Interesting Retirement Plan

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Topic Author
cmanion
Posts: 47
Joined: Sat Sep 01, 2012 4:19 pm

Interesting Retirement Plan

Post by cmanion »

Gents,

My wife and I will soon be packing up the bags and moving. I recently discovered a hospital in Dallas with a unique pension plan. It looks as though you stop contributing to SS and contribute instead to the county hospital's pension plan. You then receive a vested "benefit" after 5 years. You can retire as early as 55 according to the information I received. It looks like you receive double what you would get from SS. I'm just dropping the materials here to see what you all think. You only contribute 4.5% of your salary and the hospital pays the rest.

http://www.parklandhospital.com/gme/doc ... ochure.pdf It's on page 25.
MachAF
Posts: 136
Joined: Fri May 08, 2009 2:01 pm

Re: Interesting Retirement Plan

Post by MachAF »

I wasn't aware you could opt out of paying SS. I understand there are some exemptions for people with visa's and students of universities.
Alan S.
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Location: Prescott, AZ

Re: Interesting Retirement Plan

Post by Alan S. »

It's probably to your benefit, but you have some research to do, including analysis of the affect on spousal benefits. The key issue here is the WEP provision that will likely reduce your SS benefits already earned or future earnings covered by SS. The other characteristic is to analyze the benefit of only contributing 4.5% instead of 6.2% for the ex Medicare portion of SS, and that the SS contributions are limited to around 110k of earnings. The example in the brochure may not match your own situation or projected earnings very well.

See attached:
https://www.socialsecurity.gov/pubs/10045.html#a0=1
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22twain
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Re: Interesting Retirement Plan

Post by 22twain »

MachAF wrote:I wasn't aware you could opt out of paying SS.
I think it's common for public-sector workers who are in a government pension plan to be outside the Social Security system, and it's not a matter of "opting out" except to the extent that you can "opt out" of taking the job. My father was a firefighter and I think he got SS only through his "moonlighting" job, in addition to his pension from the state police and firefighters' pension plan. Similarly, my mother was a school secretary and was in the state school employees' pension plan; she only got SS as survivor's benefit after my father died.

Cutting pension benefits to current public-sector retirees (as has been done in e.g. Central Falls RI because of municipal bankruptcy) is a big deal for this reason... they often don't have Social Security as a backstop.
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Topic Author
cmanion
Posts: 47
Joined: Sat Sep 01, 2012 4:19 pm

Re: Interesting Retirement Plan

Post by cmanion »

My mother worked for the Providence School Department in RI (Also teetering on the edge of bankruptcy) and is collecting a pension right now. However she also collects SS.
ourbrooks
Posts: 1575
Joined: Fri Nov 13, 2009 3:56 pm

Re: Interesting Retirement Plan

Post by ourbrooks »

If you want to move to Dallas for the weather, then do it. Whether you want to work at Parkland Hospital is a far more open question.

The brochure makes no mention of either inflation adjustment, spousal benefit, disability benefits or dependent benefits. If you have a spouse and he/she is entitled to 50% of your Social Security benefit at full retirement age. When I add the 50% to Social Security, the Parkland plan advantage disappears.

The Parkland plan is limited to employment at Dallas city hospitals and it takes five years to vest. If you go anywhere else, you start over.

Parkland Hospital is part of the Dallas County Hospital System, which is, in turn, dependent on the tax revenues of the county of Dallas. Dallas and the rest of the state of Texas are doing pretty well right now, due to the boom in the oil industry. Believe it or not, there have been periods when the oil industry didn't do so well. (The Texas oilman's prayer: Dear God, give me one more oil boom. I promise not to waste this one.)

Last but not least, ask about working conditions at Parkland Hospital. You may already know about this and may be one of the people hired to fix the problem: http://www.bizjournals.com/dallas/blog/ ... l?page=all
Topic Author
cmanion
Posts: 47
Joined: Sat Sep 01, 2012 4:19 pm

Re: Interesting Retirement Plan

Post by cmanion »

My wife and I are both in the medical field and currently live in west Texas. I will never pay state income tax again and intend to stay in Texas for that reason. We can be close to her family (1 hour flight) and my parents will pretty much be following us where we go. I'm from Massachusetts, so I'm used to four seasons. In west Texas, not so much. Dallas seems like it has a fall and a cooler winter than we experience out here so that's why we decided on that city rather than San Antonio, Austin, or Houston. We decided on our professions so we have that luxury, we're just trying to figure out where we should end up.

I'm fully aware of the issues with Parkland, I'm just looking for a long term facility with great benefits and hopefully a pension plan. I really want to avoid the reserves or returning to active duty military in order to achieve this. Our county hospital where we live now has a nice pension plan and great health benefits, but I won't stay in the city one day longer than I have to. I intend to make my next destination where I work for the next 20 years. I've just been trying to research facilities in the area that meet the criteria. I'm not dead set on a pension, but I look at my parents that take in over 100K on pensions alone and haven't even touched their retirement accounts. It's tempting. I'm just trying to conduct the right research before we just show up in Dallas and I settle on the first hospital that gives me a job.
Muchtolearn
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Joined: Sun Dec 25, 2011 9:41 am

Re: Interesting Retirement Plan

Post by Muchtolearn »

I wouldn't go near it. Due to a quirk in the SS empl system, for some God foresaken reason, public plans can exclude people from SS. The only reason of course is so that they don't have to pay the match. Why would that be allowed? Regardless, you may not have a great claim on the pension if and when Parklan goes bankrupt. Read about Massachusetts hospitals which just yesterday reported that more than half are operating under a deficit. As a doctor you know that withe the system as it is,this could get worse.
The Wizard
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Re: Interesting Retirement Plan

Post by The Wizard »

Valuethinker wrote: Few people would benefit from being outside US Social Security. It is inflation indexed, and that's a rare (or unknown) benefit in most pension schemes...
I tend to agree with VT here.
A couple years back, I started a thread asking how well the SS retirement payout compares to putting the exact same amount of $$$ into Vanguard (for example) investments of various sorts over the same timeframe.
But that thread diverged into all sorts of tangents and I don't think I got a good answer...
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Topic Author
cmanion
Posts: 47
Joined: Sat Sep 01, 2012 4:19 pm

Re: Interesting Retirement Plan

Post by cmanion »

The Wizard wrote:A couple years back, I started a thread asking how well the SS retirement payout compares to putting the exact same amount of $$$ into Vanguard (for example) investments of various sorts over the same timeframe.
I would love to know how that turned out. Great idea.
thewizzer
Posts: 352
Joined: Sun Aug 19, 2012 10:11 pm

Re: Interesting Retirement Plan

Post by thewizzer »

I don't pay into Social Security, either. I am employed at a municipal police department and we have our own pension fund, which we administer ourselves. It's a good thing, IMHO, if you plan on making a career out of it. If you ever think you might go elsewhere, it's not such a good thing.

Every plan has benefits and drawbacks.
SeattleCPA
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Joined: Fri Jul 06, 2012 7:06 pm

Re: Interesting Retirement Plan

Post by SeattleCPA »

cmanion wrote:
The Wizard wrote:A couple years back, I started a thread asking how well the SS retirement payout compares to putting the exact same amount of $$$ into Vanguard (for example) investments of various sorts over the same timeframe.
I would love to know how that turned out. Great idea.
I tried to find the income replacement ratios provided for various income levels (because these do exist and I've read about them before) but couldn't do that quickly. What I remember is that the income replacement rate on the first $9,000 or so is 70%. I.e., if you earn $9K a year over your working years, you get a roughly $6300 a year benefit. If your income is $50,000-ish, on the incremental $51,000, you get an extra 30% benefit, or roughly another $15,000. On the last $60,000, you get an additional 10% benefit, or another $6000.

Summing things up (and again, my numbers are from memory and so surely imprecise, etc) the goodness of the benefit really varies by income level. The plan isn't bad for someone in the first range... but the "goodness"declines as your income rises.

BTW, you can gain some insight into the "goodness" of one's "investment" by looking at what would happen if you could opt out of Social Security the way that many S corporation shareholder-employees do. For example, suppose you pay an extra $50,000 in wages and thereby pay an extra (roughly) $6200 in social security taxes a year because of both the employee's and the employer's 6.2% SS taxes. Over 40 years, if you instead invest that money into a Swensen-like portfolio and you earn the roughly 5.35% average that portfolio perhaps historically delivers, you end up with roughly $816,000 in the account when you retire in real, adjusted for inflation dollars.

Tip: Here's the Microsoft Excel formula that makes such a calculation: =FV(0.0535,40,0.124*50000)

If you then annuitize this amount over the estimated fifteen years of life the average person would have at age 65-ish, you end up with an annual payment of roughly $68,000 if you use a 3% interest rate in your annuity calculation.

Tip: Here's the Microsoft Excel formula that makes this calculation: =PMT(0.03,15,-816000)

So I think it's pretty clear that since SS benefits for this $50,000-a-year person are more like $20K a year, the program isn't a great retirement plan in terms of alternatives like "opting" out.

BTW, one other thing to remember is that SS comes with some addiitional insurance benefits like disability and survivors benefits, so this isn't totally an apples to apples comparson. Above numbers and calculations don't deal with these extra complexities. Also, SS benefits for many people aren't taxable, and the money coming out of your Vanguard account quite likely might be taxable... so that's another factor where the comparison isn't apples to apples.
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