Do you count pension contributions as a portion of your overall retirement contributions.

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Cody
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Do you count pension contributions as a portion of your overall retirement contributions.

Post by Cody » Thu Jul 05, 2018 8:48 am

I've seen this question somewhere on the forum but can't dig it up.

When contributing to a pension should you include that amount as part of your overall contribution amount? If so what part of the breakdown below?

If you contribute 5% to a pension and your workplace contributes 5% and you contribute 5% above that to and IRA does that equal a 15% contribution?

Thanks,
Cody

theshovel
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Re: Do you count pension contributions as a portion of your overall retirement contributions.

Post by theshovel » Thu Jul 05, 2018 9:01 am

I don't receive a match as a municipal employee, but I wouldn't count it if I did. I've always been under the impression that one's percentage of savings is meant to come from income, match not included.

My current pension contribution is 3%, as set by what I made two years ago. It goes up to 6% in a year, and will stay that way for the duration of my employment.

My ideal SR is 20-25% of 100-120k in a HCOL area, so I'll be at a 14-19% 401k contribution after I run a few numbers for 2019. If I max the 401k, I'm fortunate enough to also have a tax-sheltered 457 available to me.

Also "play around" with an additional 5% of income in my taxable account.

ExitStageLeft
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Re: Do you count pension contributions as a portion of your overall retirement contributions.

Post by ExitStageLeft » Thu Jul 05, 2018 10:01 am

Money being fungible it doesn't care where it comes from. If 15% of your salary is making its way into your retirement saving it doesn't matter whether it comes from your take-home or from an employer's match.

What does matter is whether that 15% is sufficient. You can make some forecasts using various online tools to get a sense of whether that is an adequate savings rate to meet your goals.

https://networthify.com/calculator/earl ... awalRate=4

https://firecalc.com/

https://www.i-orp.com/GuarInc/extended.html

The more you save the sooner you reach financial independence.

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Re: Do you count pension contributions as a portion of your overall retirement contributions.

Post by ruralavalon » Thu Jul 05, 2018 10:33 am

Cody wrote:
Thu Jul 05, 2018 8:48 am
I've seen this question somewhere on the forum but can't dig it up.

When contributing to a pension should you include that amount as part of your overall contribution amount? If so what part of the breakdown below?

If you contribute 5% to a pension and your workplace contributes 5% and you contribute 5% above that to and IRA does that equal a 15% contribution?

Thanks,
Cody
A few details might be helpful. What is your age? About how long until expected retirement? Do you work in the private sector, or for a governmental body?

If many many years from retirement, then for planning purposes I would not count the pension or pension contributions at all.

If just a few years to retirement, then in my opinion it's reasonable to start counting on the pension.

If many years from retirement, then I simply suggest making contributions at a rate that is as high as you can comfortably sustain in light of your other obligations.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

Elbukari
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Re: Do you count pension contributions as a portion of your overall retirement contributions.

Post by Elbukari » Thu Jul 05, 2018 10:50 am

Why exactly would one not count employer contribution as part of the, for example- recommended 15% savings?

1. It's money
2. It's invested into an index fund
3. It's compounding interest
4. That money is yours at the age of 59.5 (in fact, you can take it out before for a penalty fee)

For example, I work for a hospital that happens to be a university. After 6 months of being there, all employees (a few exceptions) are automatically enrolled in a university pension plan (401A) where 12% (6% employer/6% employee) is automatically invested into a target fund. If we follow the 15% general rule, you only need to set aside another 3% of your income. In my case, I am doing 5% (into a 403B) and maxing out an individual Roth IRA, so the total contribution towards retirement is a little over 20%. It makes no sense to not count pension contribution since in just 8 months there is over $6,000 in there (my money).

EDIT: Sorry, I misread the title. No, i'm not including the pension contributions. At the age of 25, It's not certain if it will even be there, let alone the full amount.
Last edited by Elbukari on Thu Jul 05, 2018 11:32 am, edited 1 time in total.

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Re: Do you count pension contributions as a portion of your overall retirement contributions.

Post by delamer » Thu Jul 05, 2018 11:04 am

My husband and I both had mandatory pension plan contributions.

In my case if I left the job, I was entitled to receive a refund of my contributions (no interest though).

In my husband’s case, he lost all his contributions if he left before vesting.

I’d argue that those are different situations.

But as someone else said, ultimately what matters is whether you are saving enough rather than the percentages.

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Re: Do you count pension contributions as a portion of your overall retirement contributions.

Post by marti038 » Thu Jul 05, 2018 11:07 am

I don't, but I'm only 37 and not 100% sure it will be around when I get ready to retire. If it is, great. If not, then I imagine they'll give us some sort of lump sum if they shut the program down. (This brings up a question. When business shut down pensions, do they typically "buy out" the folks who are vested, but not retired?)

So, I guess I treat the pension like social security.

As I approach my 50s, I'll probably take it a little more seriously.

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Re: Do you count pension contributions as a portion of your overall retirement contributions.

Post by maj » Thu Jul 05, 2018 1:43 pm

When businesses 'shut down a (defined benefit) pension,' they have to follow strict federal laws, which do provide options for the employers and the employees.
For example, retired can receive a lump sum (and roll it over if so desired), or an annuity which must provide the same benefits as the pension.
There are similar options for vested employees, for example, rolling over into a defined contribution plan.
And non-vested employees are usually rolled over into a defined contribution plan.

The key to safety is the quality of the professional firm hired to do the work--the board of directors (trustees) have a grave duty to make an informed and prudent choice of vendors.

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Atomic
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Re: Do you count pension contributions as a portion of your overall retirement contributions.

Post by Atomic » Thu Jul 05, 2018 5:26 pm

I have a defined contribution plan that offers refunds of contributions plus a nominal interest per year. I do not calculate my retirement contributions. I do include a comparisons of the refund amount to a conservative estimate of the present value of the benefit amount in my financial plan. This comparison will be helpful if I choose to leave the employer and need to make a choice to stay or go.

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Re: Do you count pension contributions as a portion of your overall retirement contributions.

Post by TravelforFun » Thu Jul 05, 2018 6:36 pm

Elbukari wrote:
Thu Jul 05, 2018 10:50 am
Why exactly would one not count employer contribution as part of the, for example- recommended 15% savings?
Because some people leave the company before they're fully vested.

TravelforFun

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AtomicCash
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Re: Do you count pension contributions as a portion of your overall retirement contributions.

Post by AtomicCash » Thu Jul 05, 2018 9:41 pm

Cody wrote:
Thu Jul 05, 2018 8:48 am
When contributing to a pension should you include that amount as part of your overall contribution amount? If so what part of the breakdown below?
Once I was vested in my defined benefit pension plan, I used a spreadsheet to calculate my monthly benefit for a given retirement date (based on forecast years to retirement, forecast annual raises, age at retirement). So it wasn't used to calculate an overall contribution amount. But it was used to model my retirement income.

Marc

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Re: Do you count pension contributions as a portion of your overall retirement contributions.

Post by Cop51 » Fri Jul 06, 2018 12:24 am

I’m required to pay 10% of my salary into the pension system. I save another 10% of my salary into my 457 account and max out my ROTH IRA.

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Re: Do you count pension contributions as a portion of your overall retirement contributions.

Post by CyclingDuo » Fri Jul 06, 2018 8:41 am

Cody wrote:
Thu Jul 05, 2018 8:48 am
When contributing to a pension should you include that amount as part of your overall contribution amount?
Yes.
Cody wrote:
Thu Jul 05, 2018 8:48 am
If so what part of the breakdown below?

If you contribute 5% to a pension and your workplace contributes 5% and you contribute 5% above that to and IRA does that equal a 15% contribution?
There are two schools of thought on this. One school says that your employer match counts towards your 15%:

https://www.fidelity.com/viewpoints/ret ... uld-I-save

The other school says that you shouldn't count the employer match towards your 15%:

https://www.daveramsey.com/askdave/inve ... ntribution

We have only had one job with a pension for the past 11 or so years (vested after 8 years) and counted it as part of our overall savings rate - both the employee and the employer contribution.

Example: The one pension we have has an employee mandatory contribution rate of 6.29% and receives an employer match of 9.44% for a total of 15.33% of that salary going into that pension account.

We started about 5 years ago to boost that particular salary retirement saving's rate by also using a Roth IRA (max out with the catch up contribution). The past two years we added maxing out a 403b and a 457b with that salary to go way beyond the 15% as we shovel in what we can in our final working years using the catch up contribution IRS rules thanks to having an empty nest and higher incomes.

The better question we find is 15% for retirement enough? It depends on when you start, but many find a higher percentage of savings rate to be better - especially if you want to FIRE or with the reality of possibly being downsized or laid off before you hit your FRA. Based on our experience and the previous decades which included times when household income came from either a single or a dual income, raising children, saving and paying for college educations, living and working overseas - our retirement savings rate fluctuated wildly based on single or dual income, other savings goals, but never fell below 10-15% in any given year for the retirement savings portion.

The approach for boosting your savings rate would favor the Dave Ramsey link above to not count the employer match, and make sure you are contributing 15% of your income. The approach we used for many years was more in line with the Fidelity link above as we had other savings beyond retirement going to other goals (college educations, down payment on a house, purchase of land, travel funds, and automobiles as we always pay cash) and simply could not afford to contribute more in some years to the retirement savings and meet our other goals.

Figure out your monthly budget and see what you do have available of your income to contribute to savings. The caution always being not to over-save to the detriment of not being able to meet your expenses and the enjoyment of your current life. Retirement is only one portion of your life that could range from 10 years to 30+ years. The majority of your life will be spent in non-retirement years. :mrgreen:
"Everywhere is within walking distance if you have the time." ~ Steven Wright

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Re: Do you count pension contributions as a portion of your overall retirement contributions.

Post by jaj2276 » Fri Jul 06, 2018 8:54 am

Cody wrote:
Thu Jul 05, 2018 8:48 am
I've seen this question somewhere on the forum but can't dig it up.

When contributing to a pension should you include that amount as part of your overall contribution amount? If so what part of the breakdown below?

If you contribute 5% to a pension and your workplace contributes 5% and you contribute 5% above that to and IRA does that equal a 15% contribution?

Thanks,
Cody
Whatever amount you can take with you if you were to leave your job (regardless of whether you think you'll ever leave your job) is what you should count. My wife is in a 401a defined pension plan. If she were to leave she could take all of her contributions plus interest. If she stays then she gets her pension. Her employer match is meant to cover the cost of providing her a pension if she wanted to go that route so we do not count it.

We count her contributions for our yearly savings goal and track her contributions + interest for net worth purposes. If she were to stay in this job/plan up to retirement the value of this account will likely be much higher than what we carry on our books (I liken it to Buffet's carrying a lot of the businesses he owns at book value even though they're worth much more).
Last edited by jaj2276 on Fri Jul 06, 2018 2:42 pm, edited 2 times in total.

basspond
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Re: Do you count pension contributions as a portion of your overall retirement contributions.

Post by basspond » Fri Jul 06, 2018 9:20 am

Why not count your and your company's contribution to SS? The main reason to have a real % number that you save is to control your other spending. Just count what you save, you will be better off in the long run.

alex_686
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Re: Do you count pension contributions as a portion of your overall retirement contributions.

Post by alex_686 » Fri Jul 06, 2018 9:29 am

What is the purpose of this question? I am not sure that I see it. From my viewpoint, the amount contributed to one's pension and the value of that pension have a low correlation.

I think there is a great value in knowing what your pension will be. This will impact your savings rate and asset allocation. The best way is to convert your estimated pension into a dollar amount. A lazy way would be to focus on the cash flow it would provided.

That is, focus on the outputs - not the inputs.

indexonlyplease
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Re: Do you count pension contributions as a portion of your overall retirement contributions.

Post by indexonlyplease » Fri Jul 06, 2018 9:32 am

No

Why because you don't know what changes may occur in the pension system. So, save and invest as much possible outside of pension. In the end if nothing changes you will have a great pension and a great investment account.

This is what I did.

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cheese_breath
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Re: Do you count pension contributions as a portion of your overall retirement contributions.

Post by cheese_breath » Fri Jul 06, 2018 9:40 am

No, but I count my pension as income. Just like I count my social security as income.
The surest way to know the future is when it becomes the past.

stan1
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Re: Do you count pension contributions as a portion of your overall retirement contributions.

Post by stan1 » Fri Jul 06, 2018 9:43 am

I view pension contributions like Social Security. They are an expense now. There's nothing investment-wise I can do to manage them other than staying employed. In the future these contributions will turn into income, either as a windfall (in the case of a pension cash out) or regular income which will offset my need to draw down my savings.

If you want to save less because you have a pension by all means you can choose to do so. I would not try to artificially pump up my savings rate to make me feel more comfortable about that decision.

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Re: Do you count pension contributions as a portion of your overall retirement contributions.

Post by jadd806 » Fri Jul 06, 2018 9:59 am

I am a government employee with a pension under FERS.

I count my contributions as savings. I count the total that I have contributed into my pension towards my net worth, since if I left my job I am eligible to roll over all of my contributions into an IRA.

I do not count the government's contribution to my pension towards either my savings or my net worth, since that money disappears if I leave my job.

If I collect the pension in the future, I view it as effectively collecting an annuity. I'm exchanging my total contributions for an income stream. At this point in time, I would stop counting my contributions toward my net worth.

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Re: Do you count pension contributions as a portion of your overall retirement contributions.

Post by alex_686 » Fri Jul 06, 2018 10:03 am

cheese_breath wrote:
Fri Jul 06, 2018 9:40 am
No, but I count my pension as income. Just like I count my social security as income.
But Bogle says to treat your SS like a bond...

So, here is the issue. First, pensions certain have a financial impact and need to be counted for. The problem is that some of your assets are stock variable (I have $X as of date Y) while others are flow variables (I will receive $Z per year as of T). So, how do you compare these 2 things? The standard way is to convert flow variables (like SS and pensions) into stock variables (a.k.a. bond-like assets). Then you can compare apples to apples.

It is harder. It is another layer of abstraction. It does give you a internal consistent logical viewpoint, which all of the other methods mentioned here do not.

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Re: Do you count pension contributions as a portion of your overall retirement contributions.

Post by Cody » Sun Jul 08, 2018 7:57 am

What is meant by "stock variable?"

Thanks,
Cody

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Re: Do you count pension contributions as a portion of your overall retirement contributions.

Post by alex_686 » Sun Jul 08, 2018 8:25 am

Cody wrote:
Sun Jul 08, 2018 7:57 am
What is meant by "stock variable?"
"Stock" as in inventory. I have $100k in bonds and $400k in equites on 12/31/2017. I have 100 gallons in the tank. So we are looking at a single point of time.

"Flow" has a time element. I need my portfolio to generate 50k a year for 10 years. I get 1 gallon a minute of flow from my water tank.

Never will these 2 different types of variables mix so some conversion needs to be done.

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Re: Do you count pension contributions as a portion of your overall retirement contributions.

Post by Artsdoctor » Sun Jul 08, 2018 8:49 am

Why would you "count" pension contributions of any sort? Your pension is part of your income. At the end of the day, your entire portfolio is all about income generation at a later date.

If you put legacy plans aside, your investment portfolio is about one thing only: how much income do I need to generate from it at a later date in order to live in a way that I'd like to live. In order to calculate a goal, you need to take into consideration all sources of future income. For simplicity, this usually translates into: investment income + social security income + pension income.

Obviously, your sources of income will vary over time. The more pension income you have, the less you'll need in your investment portfolio. The reason why some people have treated social security and pension income as "bonds," is because they're functioning as stable income needs. However, the term is meant to be used as an illustration more than anything else.

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Re: Do you count pension contributions as a portion of your overall retirement contributions.

Post by texasdiver » Sun Jul 08, 2018 11:40 am

The math gets too messy if you try to count pensions as part of your portfolio. I've worked as a Fed and have taught in 2 different states and so have 3 small pensions at this point that I can start drawing in 11 years. All combined they will add up to about 20K per year. But I don't count these pensions and pension contributions at all when looking at investments and savings.

You can do various math exercises to try to back out the porfolio value of the pensions. For example, you could consider a 20K annual pension to be the equivalent of a 500K porfolio withdrawn at the standard 4%. Or you can look at what and equivalent annuity would cost to buy. But those exercises really don't accomplish anything in terms of planning.

It is much simpler to just treat the pensions and SS as income in retirement and your investment portfolio needs to make up the balance. So, for example, to use some big round numbers of a person with pensions and SS who wants $100K annual income in retirement.

$100,000 Desired income in retirement
($30,000) Expected Social Security
($20,000) Expected Pensions
--------------------------------------
$50,000 Remaining balance to be covered by investments. At a 4% withdrawal rate this means an investment portfolio of $1.25 million.

In terms of calculating your savings rate when working, I would NOT count your pension contributions. If you have a good guaranteed pension then you will obviously need to save less than a person with no pension. But don't count it as part of your savings rate. That is separate. You use your savings rate to project ahead portfolio values at retirement. So, for example, if you have a 100K existing portfolio and are saving at a rate of 10K per year you can plug in various investment return scenarios to estimate your portfolio value in 10 years, 20 years, etc. If you are folding in your pension contributions that messes up the planning and the math.

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Re: Do you count pension contributions as a portion of your overall retirement contributions.

Post by anonenigma » Sun Jul 08, 2018 12:00 pm

stan1 wrote:
Fri Jul 06, 2018 9:43 am
I view pension contributions like Social Security. They are an expense now. There's nothing investment-wise I can do to manage them other than staying employed. In the future these contributions will turn into income, either as a windfall (in the case of a pension cash out) or regular income which will offset my need to draw down my savings.

If you want to save less because you have a pension by all means you can choose to do so. I would not try to artificially pump up my savings rate to make me feel more comfortable about that decision.
+1

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Re: Do you count pension contributions as a portion of your overall retirement contributions.

Post by KyleAAA » Sun Jul 08, 2018 12:22 pm

I include the match in both the numerator and denominator. It's savings, but it's also income.

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Re: Do you count pension contributions as a portion of your overall retirement contributions.

Post by ThePrince » Sun Jul 08, 2018 1:04 pm

indexonlyplease wrote:
Fri Jul 06, 2018 9:32 am
No

Why because you don't know what changes may occur in the pension system. So, save and invest as much possible outside of pension. In the end if nothing changes you will have a great pension and a great investment account.

This is what I did.
+1

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Re: Do you count pension contributions as a portion of your overall retirement contributions.

Post by Mickey7 » Sun Jul 08, 2018 1:44 pm

Re: Do you count pension contributions as a portion of your overall retirement contributions.
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Quote

by ThePrince » Sun Jul 08, 2018 1:04 pm
indexonlyplease wrote: ↑
Fri Jul 06, 2018 9:32 am
No

Why because you don't know what changes may occur in the pension system. So, save and invest as much possible outside of pension. In the end if nothing changes you will have a great pension and a great investment account.

This is what I did.
+1

Ditto +1

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Re: Do you count pension contributions as a portion of your overall retirement contributions.

Post by sergeant » Sun Jul 08, 2018 2:00 pm

Cop51 wrote:
Fri Jul 06, 2018 12:24 am
I’m required to pay 10% of my salary into the pension system. I save another 10% of my salary into my 457 account and max out my ROTH IRA.
Hopefully, with step increases and promotions, you get to the point where you can max your 457.
Lincoln 3 EOW!

alex_686
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Re: Do you count pension contributions as a portion of your overall retirement contributions.

Post by alex_686 » Sun Jul 08, 2018 7:18 pm

Cody wrote:
Sun Jul 08, 2018 7:57 am
What is meant by "stock variable?"
I know that I have answered this before, but....
Artsdoctor wrote:
Sun Jul 08, 2018 8:49 am
If you put legacy plans aside, your investment portfolio is about one thing only: how much income do I need to generate from it at a later date in order to live in a way that I'd like to live. In order to calculate a goal, you need to take into consideration all sources of future income. For simplicity, this usually translates into: investment income + social security income + pension income.
Here is somebody who is converting everything into flow variables - i.e., investments into investment income. All of the professionals I know convert it into stock variables because it is more flexible. It can handle legacy plans. It also handles risk better. But the key thing is to convert everything into flow or into stock values.
indexonlyplease wrote:
Fri Jul 06, 2018 9:32 am
Why because you don't know what changes may occur in the pension system. So, save and invest as much possible outside of pension. In the end if nothing changes you will have a great pension and a great investment account.
If that is true, it should follow that you are excluding stocks and equities as well. After all, stocks have greater risk and uncertainty than pensions. However I don't know how useful this is. I induced both and have wide error bands.

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Re: Do you count pension contributions as a portion of your overall retirement contributions.

Post by indexonlyplease » Sun Jul 08, 2018 7:46 pm

alex_686 wrote:
Sun Jul 08, 2018 7:18 pm
Cody wrote:
Sun Jul 08, 2018 7:57 am
What is meant by "stock variable?"
I know that I have answered this before, but....
Artsdoctor wrote:
Sun Jul 08, 2018 8:49 am
If you put legacy plans aside, your investment portfolio is about one thing only: how much income do I need to generate from it at a later date in order to live in a way that I'd like to live. In order to calculate a goal, you need to take into consideration all sources of future income. For simplicity, this usually translates into: investment income + social security income + pension income.
Here is somebody who is converting everything into flow variables - i.e., investments into investment income. All of the professionals I know convert it into stock variables because it is more flexible. It can handle legacy plans. It also handles risk better. But the key thing is to convert everything into flow or into stock values.
indexonlyplease wrote:
Fri Jul 06, 2018 9:32 am
Why because you don't know what changes may occur in the pension system. So, save and invest as much possible outside of pension. In the end if nothing changes you will have a great pension and a great investment account.
If that is true, it should follow that you are excluding stocks and equities as well. After all, stocks have greater risk and uncertainty than pensions. However I don't know how useful this is. I induced both and have wide error bands.
Yes all are risk. But nothing you can do about it except invest the best you can and hope the pension will not change. An example would be a friend of mine. He worked for a city in Palm Beach FL. After being there 12 years in 2008 they took away the pension and gave them a 401k. So I am hoping he did not count the pension and invested the best he could. This is why I never included the pension as income until I retired. Now it is all I need to live on. So my investments just grow.

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Re: Do you count pension contributions as a portion of your overall retirement contributions.

Post by Artsdoctor » Sun Jul 08, 2018 8:00 pm

^ I'm not sure I'd agree that every professional speaks in terms of stock variables; they're uni-dimensional. Robert Merton distills virtually everything down to flow variables, if you like. At least, that's how I understand it (but I'm definitely not a professional, so give me some slack).

At any rate, the whole point is income stream. Most people look at their pile of money without any thought as to what that pile might generate. The sale of an equity would certainly count as income, as would a bond sale or dividend income. And that's what people spend.

The reason why professional money managers like to think in terms of stocks variables, or portfolio value, is because that's how they're usually paid, if I'm not mistaken. Your stock variable is a snapshot and one which decides your advisor's payday. Professionals are not paid based on income stream, or flow variables if you like (with flow variables being considered a vector, or a two-dimensional product).

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Re: Do you count pension contributions as a portion of your overall retirement contributions.

Post by badbreath » Sun Jul 08, 2018 8:14 pm

I only coincided the the funds that I have control over as my retirement funds, 401k, iras Roths and taxable. I do not add the payed off house or the pension since I need to live somewhere and don't know if the pension will be there when I am 65.
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Re: Do you count pension contributions as a portion of your overall retirement contributions.

Post by alex_686 » Sun Jul 08, 2018 10:24 pm

Artsdoctor wrote:
Sun Jul 08, 2018 8:00 pm
^ I'm not sure I'd agree that every professional speaks in terms of stock variables; they're uni-dimensional. Robert Merton distills virtually everything down to flow variables, if you like. At least, that's how I understand it (but I'm definitely not a professional, so give me some slack).

...

The reason why professional money managers like to think in terms of stocks variables, or portfolio value, is because that's how they're usually paid, if I'm not mistaken. Your stock variable is a snapshot and one which decides your advisor's payday. Professionals are not paid based on income stream, or flow variables if you like (with flow variables being considered a vector, or a two-dimensional product).
Yes, Robert Merton does focus on flow variables. He is also pushing for new products that don't exist yet.

So, every financial adviser and pension manager I have talked to uses stock variables. The academic journals I read focus on stock variables. Then again, the primary focus of all of these talks is on asset allocation. Things that financial adviser and pension managers can actually affect. So this is a slight difference between how we see the world. I am not sure how one would pay a portfolio manager today for a income stream 30 years hence. I will point out that most mangers are paid on some type of risk-adjusted scale, which is a nice bridge between our 2 viewpoints.

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Re: Do you count pension contributions as a portion of your overall retirement contributions.

Post by Artsdoctor » Mon Jul 09, 2018 9:23 am

^ The thing I'm grappling with is the conflict that inherently exists with an advisor who earns his/her keep based on the lump sum value of a portfolio. I have no doubt that most Bogleheads will be just fine and self-sufficient. But there are plenty of people (most?) who will come up short and may benefit from an annuity, for example, or a reverse mortgage, or other products which require an initial cash outlay in order to increase income potential. There is an inherent conflict between the investor's best interest and the advisor's self-interest since "cashing in" a certain amount may lower the advisor's income while boosting the investor's. It's true that the advisor will earn money by selling an annuity so perhaps that evens out, although I'm skeptical. Perhaps the biggest conflict arises when the pre-retiree is contemplating paying off a mortgage so entering retirement can occur without debt; I'd like to think that an advisor could very well advocate doing that if it's a smart move, but the reality is that once the money is gone, the advisor's fee diminishes as well.

But this is off-topic and can be fodder for another thread. Most Bogleheads will probably not be paying advisory fees at any rate. The only point I was trying to make, perhaps ineptly, is that we concentrate so much on getting to a certain "number" that sometimes we forget to view that number in terms of exactly what sort of income it's going to generate (which is the point in the first place, most of the time).

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Re: Do you count pension contributions as a portion of your overall retirement contributions.

Post by Admiral » Mon Jul 09, 2018 9:40 am

Cody wrote:
Thu Jul 05, 2018 8:48 am
I've seen this question somewhere on the forum but can't dig it up.

When contributing to a pension should you include that amount as part of your overall contribution amount? If so what part of the breakdown below?

If you contribute 5% to a pension and your workplace contributes 5% and you contribute 5% above that to and IRA does that equal a 15% contribution?

Thanks,
Cody
There are a few ways to consider this. In our pension system, the money one contributes is one's money: if you sever employment, the money is yours to keep. So, if you have contributed $25k and you opt out, that money is returned to you. So, clearly, that is part of your assets. In terms of whether to "count on" a pension being there, I think it depends on the issuing entity (a fed/state/local government which may have taxing authority) versus a private pension, and how far away from claiming it you are.

We are ten years out from being able to claim it, and it is fully vested. We are planning for it to be there. But at the same time, we are saving as if it will not: maxing out all retirement space, including $18.5k into a 457. If nothing else, you save on taxes. Thinking in this way, we do not include the employer contribution as part of the percentage saved. We just max out everything because we can afford to. But in general if you are putting away 15% of your income you will probably be fine.

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Re: Do you count pension contributions as a portion of your overall retirement contributions.

Post by CyclingDuo » Mon Jul 09, 2018 11:35 am

Admiral wrote:
Mon Jul 09, 2018 9:40 am
Cody wrote:
Thu Jul 05, 2018 8:48 am
I've seen this question somewhere on the forum but can't dig it up.

When contributing to a pension should you include that amount as part of your overall contribution amount? If so what part of the breakdown below?

If you contribute 5% to a pension and your workplace contributes 5% and you contribute 5% above that to and IRA does that equal a 15% contribution?

Thanks,
Cody
There are a few ways to consider this. In our pension system, the money one contributes is one's money: if you sever employment, the money is yours to keep. So, if you have contributed $25k and you opt out, that money is returned to you. So, clearly, that is part of your assets. In terms of whether to "count on" a pension being there, I think it depends on the issuing entity (a fed/state/local government which may have taxing authority) versus a private pension, and how far away from claiming it you are.

We are ten years out from being able to claim it, and it is fully vested. We are planning for it to be there.
Yes, that is the safe way to count it. The one pension we have - when we login to view the account - displays the amount of lump sum the employee would receive right now if the employee walked away from the job as well as what the employee would get if they took the lump sum payment instead of a pension at retirement. So the employee portion of the contribution that goes into that from every paycheck can be safely counted as a percentage of one's overall contributions to retirement funds as you get that back. If, for example, one was trying to contribute a total of 15% to retirement every year from one's gross income, then in our case - the 6.29% that comes out of every check gets counted and the current value of what we could walk away with right now is counted in the asset column of our accounts.

Tracking the portion of what the employer contributes moves beyond the most conservative or "safe" version in the paragraph above. We absolutely track ours in the state pension system due to being vested and the years of service. Once again, logging into the pension account shows the amount that would be received. In the one pension we have, the rules state for separation for leaving covered employment:

You and your employer contribute to __PERS throughout your __PERS covered employment, and once you leave employment, you are always entitled to 100 percent of your own contributions and interest earnings.

However, when you become a vested __PERS member, you have a right to more than your own contributions and interest — you gain a right to a portion of your employer’s investment based on your years of service. Vesting also entitles you to other rights under __PERS; see the “Vested Members” booklet for more information.


Why one wouldn't count those contributions and the budding lump sum seems odd to me, but c'est la vie.

Moving beyond the most conservative approach of counting contributions, wee certainly are viewing the current classic post-WW II three legged stool for generating income in retirement that we are scheduled to receive and the years we project to take them when we use FIREcalc or i-ORP: portfolio income, pension income, Social Security income

Whether or not the leg of pension and the leg of SS will be shorter than the other leg when we actually arrive at that point of retirement remains to be seen, but making sure the leg generated from the portfolio income is adjustable to be longer and larger if needed is also the recommended, prudent, and dare I say conservative approach to cover one's needs.

The amount of fear mongering that goes on with regard to pensions and SS may or may not be justified.
"Everywhere is within walking distance if you have the time." ~ Steven Wright

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Re: Do you count pension contributions as a portion of your overall retirement contributions.

Post by NotWhoYouThink » Mon Jul 09, 2018 1:51 pm

@Cody, what does it mean to you to "count" or "not count" pension contributions? Do you have some $$ or %% figure in mind that you need to be contributing, and counting or not counting these contributions makes the difference between hitting and not hitting those numbers?

If the contributions vest immediately, counting them seems appropriate. It's your money. If not, wait until they vest. But whether that makes 13% or 18% or 27% of your pre-tax or post-tax or Adjusted Livesoft Income isn't really the point. Save more and spend less to be FI sooner.

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Re: Do you count pension contributions as a portion of your overall retirement contributions.

Post by CyclingDuo » Tue Jul 10, 2018 9:40 am

NotWhoYouThink wrote:
Mon Jul 09, 2018 1:51 pm
@Cody, what does it mean to you to "count" or "not count" pension contributions? Do you have some $$ or %% figure in mind that you need to be contributing, and counting or not counting these contributions makes the difference between hitting and not hitting those numbers?

If the contributions vest immediately, counting them seems appropriate. It's your money. If not, wait until they vest. But whether that makes 13% or 18% or 27% of your pre-tax or post-tax or Adjusted Livesoft Income isn't really the point. Save more and spend less to be FI sooner.
I thought Cody was fairly clear.

He wondered if, in his example, the 5% contribution by the employee + 5% contribution by the employer to the pension + 5% contribution over and beyond the pension to an IRA plan by the employee = could all be counted together as 15% going to his retirement plan.

Those without a pension would have a similar question: "Do I count my contribution + the employer's contribution to my 401k/403b/457b/etc..., in combination to be 15% going to my retirement plan?"
"Everywhere is within walking distance if you have the time." ~ Steven Wright

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Re: Do you count pension contributions as a portion of your overall retirement contributions.

Post by Cody » Tue Jul 10, 2018 11:13 am

That is correct CyclingDuo. That is exactly what I am asking/thinking.

The logically fallacy (in my thinking) is this: If one counts contributions to a pension as a part of your total contribution to retirement, then you should also count your contribution to Social Securtiy as contribution.

So as an example: 5% to the pension, 5% to Social securtiy and 5% to IRA = 15%

You have not controll over the first two. So what I hear (I think) is that most people would say I am contribution only 5% to my retirement.

And that we are then talking about 3 income streams at retirement.

Correct?
Cody

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Re: Do you count pension contributions as a portion of your overall retirement contributions.

Post by Admiral » Tue Jul 10, 2018 11:24 am

Cody wrote:
Tue Jul 10, 2018 11:13 am
That is correct CyclingDuo. That is exactly what I am asking/thinking.

The logically fallacy (in my thinking) is this: If one counts contributions to a pension as a part of your total contribution to retirement, then you should also count your contribution to Social Securtiy as contribution.

So as an example: 5% to the pension, 5% to Social securtiy and 5% to IRA = 15%

You have not controll over the first two. So what I hear (I think) is that most people would say I am contribution only 5% to my retirement.

And that we are then talking about 3 income streams at retirement.

Correct?
Cody
This is all just semantics. You can call the SS tax you pay a "contribution" to your retirement if you like. Or, like most people, you can treat it as a tax that is returned as part of a gov't mandated entitlement plan. But you can't avoid paying it, so it's more of an involuntary contribution.

As for the pension etc, as a previous poster noted, the "percentage" you save is materially relevant only in that it gets you to a specific goal you set.

If you want to retire with $100k, then maybe you can get by with a 3% savings rate. If you need $5m, then maybe it's 40%. You see? It comes down to a dollar figure for FI, and then what percentage saved will get you there. Use an online calculator to figure out what you need to save, at minimum, to get there. If it's your money or your employers money, who cares?

15% is just a rule of thumb that is not relevant in many cases.

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Re: Do you count pension contributions as a portion of your overall retirement contributions.

Post by CnC » Tue Jul 10, 2018 11:52 am

Cody wrote:
Thu Jul 05, 2018 8:48 am
I've seen this question somewhere on the forum but can't dig it up.

When contributing to a pension should you include that amount as part of your overall contribution amount? If so what part of the breakdown below?

If you contribute 5% to a pension and your workplace contributes 5% and you contribute 5% above that to and IRA does that equal a 15% contribution?

Thanks,
Cody
I would absolutely with one caveat. Are you vested? Today's job market is not what it use to be. Not that many people will get a job at 25 work 30 years and punch out at 55 with a healthy pension. (I plan to)

That money isn't really yours until you are vested so untill then I wouldn't count it. But after vesting I would.

All that being said, % of income is just 1 piece of the puzzle.

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Re: Do you count pension contributions as a portion of your overall retirement contributions.

Post by CyclingDuo » Tue Jul 10, 2018 2:41 pm

CnC wrote:
Tue Jul 10, 2018 11:52 am
Cody wrote:
Thu Jul 05, 2018 8:48 am
I've seen this question somewhere on the forum but can't dig it up.

When contributing to a pension should you include that amount as part of your overall contribution amount? If so what part of the breakdown below?

If you contribute 5% to a pension and your workplace contributes 5% and you contribute 5% above that to and IRA does that equal a 15% contribution?

Thanks,
Cody
I would absolutely with one caveat. Are you vested? Today's job market is not what it use to be. Not that many people will get a job at 25 work 30 years and punch out at 55 with a healthy pension. (I plan to)

That money isn't really yours until you are vested so untill then I wouldn't count it. But after vesting I would.
Depends on the rules of each particular pension.

As I mentioned in a post above, at least with the pension my spouse has, the employee's contribution and interest is hers:

You and your employer contribute to __PERS throughout your __PERS covered employment, and once you leave employment, you are always entitled to 100 percent of your own contributions and interest earnings.

Once vested, then not only are the employee contributions and interest "hers", but also a portion of the employer's contributions based on years of service are "hers":

However, when you become a vested __PERS member, you have a right to more than your own contributions and interest — you gain a right to a portion of your employer’s investment based on your years of service. Vesting also entitles you to other rights under __PERS; see the “Vested Members” booklet for more information.

So we have never felt wrong in counting the portions mentioned above that are hers. Both before she was vested, and now that she is vested. Her online account shows the amounts at all times so she knows where she stands along the way through the years until retirement.

The question to Cody would be what are the rules of the pension he is paying into for the contributions and interest before becoming vested, and then the employer's contributions once he is vested.

One of the reasons it may be important to count for a younger employee entering the work force (especially entry level salaries for educators, state employees, etc...) is there is only so much salary to eat through when it comes to mandatory pension contribution, health insurance, SS/Med taxes, household expenses (needs/wants/variables), taxes, etc... before you end up with any amount leftover to contribute to other investment vehicles (IRA, 403b/457b, taxable account). That's not to advocate an employee should not also contribute to these additional sources, but many in the early going years may not have enough salary to go around to do that where something like a $100 - $500 range is enough to make or break the budget. As years go by, salary increases, dual income households are formed, then it gets much easier to move beyond the mandatory pension contribution and employer contribution to the pension when counting.

Perhaps my post is telling that I have been working with and advising college students for the past 15 years who go into the teaching field in our state which has included me mentioning to them the state pension and their entry level salaries will be stretched as they have a portion of their pay deducted to go into the pension as their mandatory contribution. As they get established in their young teaching careers dealing with student loan debt, there usually is very little money leftover in the budget in the first few years to also contribute to Roth IRA, and or the voluntary 403b/457b plans that the state has.
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Re: Do you count pension contributions as a portion of your overall retirement contributions.

Post by CyclingDuo » Tue Jul 10, 2018 2:46 pm

Cody wrote:
Tue Jul 10, 2018 11:13 am
That is correct CyclingDuo. That is exactly what I am asking/thinking.

The logically fallacy (in my thinking) is this: If one counts contributions to a pension as a part of your total contribution to retirement, then you should also count your contribution to Social Securtiy as contribution.

So as an example: 5% to the pension, 5% to Social securtiy and 5% to IRA = 15%

You have not controll over the first two. So what I hear (I think) is that most people would say I am contribution only 5% to my retirement.

And that we are then talking about 3 income streams at retirement.

Correct?
Cody
I wouldn't count the SS taxes in the same way as your contributions to a pension - even though that will be one leg of the three legged stool of generating income for you in retirement. You can't "just walk away from your job" and get a lump sum from SS that you paid into it. Depending on your pension, you can "just walk away from your job" and take the lump sum that you have paid into it based on the rules of your pension. Do you know the rules of your pension with regard to that? The post above this shows the rules of my wife's state pension where she could "just walk away from her job" at any time and take the lump sum she has built up, as well as a portion of her employer's contributions based on her years of service. You can't do that with SS.
"Everywhere is within walking distance if you have the time." ~ Steven Wright

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Re: Do you count pension contributions as a portion of your overall retirement contributions.

Post by CyclingDuo » Tue Jul 10, 2018 2:46 pm

Delete: duplicate
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GAAP
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Re: Do you count pension contributions as a portion of your overall retirement contributions.

Post by GAAP » Tue Jul 10, 2018 3:11 pm

Elbukari wrote:
Thu Jul 05, 2018 10:50 am
1. It's money
2. It's invested into an index fund
3. It's compounding interest
4. That money is yours at the age of 59.5 (in fact, you can take it out before for a penalty fee)

EDIT: Sorry, I misread the title. No, i'm not including the pension contributions. At the age of 25, It's not certain if it will even be there, let alone the full amount.
Just be sure the OP understands:
1. Very True
2. Depends on how the pension is managed -- and it's not something the OP has any control over, regardless.
3. Probably true.
4. Maybe -- depending on the way the pension vests and if the OP stays there long enough to get vested.

Pensions are a form of Defined Benefit plan, they are dramatically different from the Defined Contribution plans like an IRA or 401(k).

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Re: Do you count pension contributions as a portion of your overall retirement contributions.

Post by ExitStageLeft » Tue Jul 10, 2018 4:39 pm

GAAP wrote:
Tue Jul 10, 2018 3:11 pm

Pensions are a form of Defined Benefit plan, they are dramatically different from the Defined Contribution plans like an IRA or 401(k).
Just to muddy the waters further, some defined contribution plans are referred to as a pension.

My bottom line, if one has to ask the question in the original post, they probably aren't saving enough.

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