Where if age + years in service >= 80, one could retire with a full pension. So, start working at 20, work for 30 years, retire at 50. Because 50 (age) plus 30 (years of service) = 80.
I know some teachers unions use it. I know some carpenters unions use it. Or used to. Age requirements have often gotten older (people live longer). But when did this particular setup become common?
I’ve never heard of that, though I was not listening either. But if I understand this correctly someone age 79 can work for 1 year and get a full pension?
From what I understand, it only gets you the most basic pension. Additional years after that count toward additional % of your high three.
The one I’ve heard is “Rule of 85”. Age and years service add up to 85. So a person starts working age 22 (out of college). 63/2=31.5 so at age 53 or 54, they can retire.
Yes a person 79 could do that - but the collateral rule is that the formula for pension is *(average of best 5 of last 10 years earnings) x (years of service) x (some percentage). *Usually this was about 1.5% so 30 years work gave you 45% of your gross earnings as a (taxable) pension. It was better than some 30-and-out pensions I heard of for heavy industry way back when. Miners and steelworkers used to have back-breaking jobs, and were worn out by age 50. Plus, the pension I had did something like using 1.1% for the first $40,000 of your income to account for old age pension. (It was not permitted in Canada to use Canada Pension Plan income in private pension calculations, so that was a “fudge” of sorts).
The 30-and-out went back AFAIK to the 60’s or 70’s.
Usually you have to vest first, which means you have to work a certain minimal number of years to qualify. 5 years is common, but I’ve seen it run as high as 10.
Secondly “full pension” may not mean what you think it does. In this case it means “pension without penalties.” Generally you will get a percentage of at least your base salary based on years worked. Said percentages can be anything, but 1-3%/year is the most common range( often around 2 ).
So let’s say your pension plan earns you 2% a year and it takes 5 years to vest. If you start work at 75 and retire fully vested at 80, you will draw a pension of 10% of your base working salary until the end of your life( whatever is left at that age ). If you quit at 79 without vesting, you get nothing.
It’s further complicated by minimum retirement ages. These usually run anywhere from 50( rare outside of physically demanding jobs like police or firemen )to 65.
So example #2 - you start at a job at age 40 that has a pension that pays out at 2% a year, vests after 5 years and has a minimum retirement age of 65. But let’s say you want/have to to retire at 62. You’re fully vested, so you’ll get credit for the 22 years you worked - 44% of base salary. However you’ll receive a penalty, some percentage reduction, based on not making it to full retirement age.
In addition its can get complicated by things like shift differentials( i.e. getting paid some additional percentage more for working nights ), standby pay( getting paid some additional percentage for being on call away from work ), overtime and other bonus income above your base salary. At my job shift differential and standby count towards calculating retirement income, overtime does not. But rules vary widely from plan to plan.
Okay, screwed up that second example and couldn’t get in under the editing wire. Sorry :).
Minimum age means you can’t retire until 65 barring a medical exception, but the reduction would come from not reaching a “rule of 80.” So start at 40, retire at minimum ago of 65 with 25 years of service = 50% of salary. Minus a percentage for not reaching that rule of 80, because 40 + 25 = 75.
Damnit! Why do I keep screwing this up?
Obviously age 65 + 25 years worked, does = 80. Okay change that example to he started at 41 and receives a penalty because he was stuck at 79. That works, yes? Goddamn well better :mad:.
Now I’m just hopelessly confusing everyone with my senility. I think I’ll just slink away into the shadows to lick my self-inflicted wounds :p.
Some variation of that rule has been in use probably as long as there have been defined-benefit retirement plans (so, early 20th century, mostly).
For example, the Kansas Public Employees Retirement System uses the “rule of 85” for employees hired before 2009: age + years of service = 85, or at age 55 with 10 years service, or age 65 with a single year. Meanwhile, under the Kansas Police & Fire Retirement System, it’s mostly a variant of the rule of 75 (e.g., age 50 with 25 years’ service, etc.). [see When can I retire? on the left-hand side of each of those links.]
I don’t think there’s a universal rule of 80, though; it depends on the specifics of an individual pension program as to what rule was implemented.
IIRC in Canada it is a requirement that pensions vest at 2 years. The commission looking into retirement back in the late 80’s determined that many workers switched jobs far faster than the usual 10 year or 5 year vesting. (Which was a windfall for the company). Concern about people not having retirement savings down the road (i.e. now) led to reform of the pension rules. Canada and Netherlands have the strictest pension protection laws - stories like the US airlines basically declaring bankruptcy to evade pension obligations - those sort of actions are rare in Canada. But to handle the deluge of new pensioners, departing employees who could not start collecting immediately (i.e. under 55, under rule of 85) could get their net present value in a locked in savings plan, untouchable until age 65.
Note the point of 30-and-out or Rule of 85 is that most pension plans had options to retire early but the pension was reduced by each year under age 65(Say 5% a year at age 55 or over), so you could retire at 55 if you were willing to take half the pension you’d get at 65 - and minus those 10 extra years of service in the calculation. The people I knew who did this typically the spouse had reached full pension, and they wanted to retire same time. People who reached the 30-out or 85-rule could collect their full pension no matter how young.
Should also note that the people who switch jobs early are better of with the savings plan, since your current pay is probably chickenfeed in 30 years and 5 years (so 7.5% of that) is hardly worth cashing the cheque.
Some US police departments are notorious for the union “arranging” that overtime falls to officers 5 years or less from retirement to beef up their “last 5 years average income”. The NY subway system was also once famous for this - subway workers retiring with over 200% pension.
Of course what has actually happened is most companies have gotten away from defined benefit pension plans, they seem to be a fixture of government systems now. Pension (if any) seems to be “we put it in a locked-in savings plan for you and how well it pays is your problem”.
pensions are a never-ending topic with plenty of twists and turns.
In the olden days at AT&T, it used to be the rule of 75. Worked out great for me when they offered an early retirement buyout that added 4 years to my age, 4 years to my service and a 20% bonus on my pension payout. Since then they’ve modified it so much and gotten rid of so many people that a lot of folks never qualify under the rule.
In my (non-union) company, it was also the rule of 75.
The first time I heard it used was not by a labor union, but a large corporation, in the 1980s, as part of an early retirement buyout for non-union workers. I think the keystone number in that case was actually 60.
Edit: I should say it wasn’t as good as it looked like at first sight. The people who took the deal got early vesting, but a reduced pension from if they had stayed until age 65.
Uhm, no. 65+25 = 90
The Washington, DC teachers’ retirement system would let me retire in another 5 and a half years; I’ll have 20 years in and will be 60. It would be at 40% of my highest salary. If we can make it work by moving somewhere with a low cost of living and selling our house here for several times what we paid for it we’ll probably go for it.
NM
Sometimes, it’s not actually a “Rule of X” , it just kind of looks that way at first. In my pension system , I can collect a full pension ( meaning no penalty) at age 55 with 30 years service * . Now that sounds like a “rule of 85” at first, but it’s not. I cannot ever collect a pension before age 55, not even if I have 33 years service at 52. And if I have fewer than 30 years service, my pension will be reduced if I am younger than 62 (even though 62 +23 comes to 85).
Oh and something I didn’t see mentioned- the pensions I’m familiar with have a different formula depending on how many years of service you have. In mine , the formula for less than 20 years service is Final Average Salary × 1.66% × years of service ; for 20-30 years it’s FAS × 2.00% × years of service and for over 30 years, it’s 60% plus 1.5% for each year over 30,
:smack::smack::smack:
Yes, many of these rules tend to have an age 55 lower limit for retiring.
The 30-and-out I heard of was for workers in a labour-intensive industry. As I heard it, there was no reduction for this once you hit 30 years, but the retirement option before 30 years involved a progressive percent reduction depending on retirement age from 55 to 65. The logic was people doing heavy physical labour could easily be worn out by age 50. It would be possible to retire at 48 with full pension for someone who started at age 18.
Should also point out this rule, from about 1970 or earlier, was based on hard-living hard-drinking red-meat-eating smokers typical of their employees, so the pension was rarely anticipated to pay into the 80’s or 90’s. (IIRC the typical North American male life expectancy was about 76 at the time). It was also not uncommon for people to drop dead within a year or two of retirement, unable to adjust to the change.
We used to have Rule of 90, but they eliminated during my 6 month madness of working for a different county.
If I had stayed, full pension at 58.
But nooooo…
They’re called “golden handcuffs” for a reason. The guy who I talked to was an junior-medium level engineer, making a decent salary in the late 90’s. Say, about $C50,000. His buyout after 17 years would be about $C20,000 going into a retirement savings fund locked in (no withdrawals) until age 65. (or, $10,000 a year roughly).
The catch is the net present value of a $10,000 annual payout 25 years away is pretty small. I believe in those days the interest rate for calculations was about 7%. he said that somewhere around 15 years you ahd too much time invested to quit unless the new job was really lucrative, especially with 30-and-out. However, a lot of good talent left for other jobs after 30 years in order to enjoy double incomes.
Another fellow I talked to was a steelworker who had been working 20 years, and was going through a divorce after 10 years. Under Canadian law, his wife was entitled to half his pension -counting the time they were married. So best case was a 30-year pension, but she was entitled to net present value of a pension 10 years off, and only half of one third of that. He said the cash value was $7,000 - implying the 20-years-in value of a pension after 30 years, 10 years away, was $42,000. (Based on wages in those days, a pension of about $16,000 a year.)
So quite often, what appear to be lucrative pension schemes typically are not as great as they first appear.