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Retirement Planning – Decisions about Social Security and Pension Income

Q: I am planning on retiring and trying to decide whether to take the monthly pension or 50/50. I will be 62 and taking my Social Security early. The amount of my Social Security will be $1560. If I take the monthly pension, the amount will be $2,869. The 50/50 would be $239,728 to be invested and a monthly amount of $1,435. My question is which scenario would be the best for me to take?

A: Happy New Year to you, and thanks for reaching out with your question.

This is a scenario that we run into with clients on a regular basis. One thing that is always important to consider is what financial resources do you have available and what is your monthly income need? So it looks like the two options are:

1) Pension + Social Security Income of $4,429

2) Half Pension + Social Security Income of $2,995 AND investable assets of $239,728

From a mathematical standpoint, the pension payout option is about 7.2% which is a great income rate. The math is $1435 X 12 = $17,220, then divide by $239,728 = 7.18%.

For option 1, do you have any other investable assets? Brokerage Accounts? Cash Savings Accounts? If so, and they are adequate to provide for emergency reserves and any one-time (or periodic) larger purchases then this option may be attractive. If, however, you have little to no other assets, then you may want to consider option 2.

For option 2, this would allow you to have a bucket of assets to draw from…either in a monthly income fashion or “as needed” liquidity.

The overarching question here, however, is how much income do you need to live on? That will be the first step in determining which option to take.


 

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