Ask Terry Questions Retirement – Should I use Pension or 401K savings first

Retirement – Should I use Pension or 401K savings first

By Terry Savage on February 19, 2019 | Financial Planning / Retirement

Terry, I am thinking about retiring next year at age 66. I work for a large company that offers a pension. Each year delayed increases appx. 11%. Modest 401 K savings. I plan to take draw social security upon retirement. Should I use 401K savings first or should I worry about pension possibly not being there when I need it? I work for a very large company where taking away employees’ pensions would create a PR nightmare. Thanks! I’ve learned so much from reading your Ask Terry columns.

Terry Says

OK, this is where you need the services of a CFP — certified financial planner — to run the alternatives.  But here are a few thoughts.

  1. Pension.  It’s sort of amazing that you would get a delayed benefit increase of approximately 11 percent per year you delay  receiving benefits.  Your pension benefits are guaranteed by the Pension Benefit Guarantee Corporation  –up to certain limits — if this is a large public company (and not a union benefit).   In 2019, for retirees who are age 65, the maximum guaranteed pension is $67,295 per year.  Here is a link to the entire schedule of guarantees.    So if your eventual pension is going to be greater, and if your company files bankruptcy, you are correct to be a bit concerned about delaying to get a larger benefit.
  2. Social Security.  Every year you delay taking benefits after full retirement age — until age 70 — you will get an increase in benefits of roughly 8 percent.  AND, that means a higher base upon which future cost-of-living benefits are calculated.
  3. 40l(k).  You have more flexibility with this account, but waiting until you MUST take Required Minimum Distributions at age 70-1/2 makes sense here.  Just make sure your investments WITHIN the plan are appropriately conservative.  And if there are no conservative investments in your plan, consider a rollover to an IRA at Fidelity or Vanguard.

That’s the basis for making your decisions.

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