Anonymous wrote: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.

How did your salaries compare -- yours in the private sector with hers in the (presumably) public sector?

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.

I'm pretty sure you can run a retirement scenario, modeling new higher salary and estimating growth rate over time vs estimating your pension. DH and I both have pensions--if he hits 20 years, his will provide about 80k/year (in todays dollars), and the survivor benefits are also good. The other good thing about the pension is that he has longevity on his side--mom is 93, dad died at 95 (pre vax covid). But its also a wellfunded pension and will likely be fine.

Mine is not worth much--I didn't take the job because of it, its just going to have a little extra boost.

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:How long does it take for the pension to vest? DH works for the state of MD, and it takes 10 years. And it requires a mandatory 7% contribution. If you leave before year 10, instead of a pension you are paid out your contributions plus a set amount of interest that in no way attempts to keep up with market rate interest had the money been invested in a traditional retirement account. At your age in the MD system, I would deem the pension to be worth very little. Pensions for a full career in the system aren’t worth that much, so the 15 or 20 years you’d get will be an even less significant pension payout.

wow 7%! hard to believe it is worse than the feds. What is the payout?

If he stays his entire career and retires at 65, at his current salary (approx 110K), I believe he should get around 60k. Of course his job (public defender) is a difficult one to have for 35 years, so we’ll see.

He would not get that much from investing 7% of his salary for that period of time.

Eh, I like my watered down fers pension prospects. I'm at a fin reg, so after 33 years, I expect an annual pension of about 80k in today dollars. Yes, could be better, but I don't think it's nothing.

MCPS teachers have the same deal. I am on the old pension system (new one started in 2011) and I work less years to be vested and less years to retire with a high payout (still paying 7% though).

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:How long does it take for the pension to vest? DH works for the state of MD, and it takes 10 years. And it requires a mandatory 7% contribution. If you leave before year 10, instead of a pension you are paid out your contributions plus a set amount of interest that in no way attempts to keep up with market rate interest had the money been invested in a traditional retirement account. At your age in the MD system, I would deem the pension to be worth very little. Pensions for a full career in the system aren’t worth that much, so the 15 or 20 years you’d get will be an even less significant pension payout.

wow 7%! hard to believe it is worse than the feds. What is the payout?

If he stays his entire career and retires at 65, at his current salary (approx 110K), I believe he should get around 60k. Of course his job (public defender) is a difficult one to have for 35 years, so we’ll see.

Anonymous wrote:

Anonymous wrote:How long does it take for the pension to vest? DH works for the state of MD, and it takes 10 years. And it requires a mandatory 7% contribution. If you leave before year 10, instead of a pension you are paid out your contributions plus a set amount of interest that in no way attempts to keep up with market rate interest had the money been invested in a traditional retirement account. At your age in the MD system, I would deem the pension to be worth very little. Pensions for a full career in the system aren’t worth that much, so the 15 or 20 years you’d get will be an even less significant pension payout.

wow 7%! hard to believe it is worse than the feds. What is the payout?

If he stays his entire career and retires at 65, at his current salary (approx 110K), I believe he should get around 60k. Of course his job (public defender) is a difficult one to have for 35 years, so we’ll see.

My parents (cop and court reporter) and my in laws (municipal mechanic, double dipped with the city and the county and SAHM) are all living off their pensions right now.

Cop gets $7k per month
Court reporter gets $3500 per month plus $1800 per month from a permanent carpal tunnel injury settlement
Double mechanic gets over $10k per month

Pensions are not worth it, they're not what they used to be. I would rather make more money and invest my money however I want.