# 3% Early Retirement Penalty Seems Like a No Brainer



## fraser (May 15, 2010)

I can retire in two years with a full pension. Until recently, my understanding that the penalty for early taking the pension early was 5% per year. Based on a 5% reduction, I had decided to wait until age 62.

I have recently learned that because of my age/service etc., that the penalty is 3%. This reduction has given me cause to reconsider. 

I have a good handle on the tax implications. 

From a straight time value of money consideration the option of taking the pension early appears much more attractive to me. In fact, my rough calculations appear to indicate that it is a worst a equal and at best I could do slightly better by taking it early.

Even though I am only on my first glass of the grape, am I missing something in my foggy state? Thanks


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## Daniel A. (Mar 20, 2011)

The time value is worth far more there is so much more waiting for the person with a sense of adventure. 
In today's world where most don't have a good pension to depend on I consider myself to be very lucky and did retire early.


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## fraser (May 15, 2010)

Sorry, I should have said that I have already retired. I just have not taken my pension yet and did not plan to take it for another two years. Now, the reduced penalty makes it much more attractive to take the pension now, instead of waiting.


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## Just a Guy (Mar 27, 2012)

My thought is that if you don't make it those extra years, say you get hit by a bus, that extra 3% won't mean much...


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## Daniel A. (Mar 20, 2011)

Taking the pension now saves your other cash flow.


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## OptsyEagle (Nov 29, 2009)

The 3% is not a penalty. It takes into account the thousands of dollars you are not receiving by delaying your pension. They are just taking the money you are foregoing now and dividing it up over the remaining years of your life. I would take the pension now.


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## canadianbanks (Jun 5, 2009)

I would also take the early pension if I were you. It's likely that we'll have serious inflation in the next few years and the pensions won't be indexed fast enough for the lost value of the dollar.


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## steve41 (Apr 18, 2009)

I don't know the exact numbers, but if you expect to enjoy the same lifestyle as you would if you had stayed working, you may be disappointed.


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## Saniokca (Sep 5, 2009)

You made a good choice (with respect to pension, I don't know your personal situation). 3%/yr is actually very good. Your employer subsidizes early retirement.


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## Saniokca (Sep 5, 2009)

canadianbanks said:


> I would also take the early pension if I were you. It's likely that we'll have serious inflation in the next few years and the pensions won't be indexed fast enough for the lost value of the dollar.


If the benefit depends on the salary, it would be actually better to keep working in case of inflation. At least some of the inflation will be reflected in the salary. Disclaimer: I am assuming here that the pension is not indexed after retirement.


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## wandernorth (Mar 30, 2012)

No brain. Key thing here is 97% is taxed on your average tax rate, 3% is taxed on your margin rate. Even 5% is good for 2 year unless you can live over 90


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## Karen (Jul 24, 2010)

Saniokca said:


> If the benefit depends on the salary, it would be actually better to keep working in case of inflation. At least some of the inflation will be reflected in the salary. Disclaimer: I am assuming here that the pension is not indexed after retirement.


The OP has already said that he/she has already retired - just hasn't started drawing the pension yet.


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## caricole (Mar 12, 2012)

> fraser....I have recently learned that because of my age/service etc., that the penalty is 3%. This reduction has given me cause to reconsider.


It all depends on % of what ?? of 100% or of 70%

I see the calculation usually as follows

age + years of service = factor 90 = 70% of salary

Every year early will take of 2% of 70%

So if you take retirement 3 years early....you will get 64% instead of 70%

( 3 years early reduces the factor 90 to 84) = 6% reduction on 70%

In your case, differend factors and reductions could apply...better investigate fully

Because of early retirement, your number of years of service could already being fixed in place ?

The «AGE» is definitely not...:tranquillity:


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## Guigz (Oct 28, 2010)

The penalty applies on the amount of benefits that you have gained, not on your full salary. IE, a 2% penalty for 3 years means that you get (98%)^3*70%= 65.9% of your base salary not 64%, assuming that you have accumulated 70% of your salary in benefits.


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## fraser (May 15, 2010)

The reduction is three percent reduction on my earned pension for each year that I take it early. So, on a 60K pension, the penaly would be 1800 in year one, slightly less in year 2.


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