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In a 2015 report published by Merill Lynch, 55% of retirees had retired earlier than they originally expected. With the majority of retirees choosing to retire early, we wonder whether they fully understand the financial benefits they are missing out on. When it comes to pension plans, many individuals might not realize they can increase their annual pension income by simply adding a few extra years of service before making the leap into retirement. Before anyone really decides, they should ask themselves if the added income they will be missing out on is worth it for them to work additional years.
Do the Extra Years Really Make a Difference?
For many, choosing to wait to 62 or later to retire is rooted in believing the extra pension funds are worth it. To put it simply, every individual who waits until 62 or later to retire who also has at least 20 years of credible service under their belts will receive higher pension compensations. In fact, every year past 60 will grant them an added 1.1% computation, over the flat 1% granted up until age 60.
Whether the amount earned in those extra years is worth waiting is specific to each retiree. Let’s examine how this affects an individual with a High-3 of $75,000. The High-3 figure is the largest annual rate that results from averaging an individual’s base pay over a consecutive three-year period. If this individual retires at 60 with exactly 30 years of service, they would receive 30% of their High-3 in annual pension compensation, which would total to $22,500. If they were to wait until 62, they would receive the extra 1.1% for each year, totaling 2.2%. That means 32.2% of their High-3 in annual pension. This number comes out to $24,150, or an extra $137.50 per month. Of course, any added years working will add another 1.1%, giving an individual in this circumstance an additional $825 annually. Whether this extra income is worth the wait is entirely up to the individual.
The Other Way to Increase Your Retirement Funds
For some, medical necessity or other outlying factors might force them into retirement. Additionally, not everyone is willing to continue working for the added pension income. Thankfully, there is a way for retirees to increase their retirement funds through a life settlement. A life settlement is the sale of an unwanted, or unneeded, life insurance policy to a third party buyer for a lump sum payment that is larger than the policy’s surrender value. In a life settlement, a senior who is typically over the age of 65 can relinquish their policy and the responsibility to maintain premium payments in order to receive a large sum of cash up front. Life settlements are a great option for any individual looking for ways to utilize existing assets to increase their overall retirement funds.
If you or a client has a life insurance policy that is no longer needed or wanted, they might qualify for a life settlement! Check out of Qualification Calculator to find out!