When should I take my pension?

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Q. I have a pension I can collect right now at 95 percent of the total value. If I wait a year until I’m 60, I get 100 percent. It comes to about $45 a month difference. It would pay about $850 a month. Should I wait the extra year or start to collect it now? I am currently working at a different job but it would be nice to have a little extra cash. Would I get killed in taxes if I started to collect it?
— Ready to collect

A. When anyone considers the right time to start taking a pension, it’s smart to do a break even evaluation.

Let’s first look at the numbers, courtesy of Dean Shah, a certified financial planner with Stonegate Wealth Management in Oakland.

($850 – $45) x 12 = $9,660: amount you would receive if you begin collecting this year
$850 – $45 = $540: amount you’d lose annually by beginning this year

Shah said it would take about 18 years for you to break even if you wait for the higher payment next year.

“If you wait, you’re essentially receiving a 5.6 percent return on the amount you’d receive if you were to start this year: ($850 – $45 = $805) then ($45/$805 = 5.6%),” Shah said. “This is a fairly good return and should be considered a pro to waiting.”

The taxes you would have to pay would depend. You didn’t say what your tax bracket was or what your current income is.

“If you are making a significant amount of money, adding the pension income to it could bump you into the next bracket,” Shah said. “If you plan to retire, your income will be reduced and you may not notice the tax. If you plan to continue working and wait a year to collect the pension, the extra tax may not be avoidable.”

Shah said because it sounds like you don’t really need the money right now, as long as you are in reasonably good health, he’d recommend holding off.

If you don’t need the money, whether you start pension payments this year or next, you should have a plan for the funds.

“If you could, the smart thing would be to save the money while you are still working to offset any loss if needed,” said Vicky Tomaro, an Investment Advisor Representative with Tomaro Financial Group in Wall.

And if you need a hand planning your retirement budget and determining your retirement timeline, consider a free money makeover with NJMoneyHelp.com.

Email your questions to moc.p1566170756leHye1566170756noMJN1566170756@ksA1566170756.

This story was first posted in November 2015.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.