Looking for some advice on how to plan for retirement with a pension involved in the US.
Short overview, wife and I (early 30s) are both putting back 15% of our salary (about $230k/year combined) and have about $275k saved so far.
I'm looking at taking a lateral move to a company with both a 401k and a pension. Essentially, the pension would pay 40% of my salary at retirement age.
Should I still be saving 15% of my salary for retirement in this situation? Or should we move on to other options with that money? I'm not finding much info about how to plan around a pension like this. I feel like the obvious answer is "don't change anything and enjoy all my extra money in retirement" but would like some feedback on how other people plan in this situation.
Retirement Planning with a Pension
byu/Coltman151 inpersonalfinance
Posted by Coltman151
16 Comments
I would continue saving 15%. Most pensions are based on service time. If you work there for 30 years and retire, great. However if you leave in a few years, the pension may be pretty worthless. Plus, depending on where you’re going, there’s the possibility they may get rid of the pension or it may be bankrupt by the time you retire.
Basically a pension is really nice to have, but you should account for the possibility that you might not have it.
Yes still save; but as you age up consider reducing contributions.
Your pension is tied to years of service. It would be bad if you found a better job (pay or passion or balance) but the loss of other savings and pension forces you to stay
When you know your pension benefits are “locked in” you can treat them in two common ways:
Fixed income: pensions and social security have a value. You could treat the pension like 300k in bonds. This allows you to hold more equity in other self managed accounts
This also increases the “floor” or minimum monthly income received in retirement…..
Cost reducer: if you plan to pull 70k in retirement; but pension and social security pay 50k combined your portfolio only needs to fund 20k/year. This requires a lot less principle than 70k
Continue saving for now. For 1, since it’s earlier, saving now has the biggest impact. 2, you never know how certain it is that you will stay with the pension job long term. You can’t get this time saving back if so.
Later, when approaching retirement age, you’ll have way more certainty about your portfolio, the pension, and your costs in retirement. You can then stop saving or retire earlier based on this.
It is a good practice but save it in a liquid variable bucket.
If this is in the U.S., the pension for a private Employer is covered by the PBGC. But even that could only cover pennies on the dollar should the Employer go belly up and leave an unfunded liability in the pension. I strongly urge OP and wife to continue each putting aside 15% of their own funds for retirement, preferably in a Roth vehicle.
I have a pension that will pay 75% of the average of my highest 60 months. I am fully vested and have the max number of creditable years of service. Our plan is very healthy, over funded even which has prompted some improvements to it in recent years. I know it’s stable. I still save about 20% through various tax advantaged accounts.
Accrual of pension benefits tends to be heavily backloaded toward your later working years. So if you work there just long enough to vest, the value toward your eventual retirement will be very low. You should continue saving a similar percentage of your salary for retirement, at least until you’ve been there long enough for the accrued pension benefits to be higher value.
At my job, I am paying contributions to the pension (12% I think?). If that is the case for you, I would lower the % to the 401k to have a higher available income.
Pensions are rare these days so finding a company offering them is nice. Depends on the rate of return the pension provides. But also, remember any pension (just like any investment) can go to $0
I started a new job recently that has a pension with a 5 year vest.
I have over $200k in investments through my old 401k, Roth IRA, and brokerage. I currently don’t have a 401k with this new company but I still invest in my Roth IRA.
Honestly, if I like it here after 5 years I might stop my Roth IRA contributions and just pocket my income. I think the math checks out as I have 25-30 years to work.
Yes.
Unless the pension is contributory, and especially only if it’s with a government or related agency, that pension can be eliminated or frozen at any time.
You could also leave that job before you earn a valuable pension.
My pension will be 55% of my last 3 years average salary. My only change to investing is that I’m going heavy on Roth since I will already have a baseline of taxable income.
If you can afford it (meaning you can still enjoy your life), aggressive investment in Roth early. You can coast at the end if you want.
Yes, still save 15%. Too much can happen between now and when you would theoretically max out your pension. What if you decide to switch jobs a few years in and never vest? Or what if you decide to switch jobs right after vesting and your annual payout is very small?
My pension pays me 80%, but I still saved 15% since I started working because work (and life) is too unpredictable.
Does the pension plan include a cost of living adjustment (COLA)? is there any chance you or wife will want to retire before age 67, when you reach Social Security full retirement age? Are you considering children, who might not be indendent when you’re ready to retire? Would you like some extra cash to travel during the go-go years of retirement?
Things like that factor into how much you need in addition to pension. If you can live comfortabl, not feeling deprived, continuing the 15% to retirement is a good idea. Extra money opens up your options. But if the two of you are penny pinching, try cutting back to 12% and see if the little extra helps.
I don’t know the right answer, but I’ll tell you what I do. I have a pension and VA disability, and I invest 20% automatically every month and any additional I have left over, typically another 18-20%. I feel like better safe than sorry.
Continue saving. You won’t ever regret it. I just retired early with a pension, and damn I’m so glad that I saved diligently. Just gives me more peace of mind and options.