjustments in the benefits and after-tax rates of return on investing the proceeds.
Yes, if you’re still working, there’s almost zero benefit to starting to take SS right now. As noted, some of your SS would be reduced if you earn over a certain low threshold (about 18K or so), per this:
Supposedly you get that money back, later on.
I did some crunching recently and was surprised that given the formulas they use, my highest earning years were something like 15 years ago! But every year I continue working right now knocks a lower-earning year out of the “high 35” - which doesn’t actually make that much difference to my total benefit. If I were 65 years old right now, my benefit would be x dollars a month. Assuming my salary remains the same for the next 3 years, when I am actually 65, my benefit is only x + 40 bucks or something like that. Still, in the intervening 3 years, I’m earning considerably more than my SS benefit, and if I get any raises, that 40 bucks might creep up a bit.
Of course, if I started claiming SS right now, I’d only get half of it (less taxes), PLUS getting my current salary. Of course it would be reduced about 25% (too lazy to do the math) for now and forever. Still, if I thought I was likely to die in the next 5-10 years, that might be worth it.
I’m pretty sure the spousal benefit is based on the benefit at full retirement age and doesn’t include the enhanced benefits for working past that, so that may affect your calculations. The widow’s benefit does include the enhanced benefit though, so she’s got that going for her, anyway.
If both the Mrs. and I start taking SS when I turn 65, I assume her 50% would be based on my actual benefits (the monthly payout that would apply at age 65), not the FRA benefit of 66 and a half. Am I misunderstanding? It’s certainly a possibility.
Being married to me, she has little to show for it, so anything I can do for her - on Earth or in my final reward - I owe her.
It would definitely be reduced if you claim early. Here’s a calculator to determine how much the reduction would be. It maximizes at the full retirement age, so waiting after the FRA benefit doesn’t affect spousal benefits. The social security people say:
A spousal benefit is reduced 25/36 of one percent for each month before normal retirement age, up to 36 months. If the number of months exceeds 36, then the benefit is further reduced 5/12 of one percent per month.
Hmm, OK, let me see if I have this right, @Bill_Door
(these numbers are close but imprecise, on purpose)
I know from my SS report that my FRA benefit is $3,000/month, age 66y6m.
I know from the SS Web site that my benefit at age 65 is $2,600.
Are you saying (and no hands-on-hips, I just want to verify what I’m hearing) that if I take SS at 65 then Dear Mrs’ benefit will NOT be: $1,300 (50% of $2,600), but rather (using the calculator you linked) 43% of $2,600 ($1,118) ?
If true, then I (well, my household) get double-whammied if I retire ~20 months before my FRA, first by reducing MY benefit, and secondly by further reducing the spouse’s benefit on top of my benefit reduction.
I agree the calculator supports that conclusion, it’s just…so…unfair! DO-OVER!
(ETA: to clarify, Mrs. IS entitled to her own benefit, but would get more taking half of mine)
But you’ll both collect the admittedly reduced benefit for an additional 20 months. Additionally, I think a $400 monthly reduction in your benefit is more than you should see for starting 20 months before your FRA. There’s a possibility that one or the other, or both of those estimates are based on faulty assumptions. I’d assume the website may be using parameters that don’t apply to the report so I’ll assume the $3,000 is accurate.
There’s a reduction of 5/9 of 1% for each month before your FRA, so I’d expect, if the $3000 benefit is accurate, your age 65 benefit to be $2,667 per month. If that’s the case, it would take more than 13 years for you to catch up to the benefit you would have received already.
But then there you are, 80 years old, and finally starting to enjoy that extra $333 dollars per month. Don’t spend it all in one place.
Bear in mind that the $3,000 benefit is 96.4% of the maximum benefit to an individual, and the average social security check is only $1,430. So many of these social security maximizing strategies are people comfortably ensconced in the upper class or upper middle class frantically chiseling to to try to squeeze a couple more nickels out of the government. They’re the people who can afford to wait and they’re the people who have white collar jobs that haven’t torn their bodies up by the time they’re 62.