Early Retirement Plans or CASH?

[63dot]

here's a hypothetical a couple of my friends face

1)

take a retirement at from a civil service job after 20 years at age 38, receive 1/4 of full pay monthly, and medical care from walter reed or similar hospital for life versus a retirement at 30 years at age 48, 40% percent pay, and slightly more extended medical care? ... person is thin, does not smoke, and drinks very little (but i don't know anything about family's medical history)

2)

take a retirement from a fortune 500 company at 32 years, age 65, and receive nearly half pay monthly which would be $1500 a month, a real medical plan akin to blue cross for life, or take $60,000 dollars cash tax free up front? .... this person does not smoke but is obese, drinks more than moderately, and has a huge history of heart disease, stroke, and cancer in the family...but has a house in major disrepair and has choice of fixing it before it falls down or retaining it's 1.5 million dollar worth (but land is worth most of the value akin to an area like jupiter, florida or the hamptons)

i have tossed these ideas in my head, and my training in graduate business school, law school, study of tax law, and being around the planet for 43 years still does not give me a clue as to what is the best thing for these two people...please help

 

[r1ch4rd]

I am a pensions consultant by trade but I don't work with the public, I advise the pensions schemes themselves. So although I am not really qualified to give advice hopefully I can say something helpful.

First case, I would have no qualms about working another 10 years at 38 to get another 15% of my salary at leaving (salaries usually rise). I doubt that the scheme rules for the pension they are in would allow retirment at 38 or 48 without retiring on an ill health pension. At least 50 is a more usual lower age limit.

Are they in a Defined Benefit scheme? 1/80th accrual (that is, you get 1/80th of your salary for each year you work) seems about the level you are quoting there. This isn't a huge amount. Definitely worth putting in some additional voluntary contributions to buy some more pension or added years and retiring later.

For the second case if you are saying they can have $60,000 and then no pension then this is a rip off. $60,000 is only about 3y4m of $1500 pay (assuming this $1500 is after tax). In the UK you are not usually allowed to take your entire pension as cash, I would usually advise taking as much cash as possible but not if it wipes out your pension. Cash is a good tax break but it doesn't last forever (your pension will last as long as you do).

What you have written seems like it might be a bit simplified, are these quotes that you have been given from the schemes or have you guessed at the numbers. They seem like unlikely circumstances to me.

Anyway, I hope this helps a bit.

 

[63dot]

I am a pensions consultant by trade but I don't work with the public, I advise the pensions schemes themselves. So although I am not really qualified to give advice hopefully I can say something helpful.

First case, I would have no qualms about working another 10 years at 38 to get another 15% of my salary at leaving (salaries usually rise). I doubt that the scheme rules for the pension they are in would allow retirment at 38 or 48 without retiring on an ill health pension. At least 50 is a more usual lower age limit.

Are they in a Defined Benefit scheme? 1/80th accrual (that is, you get 1/80th of your salary for each year you work) seems about the level you are quoting there. This isn't a huge amount. Definitely worth putting in some additional voluntary contributions to buy some more pension or added years and retiring later.

For the second case if you are saying they can have $60,000 and then no pension then this is a rip off. $60,000 is only about 3y4m of $1500 pay (assuming this $1500 is after tax). In the UK you are not usually allowed to take your entire pension as cash, I would usually advise taking as much cash as possible but not if it wipes out your pension. Cash is a good tax break but it doesn't last forever (your pension will last as long as you do).

What you have written seems like it might be a bit simplified, are these quotes that you have been given from the schemes or have you guessed at the numbers. They seem like unlikely circumstances to me.

Anyway, I hope this helps a bit.

for simplicity, i rounded out the numbers but kept it within a few percent of accuracy

in the first case, i believe my friend, who is at 17+ years of work, should stay until 30 years work and retire at age 48...this is the deptartment of the army/defense so that explains the under age 50 ability to retire...some american soldiers have actually retired at age 37, having gone into the us military at age 17 (like my father did in world war II)

in the second case, the man, now a tax consultant...ironic - isn't it?...used the cash amount to save his house from total ruin according to his son...in the long run, i think the major long term repairs on his house will yield a 5+ million dollar house by the next time it has to be fixed in such a major way...he lives in northern california, steve jobs' country, anyway basically think top of the line south kensignton where i was lucky to live as a transfer student

also, in the second case, the $1500 dollars a month is before taxes, and the man, who i have known 20 years, lost a brother who died at age 51 and it has been unlikely for any of the males in his family to live close to age 70...genetics really suck, don't they?...and his moderate drinking is, from an insurance agent's point of view, considered excessive (i would guess 4 glasses of wine daily)....but i have seen some old people put away more each night...like a 12 pack of beer or two bottles of wine...daily!....again, i think anyone who can put it away like that, like keith richards, have some tough sets of genes, he he, and i certainly would not refer keith richards' old age to clean living

DOES ANYBODY IN ENGLAND RETIRE AT 80 PERCENT OF THEIR SALARY/WAGE? i am just curious, because if so, i am comin' over like john wayne on a horse

 

[63dot]

real estate in the usa?

richard,

this may be off topic, being that you are in england and i am in california, but many areas, actually most, have seen high end homes drop in price from over 10 percent and upwards in just a few years

it's kind of like the drops we had in dot.com that smeared silicon valley

i have no idea if the dot.com, or dot.bomb a few years back had anything to do with many homes, actually, in many different price points, taking a dip in their values

some american financial experts, like suzie ormond (sp?) have warned americans about a possible drop in real estate and rising variable interest rates hurting people who may have to sell low on their house(s)

in the short run, with dot.bomb, and now with the real estate downturn, as the media here like to call it, makes it hard for many to remember when both were going up quickly and short term investments in those areas (technology and real estate) were considered safe...some idiots started to laugh at the idea of brick and mortar investing and diversity

...those idiots, most of them, lost it all...and then some

add to that a bitter attitude towards the current president, in relation to the us economy, as if he has any power, right?

 

[r1ch4rd]

DOES ANYBODY IN ENGLAND RETIRE AT 80 PERCENT OF THEIR SALARY/WAGE? i am just curious, because if so, i am comin' over like john wayne on a horse

I think that 80% was probably impossible under the old UK tax rules. In 2006 they were all changed though so I'm not sure but it might be possible now. Still not likely to happen though. You should note that you get around £4500 a year from the government after you retire in the UK on top of your corporate pension. This can up the percentage a lot if you are a low earner. Even up to £45,000 a year ($90,000) it's still 10%.

With regards to property it sounds pretty different in the US. There is a massive shortage of housing in the UK and prices have been on the up for quite some time. I don't see it slowing any time soon either. I am 22 on a good wage for my age but I don't see being able to get on the housing ladder any time soon. In the short term you will do well in housing. In the long term maybe not, it's gotta slow eventually.

The only problem with investing in the property that you live in is that if you want to get the money out you will have to either downgrade and move or look into an equity release programme. These might not be options that you want to take.

 

[StealthRider]

here's a hypothetical a couple of my friends face

1)

take a retirement at from a civil service job after 20 years at age 38, receive 1/4 of full pay monthly, and medical care from walter reed or similar hospital for life versus a retirement at 30 years at age 48, 40% percent pay, and slightly more extended medical care? ... person is thin, does not smoke, and drinks very little (but i don't know anything about family's medical history)

2)

take a retirement from a fortune 500 company at 32 years, age 65, and receive nearly half pay monthly which would be $1500 a month, a real medical plan akin to blue cross for life, or take $60,000 dollars cash tax free up front? .... this person does not smoke but is obese, drinks more than moderately, and has a huge history of heart disease, stroke, and cancer in the family...but has a house in major disrepair and has choice of fixing it before it falls down or retaining it's 1.5 million dollar worth (but land is worth most of the value akin to an area like jupiter, florida or the hamptons)

i have tossed these ideas in my head, and my training in graduate business school, law school, study of tax law, and being around the planet for 43 years still does not give me a clue as to what is the best thing for these two people...please help

Why not both? Retire from govt. service and use your experience to get another job, in another sector, which you can retire from years later with two pensions?

 

[63dot]

The only problem with investing in the property that you live in is that if you want to get the money out you will have to either downgrade and move or look into an equity release programme. These might not be options that you want to take.

my bro moved to an area (on a scale of 1-10), was a "2" from an area that was an "8"...his tiny condo in the nice area after he sold it gave him enough to buy a much larger property, a house actually, after taxes

he went from 500 sq. ft. and a tiny deck to 1500 sq ft. and a back and front yard

the only thing he has to beware of is crime where the other area he lived in had a very low crime rate

he got a fiancee, who was trained to be a teacher but was unable to find work in the rich suburb, and also with the package came two large dogs, so they had to get a larger place in an urban area, and since he had no big sums of money lying around i guess it would have been like giving up a small condo in bude and clovelly and buying a house, with enough space, in manchester or liverpool in one of the tougher parts of the city

that's the best analogy i can come up with

man, bude and clovelly were amazingly beautiful when i visited them in 1985...heaven on earth, basically

it was a tradeoff but you have to do that sometimes

 

[63dot]

Why not both? Retire from govt. service and use your experience to get another job, in another sector, which you can retire from years later with two pensions?

i worked, as a gardener years back, for a man who did just that, in a way

he had 20 years in the us military, then retired at 37 or 38, and then he did 20 years in the california highway patrol (like "chips" the tv show)

the only problem is that he died a few years later...two wars, purple hearts and other medals of valor from the marines, and then 20 years on the crazy california highways?

he definitely lived a very full life though

he did take it easy and worked for a small utility company after the marines and highway patrol jobs and he seemed happy there

...and when i did gardening at his house, he was out there with me fooling with all the power tools...he could not sit still and i had a great admiration for him

...but i think his incredible type "A" personality gave him his heart attack in his 60s

 

[-hh]

here's a hypothetical a couple of my friends face

1)

take a retirement at from a civil service job after 20 years at age 38, receive 1/4 of full pay monthly, and medical care from walter reed or similar hospital for life versus a retirement at 30 years at age 48, 40% percent pay, and slightly more extended medical care? ... person is thin, does not smoke, and drinks very little (but i don't know anything about family's medical history)

Not too sure about this one; it depends on what they're going to do after age 38 for the next 10 years (another job?, etc).]

take a retirement from a fortune 500 company at 32 years, age 65, and receive nearly half pay monthly which would be $1500 a month, a real medical plan akin to blue cross for life, or take $60,000 dollars cash tax free up front? ....

An absolute slam-dunk no brainer: take the pension with healthcare.

That $60K "tax free" will ...on a good day... barely cover paying your healthcare costs for 5 years. That leaves you with ZERO pennies to live on for those 5 years and absolutely nothing after 5 years. As such, the cash out is an extremely bad deal. RUN ... do not walk ... away from this one.



-hh

 

[mpw]

...1)... ...medical care from walter reed or similar hospital for life versus... ...slightly more extended medical care?...

But really how useful is having medical care extended beyond your life?

 

[63dot]

But really how useful is having medical care extended beyond your life?

what i meant was having really terrible medical care vs. just slightly terrible medical care (there must be a thread here somewhere on the walter reed army hospital/VA story)