Generally, there is no reduction of Social Security benefits because of your military retirement benefits. You'll get your Social Security benefit based on your earnings and the age you choose to start receiving benefits. While you're in military service, you pay Social Security taxes, just as civilian employees do.
You could end up with far less income than you've planned for. For this reason, you'll probably only want to consider income drawdown if you have a large (six figure) pension fund or you'll have enough other regular income during your retirement. For example, you might have income from other savings or investments.
Pension maximization is a risky strategy for retirement, and it may be safer to choose a joint-and-survivor annuity, which provides benefits for both spouses. Several risks and concerns exist regarding how long the spouse will live and if the strategy actually beats the joint-and-survivor option.
How does it work? If you took the option, you will receive a fixed extra payment on top of your BCSSS pension until you reach SPA (known as the levelling option addition). Once you reach SPA, the extra payment stops, and a fixed amount is taken off your BCSSS pension until age 80 (the levelling option deduction).
Leveling pension plans can be an excellent option for those who are retiring early and looking to boost income during the beginning years of retirement. Whether or not it is a prudent financial decision depends on your personal situation and a number of assumptions.
The stepped pension option allows you to redistribute your benefits, so that your overall income throughout retirement is spread more evenly. It is not an enhancement to your Scheme pension, rather it is just a redistribution of when your Scheme pension is received.
By retirement age, it should be 10 to 12 times your income at that time to be reasonably confident that you'll have enough funds. Seamless transition — roughly 80% of your pre-retirement income. This amount is based on a safe withdrawal rate (SWR) of about 4% of your retirement accounts each year.
One downside of pension plans is that they typically have strict withdrawal and transfer rules. For example, in most cases, employees cannot access their pension benefits until they reach retirement age. Also, if they leave their job before retirement, they may be unable to take their pension with them.
Consider increasing, or making extra, contributions
This way you'll still benefit from more money in your bank account, and at the same time you'll be helping to build your pension savings for your future. You may be able to make a one-off payment to your pension if you have the money – for example, from a work bonus.
Having a payment stream that will last throughout your lifetime can be comforting. However, if you expect to have a shorter-than-average life span because of personal reasons, the lump sum could be more beneficial.
Should I crystallise all my pension now? This very much depends on your circumstances. You should first check whether you're able to crystallise your pension – you must be 55 or older, or meet the restrictions for accessing your pension early. You can choose to crystallise all your funds, or just some of them.
Drawdown is much more flexible than an annuity. You can change how much and when you take money out of it, and how any money you don't take out is invested. But you could run out of money because, unlike with an annuity, your payments are not guaranteed.
Most private-sector pensions will not affect the amount you receive from Social Security. Some government and overseas jobs do not withhold Social Security taxes, which can reduce your Social Security monthly benefit.
That's the reality many military retirees may face in civilian life. Military retirement pay rarely produces enough cash flow without supplemental benefits like disability pay or investments such as a traditional Thrift Savings Plan (TSP). Let's explore the potential shortfall and what you can do to prepare.
Have you heard about the Social Security $16,728 yearly bonus? There's really no “bonus” that retirees can collect. The Social Security Administration (SSA) uses a specific formula based on your lifetime earnings to determine your benefit amount.
There are pros and cons to both plans, but pensions are generally considered better than 401(k)s because they guarantee an income for life. A 401(k) can be more aggressively managed by the individual, which could create more growth than is likely from a pension fund.
The Bottom Line. A number of situations could put your pension at risk, including underfunding, mismanagement, bankruptcy, and legal exemptions. Laws exist to protect you in such circumstances, but some laws provide better protection than others.
Traditional pension plans have been on the decline, primarily due to the economic strain they place on companies. Employers often bear the heavy responsibility of fully funding these plans; a task made more challenging by unpredictable market volatility and fluctuating investment returns.
In a world in which the average monthly Social Security benefit is just over $1,792, it may seem like a pipe dream to live off $10,000 per month in retirement. But the truth is that with some preparation, dedication and resolve, many Americans can reach this impressive level of retirement income.
The first thing to decide is your desired retirement income. How much pension do you need to live comfortably? For a quick estimate, try the '50-70' rule. This suggests that you should aim for an annual income that is between 50% and 70% of your working income.
Probably 1 in every 20 families have a net worth exceeding $3 Million, but most people's net worth is their homes, cars, boats, and only 10% is in savings, so you would typically have to have a net worth of $30 million, which is 1 in every 1000 families.
With the level pension option you get more pension from the RPS before your State Pension age and then less pension from the RPS after your State Pension age. Check your State Pension age on the government website. This aims to smooth or level out your income throughout your retirement as shown in the diagram.
Let's start with how much you will need every year. There are lots of figures floating about, but financial experts generally recommend the two thirds rule – for a comfortable retirement, your total pension needs to be about two thirds of your pre-retirement income to enjoy financial independence.
Taking a lump-sum payment can be very risky. Perhaps the greatest risk of cashing out a pension early is the prospect of running out of money. In contrast, a monthly payment offers a steady income for the remainder of one's life, and in some cases can also be passed on to a spouse.