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Frequently Asked Questions: Dr. Benefits

Henry: My defined benefit plan has a penalty of 1/15 for every year you leave before age 65. Hence, at age 62, it is 3/15 or twenty percent. Do all defined benefit plans work this way?

Dr. Benefits: Yes, but there are exceptions.

Most corporate sponsored defined benefit pension plans have a normal retirement age of 65. That means you will receive your calculated pension benefit (accrued benefit) unreduced starting at age 65.

If you choose to start your benefit at age 62, your benefit will be reduced for earlier commencement of payments and your longer expectation of life.

These adjustment factors are known as early retirement reduction factors. They are not really a penalty but an adjustment for the longer period of payments from age 62 than from age 65. These factors are soundly based on mathematical formulas.

The most common early retirement reduction factors are 1/180 per month for each of the first 60 months, and 1/360 per month for each of the next 60 months for retirement prior to age 65. These are the same as 1/15 for each year in the first 5 years and 1/30 for each year in the next 5 years prior to age 65.

Also, some plans use actuarial equivalent factors that are mathematically exact but at the same time, more difficult to understand. In most cases, your 1/15 factor is more favorable to you. True mathematical factors (actuarial equivalent) would result in a greater reduction in your benefit.


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