At 65, Should I Start My Pension Now or Wait for a Bigger Payout?
Most private sector employees these days do not have access to a pension. Rather, they have to take savings matters into their own hands by contributing to a 401(k) or a similar plan for retirement. In this Reddit post,…
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Most private sector employees these days do not have access to a pension. Rather, they have to take savings matters into their own hands by contributing to a 401(k) or a similar plan for retirement.
In this Reddit post, though, we have someone who’s still working at age 65 and is now eligible for a pension. But they’re not sure if they should take it now or wait. There are pros and cons to each decision, so let’s dive in.
A tough choice
The poster here, having reached the age of 65, can start drawing from their pension. And the benefit would be getting their money sooner.
But the big drawback is that if they wait to take the money, their monthly payments increase. And since they don’t need the money now since they’re still working, they’re not sure it makes sense to take that hit.
It’s a similar situation to Social Security.
Social Security allows recipients to start taking benefits at age 62. But waiting longer results in larger monthly checks for life. So it can be hard for seniors to know when to take benefits given the temptation to get their money sooner versus the financial upside of holding off.
How to make the right call
The poster here has a big decision, so I think they should ask two key questions:
- How long do I think I’ll live?
- What can the money do for me now?
Like Social Security, there’s a break-even point with this pension situation where the poster would get the same total lifetime payout at two separate claiming ages. They should figure out what that is and go from there.
Let’s say their break-even point is age 80. If they’re in great health at 65 with a family history of living long lives, then they may want to wait and grow their monthly payments. If that’s not the case, and they already have some health issues, they may want to take the money now.
The poster should also figure out what the money can do for them. If they’ve always wanted to travel and the pension could allow for a couple of nice trips a year, those are worth taking at a time when the poster still has good health.
If they wait on the pension, they might get more money. But then they risk reaching a point where the money can’t be used for the things they want to do with it.
As one commenter put it really well, “you may not have the disposable health to spend your disposable income.”
Another thing this poster, and anyone else in a similar boat, should do is discuss the situation with a financial advisor.
An advisor can show them whether they can afford a hit to their monthly pension, or whether they’re okay to take the money now if it can do something meaningful for them. An advisor can also help integrate that pension into the poster’s total income picture to allow for a financially smooth retirement.
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Maurie Backman has more than a decade of experience writing about financial topics, including retirement, investing, Social Security, and real estate. Her work has appeared on sites that include The Motley Fool, USA Today, U.S. News & World Report, and Kiplinger.
Prior to becoming a full-time financial writer, Maurie worked in the financial industry trading distressed debt. She then changed course and spent a few years designing electronic toys. After a stint in content marketing and UX, she shifted back into writing and has since covered everything from the housing market to estate planning to Medicare.
When she's not busy writing, Maurie can be found hiking, walking her dogs, driving her kids to their various sports practices and games, and curling up with a good book. She cooks on occasion and bakes way too often.
