Reply to Job with pension versus job without - how heavily should it weigh in your decision?

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[quote=Anonymous]People totally underestimate the value of the pension because they underestimate the risk of market losses (which are particularly severe if they happen in your 40s or later). and also underestimate how long they will live.

One cheap way of figuring out the benefit is to go online and just find out the cost to purchase an annuity of the amount that you would get. So if you will get $40K/year in retirement, what would it cost you to get an annuity of that amount?  That will still understate the benefit somewhat, becaue your benefit will likely be based on your high 3 average, and you will likely get increases between now and then.

So let's say that your pension is years of service x 2% of high 3.  After 10 years, that would be 20% of salary.  Now assume you're hired at 100K, but get 3% COLAs per year -- that's a 130K salary after 10 years, which would be a 26K benefit at retirement (deferred until normal retirement age).  An online calendar (which I'm not sure I trust) suggest that to buy a $2K per year annuity at age 55 would cost you about $420K at current interest rates.  With more research, you could probably do better pricing on that, but it will give you a sense of what a "risk free" cost of this is -- with the pension, you are insuring yourself against both the risk of market losses, and the risk of your own longevity.

Also, the person talking about pensions being underfunded doesn't really know what they are talking about.  That's a limited problem for a certain type of pension.  The local governments will fund their pensions.  (I think Detroit is the only one that has had an issue there.)  The only real risk is that they will cut back on future accruals at some point.

I started work a little over 20 years ago at a private company with only 401k. A fried started a couple years before me at someplace with a pension.  She is now retiring in her mid-50s with the full pension, after having put in 25 years.  I am so jealous!
I've been maximg out my 401k each year but it's nowhere near the same.[/quote]

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