Is a pension all it’s cracked up to be?

[Anonymous]

What is your earning potential outside your job? What are the numbers on your husband’s pension? Do you also have access to a 401k-like account?

[Anonymous]

Looks like you could make almost twice your current salary in the private job. How is the job stability in the new job? Will you be able to work all the way to retirement or do people tend to get pushed out past a certain age? Work-life balance?

[Anonymous]

Im 47 and staying in a relatively low (for me) paying job (making about $130) for the pension and benefits. Vesting begins after 5 years, so three more to go for me, and then i’ll get something like 12.5 percent of my salary… if I stay longer, ill get even more, but i might take a higher paying job instead and have the $1k+/month pay my mortgage, which is just $1,500.

[Anonymous]

What I found is that my friends in the public sector made twice what I made. But they also spent twice what I made. Now that we’re in our late 50s I am on track to retire at 58 and they are on track to work for the rest of their lives.

I think it makes sense to go private if you have the ability to put money aside, invest, etc so that you have a good retirement.

Yeah, my friends they went on vacations and drove amazing cars, bought the bigger house

But here we are.

Don’t even get me started about my friends that are divorcing. That’s a complete mess.

[Anonymous]

Anonymous wrote:I worked in a pension department and most people were getting $1600-$3600/month depending on years of service, marital status and salary and age etc. most of them falling in the $22-2600/mo range. Add social security and you won’t starve especially if you have your house paid off.

Pensions are guaranteed by pbgc.gov but there was a time when pensions were failing and a bunch of companies did away with them

Public sector pensions are not guaranteed by PBGC. If the salary difference is that big, you can save more for retirement and convert some of it to an annuity when you retire if you want a guaranteed stream of income. That would put you ahead of your public sector pension, assuming it does actually open up to you, which is far from a given.

[Anonymous]

Anonymous wrote:My mother's family died in poverty without pensions. On my Dad's side everyone retired and lived long healthy lives--lots of travel and own property. Tlmy Dad's side had pensions. My Dad now has a pension and makes a solid 6 figures in retirement. The pension options have been reduced but it is 100 times better than a 401k[/quote

Trouble 401k is very few due the max and and most are not aggressive enough.

And matching makes a big difference. I am set to retire with two million in my 401k. Even at 6 percent it will return $12,000 a year in retirement without touching principal.

My wife has one million her 401k so that is another $60,000 a year.

huge huge huge huge drawback pensions your kids can’t inherit them. You and husband could work 40 years as a Fed and on way home retirement party you both get hit by bus and dead. There goes pension.

Other problems pensions not all COLAS. My mother retired a $200 a month pension. Was actually a good amount. When she died an old lady it was near worthless. Inflation ate it away.

[Anonymous]

OP here. Thanks all this has been really helpful.

1. I max current retirement offerings, mostly because we’d get eaten alive in taxes otherwise.
2. House is already paid off.
3. I also contribute to a 457b. Would continue to have the option of contributing to that account if enrolled in pension as well.
4. Current role is interesting and good work life balance.
5. 18 months from now the pension plan will have reopened or it’s never going to happen.
6. Retiree healthcare is part of pension plan.
7. External roles pay $500k a year including bonuses, but field is volatile. I can expect to be on the job move every 3-5 years. I’d have 10-15 years of runway before being considered old, which would definitely impact earning potential. No job security.
8. I could moonlight in current role. Maybe an extra $30k a year.

[Anonymous]

I always shake my head at people who cling to pensions but would never buy an annuity.

Look, you can save, invest in stocks, and then use a PORTION of your portfolio to buy a lifetime annuity as a substitute for some of your bond portfolio. Private annuities don’t typically have COLAs, but you can layer them. So, after 10 years, if you need more income, buy another, incremental, lifetime annuity. How? Sell some of your stocks that have continued to appreciate over that ten year period. Basically, use stocks for principal growth and annuities - not bonds - for steady, guaranteed income.

[Anonymous]

Do the numbers. Biggest advantage of government jobs is the stability. These 350k jobs are not stable and also not that easy to find so you might be looking at longer pauses in your income that might eat away that higher salary. Just simulated the numbers for the next 15 years, make some assumptions about possible job losses and see where you land.

[Anonymous]

Anonymous wrote:You can calculate exactly how much they are worth, eg by finding out how much an spia annuity of the same amount would cost.

DP
Using the 4% rule, if OP gets $3k/mo in today's money the annuity would be $1M, give or take. If she takes the job and invests just $50k/yr in a taxable investment fund in the S&P assuming a conservative 6% gain for the next 20 years, she would be much better off.

OP - take the higher pay unless the job security is very low.

....I feel like I just helped my 5th grader with a word problem.

[Anonymous]

Pension by a long shot, especially because you like your current role. At the $350 level, it is all about the $$$, everything else be damned.

[Anonymous]

Anonymous wrote:

Anonymous wrote:I worked in a pension department and most people were getting $1600-$3600/month depending on years of service, marital status and salary and age etc. most of them falling in the $22-2600/mo range. Add social security and you won’t starve especially if you have your house paid off.

Pensions are guaranteed by pbgc.gov but there was a time when pensions were failing and a bunch of companies did away with them

True, but you're not guaranteed to get what was promised in the company's pension plan. My FIL was a steelworker at Bethlehem Steel- when their pension plan failed, it was taken over by PBGC and he received much less than what was expected from Bethlehem's plan.

A few points on this. First, there has been significant pension reform over the years and single employer pension plans are all required to be fully advanced fundied. So even if the company fails, the money is already put aside for the pension. The only way this doesn’t happen is if two things happen at once—the stock market crashes such that the money the company put aside significantly decreases AND the company goes bankrupt.

Also as a steelworker it’s possible your FIL was in a multi employer plan not a single employer plan — those have different rules.

PP is right that you can figure out what you’d have to pay to buy a guaranteed annuity at that amount. Another way to do it is to look at one of the calculators and figure out what you’d need to save to have that much in retirement. But because the company bears the risk of market loss in a DB plan, you should use a really low interest rate there (something basically risk free like 4%), and you should also consider whether you’re likely to outlive the actuarial tables. In my family, everyone outlives the actuarial tables so I will need to save a lot more to equal a DB plan (which I don’t have and wish I did!).

[Anonymous]

Anonymous wrote:

Anonymous wrote:You can calculate exactly how much they are worth, eg by finding out how much an spia annuity of the same amount would cost.

DP
Using the 4% rule, if OP gets $3k/mo in today's money the annuity would be $1M, give or take. If she takes the job and invests just $50k/yr in a taxable investment fund in the S&P assuming a conservative 6% gain for the next 20 years, she would be much better off.

OP - take the higher pay unless the job security is very low.

....I feel like I just helped my 5th grader with a word problem.

6% is actually pretty aggressive. The problem is that the stock market goes up and down. So there’s a concept called path dependency — basically that it matters when you earn the money more than what the average returns are. If you have a few down years when you first retire, you’ll need to pull from the principal. And then you’ll have less principal to earn interest, so you’ll need to do better than 6% to get that 12K per year. This is the problem that the people that retired in 2007 had — they lost a ton of their principal in the 2008-09 crash. Plus once you are retired you need to be pretty conservative about investments to avoid this problem. So while 6% average returns across a period of time may be realistic generally, it may not really work that well as a basis for retirement expectations.

[Anonymous]

I an 40 and have been with my organization for 15 years. I have mommy tracked myself and make around $140,000. Clearly could make more to go in the private sector BUT I have great health insurance, flexible hours and a very good pension. Right now (based on my salary) I would get $7000 when I retire at 57. But this will probably go up since my salary will go up over the next 20 years.

[Anonymous]

Anonymous wrote:If it wasn’t for his pension my father would be completely destitute.

Same. As it is, he’s still low income.