Saving for Retirement when one has a Pension

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chomsky81
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Saving for Retirement when one has a Pension

Post by chomsky81 » Sat Dec 01, 2018 6:30 pm

Are there specific guidelines, whether general agreed upon rules of thumb or Boglehead wisdom, for retirement savings advice for those with pensions?

I'll be able to retire in about 20 years with 55-60% of my salary through my pension. What are some good perspectives/guidelines to save additionally for retirement? I have had the idea that it wasn't as important compared to workers who don't have a pension, therefore have not done too aggressive of saving.

I have access to a 403(b) and send about 7% of my net/takehome pay each paycheck though only started doing so about 10 years into my career.
"Governments that issue their own currency are never in fear of default but only constrained by inflation"

tulsuduke
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Re: Saving for Retirement when one has a Pension

Post by tulsuduke » Sat Dec 01, 2018 6:38 pm

I'm interested in this as well. If I continue in Federal service for the duration of my career (~20 years, and there is a strong likelihood I will stay at my job), I will retire with a pension worth about 30% of my salary, plus my TSP contributions (right now mid-30k per year between personal contributions and employer match). We save an additional $4-7k per month after bills and usual spending.

Minty
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Re: Saving for Retirement when one has a Pension

Post by Minty » Sat Dec 01, 2018 6:39 pm

I don't know of any specific guidelines, but I would think the calculation would have to include the funding ratio of the pension system, and whether the pensioner will also receive social security.
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Tdubs
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Re: Saving for Retirement when one has a Pension

Post by Tdubs » Sat Dec 01, 2018 6:41 pm

Is this a state/teacher pension that substitutes for Social Security?

trueblueky
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Re: Saving for Retirement when one has a Pension

Post by trueblueky » Sat Dec 01, 2018 6:46 pm

No answers, just questions;

Is 55-60% enough for you?
Only you can decide.

Does the pension have annual inflation adjustments?
That can be huge in a 30-year retirement.

How certain is the pension?
Federal, yes. State, depends on the state.
Megacorp, less than 100%. Union, less than 100%.

What is your plan for long-term care?
Insurance? Medicaid? Self-insure?
Five years of LTC will deplete your savings.

Does anyone else depend on your income?
What are their retirement plans?

Longdog
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Re: Saving for Retirement when one has a Pension

Post by Longdog » Sat Dec 01, 2018 6:51 pm

If it is a private employer with a pension, realize that while an employer cannot legally take away earned future benefits, they can (and likely will) at some point freeze the pension and suspend future contributions. Even many states (e.g. Illinois is the most egregious one) do not have their pension plans fully funded, so it is possible that the future benefits will not be what us currently promised. Detroit went bankrupt, and while pensioners did better than other creditors, they still took a haircut compared to the promised pension amount. So, in my opinion, you'd be wise to not expect the full amount of the promised pension, so you should supplement it with your own preparation by saving and investing - though probably you don't need to be as aggressive as others.
Steve

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Re: Saving for Retirement when one has a Pension

Post by MrDrinkingWater » Sat Dec 01, 2018 7:04 pm

viewtopic.php?f=2&t=198635

I found this link in a search. You might want to attempt calculating what your Residual Living Expenses (RLE) might be.

If you have an idea about your total retirement expenses (per year) and subtract a reasonable after-tax value of your pension (per year) that might give you idea about what the funding gap will be (per year). If you want more accuracy, then you are going to want to fine-tune the calculation because you are going to start thinking about subtracting out with your after-tax Social Security benefit per year benefit will be.

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chomsky81
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Re: Saving for Retirement when one has a Pension

Post by chomsky81 » Sat Dec 01, 2018 7:09 pm

Thanks for the insights all!

I am receiving a pension through a state teacher's retirement system. I will obviously also receive SS but will wait till 65-67 to receive it and retire between 55-60, again with:

1. 60% of my final salary.
2. No state taxes but Federal taxes on the pension
3. COLA: 5 years after retirement: a minimum of 1% to a maximum of 3% on the fi rst
$18,000 of their retirement benefi t. The percentage is 50% of the Consumer Price Index (CPI) increase from one March to the next, rounded up to the next higher one-tenth of 1%.
4. SS: benefits are not affected by Social Security benefits. Also, there is no Social Security tax on your System retirement benefit
5. Health Insurance: Until you become eligible for Medicare, which in most cases is age 65, your health insurance coverage will depend on the choices your former employer offered you. The cost and extent of coverage will vary by employer.
6. Pension is pretty solid in my state


I'm too far away from that stage of life to know much else. I'm trying to get a rough estimate as to whether I should increase from 7% of my net pay contribution to a 403b or keep it as is and continue to allocate the rest of my savings to general index funds etc. either for investments in the market or a potential home in the future.
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Re: Saving for Retirement when one has a Pension

Post by Sandi_k » Sat Dec 01, 2018 7:20 pm

I will have very generous pension. I contribute 7.95% of my GROSS pay pre-tax to the plan, and then contribute an additional 15% of my GROSS pay into the 457 plan. The 457 plan allows me penalty-free access to my money, as long as I retire directly from this job. If you have one, I would recommend that over the 403(b) plan.

IMO, 7% of your NET pay is way, way too little.

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chomsky81
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Re: Saving for Retirement when one has a Pension

Post by chomsky81 » Sat Dec 01, 2018 7:27 pm

Ive never heard of a 457 - it seems like the only difference is you can withdraw earlier than 59.5 years of age. Why not fund your 23% into your 403b. Why are you saving 23% of your gross for retirement with an generous pension? Why not out more into investments that can be withdrawn any time for expenses (ie, emergencies, cars, home purchase etc?).

I live in a HCOL state and not sure I’d be able to do that level of saving.
"Governments that issue their own currency are never in fear of default but only constrained by inflation"

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fortfun
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Re: Saving for Retirement when one has a Pension

Post by fortfun » Sat Dec 01, 2018 7:32 pm

chomsky81 wrote:
Sat Dec 01, 2018 6:30 pm
Are there specific guidelines, whether general agreed upon rules of thumb or Boglehead wisdom, for retirement savings advice for those with pensions?

I'll be able to retire in about 20 years with 55-60% of my salary through my pension. What are some good perspectives/guidelines to save additionally for retirement? I have had the idea that it wasn't as important compared to workers who don't have a pension, therefore have not done too aggressive of saving.

I have access to a 403(b) and send about 7% of my net/takehome pay each paycheck though only started doing so about 10 years into my career.
I'm also a teacher. You might want to check out how your state pension is protected. Unfortunately, mine is not well protected. I suspect my COLA will be completely eliminated by the time I retire.
http://www.governing.com/finance101/gov ... state.html


I'd try to max our your 403b, if possible. This can become your back up plan if you don't make it 20 years with your current employer, or if the pension decreases once you retire. I'll receive 75% or my salary in 4.5 years at age 50. Unfortunately, I've only maxed out my 401k the past 3 years or so. Wish I had done that a long time ago but there wasn't a lot of extra cash around during the childcare years...

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Re: Saving for Retirement when one has a Pension

Post by Mike Scott » Sat Dec 01, 2018 7:38 pm

Having some of your own savings provides some flexibility and financial buffer along the way.

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chomsky81
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Re: Saving for Retirement when one has a Pension

Post by chomsky81 » Sat Dec 01, 2018 7:42 pm

That would be $700+ a paycheck/ $1400/month! I’m fairly confident my states fiscal situation won’t lead to losing my pension. That being said I can’t see saving that much in a 403b as smart - it would strangle my current ability to juggle rent, leisure, saving for a home/car/emergency fund, and general gifts for people, etc.

That’s quite a tall order. I was hoping for a formula etc but I see there’s too many variables.

So I guess my current $400/month to 403b is too low and I’ll uo it, but no way can I save $1400/month, haha!
"Governments that issue their own currency are never in fear of default but only constrained by inflation"

momvesting
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Re: Saving for Retirement when one has a Pension

Post by momvesting » Sat Dec 01, 2018 7:51 pm

We are in this boat as well. Hubbie has a state pension that will be approx 60%. When we were younger we did not trust Social Security so we stashed as much as we could in 401ks. Now that I'm older, this is closer, and I realize that there is a good chance that there will be some SS, I realize that I have a big gap from the time he can retire at 57 years and the age that we can begin SS and/or 401k draw down. We still have over 10 years left before he is eligible for this retirement, so I have had to shift my focus to saving more in taxable, which I previously wasn't using at all. He would really like to fully retire and not have to have a job for those "in between" years, but as of right now, we are financially not prepared for that. So my advice is to carefully plan for the time between retirement and 401k/SS eligibility. I'm hoping I can stash quite a bit in the next 10 years to help with that, but I'll admit, it is stressful for us. Good luck.

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Re: Saving for Retirement when one has a Pension

Post by TheDDC » Sat Dec 01, 2018 8:01 pm

Our state treats pensions as property which is how most are banking on their pension upon retirement. A state pension is a "deferred compensation" vehicle for you to earn less but make it up in retirement. That's the deal. There is no way to just walk away from that deal on the payer side. What happens is the state is mandated to contribute the way states fund anything else: borrowing or taxing. We also have SS available to us, and as a result do not have a COLA on the pension.

As a public K12 employee I maintain and max out my 403(b) account in order to factor this shelter into my overall tax strategy. You are given $18,500 ($19,000 in 2019) of tax shelter space from the federal government through a 40X account. It is absolutely a terrible decision to throw that space away if you could afford it otherwise. It's not means tested as IRAs are, either. It's one of the best ways of saving by playing with the government's money.

We are in the 12% bracket and I pay 0 federal tax due to a combination of a tIRA, my pension contribution, and 403(b) space as well as the savers credit afforded based on the above. Also helps to have two kids to write off as well. ;)

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chomsky81
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Re: Saving for Retirement when one has a Pension

Post by chomsky81 » Sat Dec 01, 2018 8:05 pm

Crazy to see how so many of us are in similar positions.

I don’t own a home or have a family yet but am in the 28% , now 24%, tax bracket but don’t forget I’m in a HCOL state and my rent is around $1600-$1800/month over the past 6 years!

I’ll twoe the advice and up my savings!

What do you all do for dividing your savings between a 403b and a regular Roth IRA? I have my 403b ($15,000) with fidelity and a Roth IRA in vanguard ($7,000)

Low numbers! But I have much more in regular investments, which I hope to use for a home purchase if I have a family one day.
"Governments that issue their own currency are never in fear of default but only constrained by inflation"

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Kenkat
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Re: Saving for Retirement when one has a Pension

Post by Kenkat » Sat Dec 01, 2018 8:18 pm

If you have a retirement income target of 80% of your pre-retirement income and you have a pension that will provide 55-60% of pre-retirement income, then I would target your savings to be able to generate 20-25% of pre-retirement income. In other words, you need to make up the gap.

When you say you will obviously also collect social security, be sure that you are having social security taxes withheld from your pay. In some states, teacher retirement plans replace social security and so no social security is received at retirement. This is true in Ohio, for example.

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chomsky81
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Re: Saving for Retirement when one has a Pension

Post by chomsky81 » Sat Dec 01, 2018 8:22 pm

Thanks! That sounds reasonable ? That wiiid mean I’d need about $600,000 to cover 20% for 30 years! Yikes! That’ll be hard but I’ll try! HCOL states suck!
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Kenkat
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Re: Saving for Retirement when one has a Pension

Post by Kenkat » Sat Dec 01, 2018 8:27 pm

If you will receive social security at 65/67, you may only need to cover the gap for fewer years, so you may need a little less. For example, if you wanted to retire at 55, then you really only need to cover the extra 20-25% for 10 years until social security kicks in.

It gets complicated quick.

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Re: Saving for Retirement when one has a Pension

Post by Green Street » Sat Dec 01, 2018 9:12 pm

I’ll also be retiring with a state pension at half my salary in 11 more years. I operate as if It doesn’t exist. I still max out my 457 and my 401k annually, you never know what may happen in the future. Better to have more options than less options.
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krow36
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Re: Saving for Retirement when one has a Pension

Post by krow36 » Sat Dec 01, 2018 9:16 pm

chomsky81 wrote:
Sat Dec 01, 2018 6:30 pm
Are there specific guidelines, whether general agreed upon rules of thumb or Boglehead wisdom, for retirement savings advice for those with pensions?

I'll be able to retire in about 20 years with 55-60% of my salary through my pension. What are some good perspectives/guidelines to save additionally for retirement? I have had the idea that it wasn't as important compared to workers who don't have a pension, therefore have not done too aggressive of saving.

I have access to a 403(b) and send about 7% of my net/takehome pay each paycheck though only started doing so about 10 years into my career.
This Vanguard tool may be helpful in getting a rough estimation of whether you are saving enough in your 403b and possible 457: https://retirementplans.vanguard.com/VG ... meCalc.jsf

I'm a retired teacher whose state pension had a COLA for for a number of years, but was dropped some years ago. It is now up to the legislature whether to reinstate it. I'm not holding my breath.

Because most teachers are contributing to a very expensive annuity-based 403b plan, I'm wondering if you are using a mutual fund-based 403b that has low fees? School districts usually have a number of vendors to choose from. Please post your vendor and what funds you are using. These choices can have an amazingly large effect on the balance of your 403b at retirement.

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chomsky81
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Re: Saving for Retirement when one has a Pension

Post by chomsky81 » Sat Dec 01, 2018 9:32 pm

Thanks!

I am using Fid FREEDOM 2050 fun in my Fidelity 403(B) account. I think I can open other funds in Fidelity to spread the investments.

I used the Vanguard calculator:

https://imgur.com/a/o0mV9Vu


It shows that by my mid-60s I should be fine with my current low-savings into my 403(b). I will try to slowly increase my contributions though.
"Governments that issue their own currency are never in fear of default but only constrained by inflation"

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Re: Saving for Retirement when one has a Pension

Post by Quaestner » Sat Dec 01, 2018 9:42 pm

Nice to have no state income tax! But since your ss and pension will still be taxed by the feds, you might think about a Roth IRA which won't be taxable? Maybe it could be in addition to, or a partial substitution for your 403b (which is also taxable income down the road). You might appreciate the tax diversity later. You also might be able to convert your 403b gradually to a Roth IRA in the years between retirement and getting social security. Somethings to learn and think about.

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Re: Saving for Retirement when one has a Pension

Post by celia » Sat Dec 01, 2018 9:42 pm

chomsky81 wrote:
Sat Dec 01, 2018 6:30 pm
I'll be able to retire in about 20 years with 55-60% of my salary through my pension. What are some good perspectives/guidelines to save additionally for retirement?
Sorry, but there's no guarantee you'll still be working there in 20 years. There may also be no guarantee that the pension will be there (in the same form as today).

I assume you have never lived through mass layoff's when companies or agencies have severe budget cuts.

I assume you think you'll never be disabled and unable to work.

I assume you think a financial disaster will never impact you.

If those aren't reasons to have a back-up plan for retirement, I don't know what is. :oops:

FinancialRookie
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Re: Saving for Retirement when one has a Pension

Post by FinancialRookie » Sat Dec 01, 2018 9:56 pm

Nothing in life is guaranteed. If you under save and all of a sudden your pension gets cut or disappears, then what? Just because it might not be fair doesn't mean it will pay the bills.

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chomsky81
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Re: Saving for Retirement when one has a Pension

Post by chomsky81 » Sat Dec 01, 2018 10:02 pm

Thanks for the help and perspective! That being said I will continue to up my savings in retirement accounts.

I am currently saving about 18% of my net pay or 11% of my gross pay in total - 7% of my net salary/4% of gross is going toward retirement and 11% of net/7% of gross is going toward general investment/saving.

Bank Saving account: 7% of net
403(b) retirement: 7% of net
Vanguard Money Market: 4% of net

I'll try to allocate a bit more to my 403(b) and get it to 10% and see how I can manage my monthly bills.

Thanks all!
"Governments that issue their own currency are never in fear of default but only constrained by inflation"

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Re: Saving for Retirement when one has a Pension

Post by krow36 » Sat Dec 01, 2018 10:43 pm

chomsky81 wrote:
Sat Dec 01, 2018 9:32 pm
I am using Fid FREEDOM 2050 fun in my Fidelity 403(B) account. I think I can open other funds in Fidelity to spread the investments.
It's great that you are using probably the lowest cost vendor, Fidelity, for your 403b! :D You have the option of using the Fidelity Freedom Index 2050 fund which has a significantly lower expense ratio. The fund you are using is made up of higher-cost, active-managed funds rather than lower-cost index funds.

I used the Vanguard calculator:
https://imgur.com/a/o0mV9Vu
It shows that by my mid-60s I should be fine with my current low-savings into my 403(b). I will try to slowly increase my contributions though.
It looks good! Keep up the good work. As others have mentioned, our plans don't always work out, so it's not a bad idea to have a just in case plan.

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Re: Saving for Retirement when one has a Pension

Post by catdude » Sun Dec 02, 2018 1:48 am

Green Street wrote:
Sat Dec 01, 2018 9:12 pm
I’ll also be retiring with a state pension at half my salary in 11 more years. I operate as if It doesn’t exist. I still max out my 457 and my 401k annually, you never know what may happen in the future. Better to have more options than less options.
I think this is exactly right. I retired 8 years ago, at age 55, with a modest pension, but during my working years I acted as if it didn't exist. I put the maximum into my 457 plan and Roth IRA every year, and invested in a taxable account as well. None of us knows for sure what the future holds.
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Mickey7
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Re: Saving for Retirement when one has a Pension

Post by Mickey7 » Sun Dec 02, 2018 2:04 am

Hopefully everyone here who are trying to figure their percentage of their pension vs. their salary are subtracting their monthly salary contributions plus their 403b, 457, Roth, state retirement and HSA contributions in their calculations.

Example say I want to use my current salary of $95,000 as a baseline. 70% of that would be $66,500. However if I take my salary and deduct all of my contributions, this takes me down to about $53,000. Since my pension and SS should take me to about $67,500 I will be able to rest at night a little easier.

That being said I will keep up with my contributions for the big "What if" and the inflation dog.

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Re: Saving for Retirement when one has a Pension

Post by msk » Sun Dec 02, 2018 3:12 am

Youngsters: Save and invest 30% of after tax income regardless of your pension situation. Building up home equity (and of course your in-company pension contributions) can be counted within the 30%, though not mortgage interest or purchasing a consumable like a car. You will quickly get used to the lowered cash spending. My background: worked for a Fortune 10 company with a COLA pension at 75% final salary. Many fellow employees did not save anything and of course they retired fine on the 75% COLA pension. But because of my 30% savings, very quickly, by my 40s, my investment income surpassed my job income (mix of RE and stocks). Having an additional income stream gives you tremendous freedom and you are then able to afford expensive toys that those who have not practised delayed gratification (instilled by dear Mom, Thanks!) never enjoy. So, youngsters: invest to generate a second income stream. You will not regret it. I retired at 55. Oldsters: worry more about your pension intricacies.

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Re: Saving for Retirement when one has a Pension

Post by carolinaman » Sun Dec 02, 2018 7:49 am

Longdog wrote:
Sat Dec 01, 2018 6:51 pm
If it is a private employer with a pension, realize that while an employer cannot legally take away earned future benefits, they can (and likely will) at some point freeze the pension and suspend future contributions. Even many states (e.g. Illinois is the most egregious one) do not have their pension plans fully funded, so it is possible that the future benefits will not be what us currently promised. Detroit went bankrupt, and while pensioners did better than other creditors, they still took a haircut compared to the promised pension amount. So, in my opinion, you'd be wise to not expect the full amount of the promised pension, so you should supplement it with your own preparation by saving and investing - though probably you don't need to be as aggressive as others.
+1. A pension is great for your retirement. However, I think you should hedge your bets to some extent. You should not have to save at the same level as someone without a pension. There are many people whose pensions were cut or eliminated late in their career or after they retired who had nothing else to fall back on. The extra savings will give you greater security for your retirement.

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Re: Saving for Retirement when one has a Pension

Post by CyclingDuo » Sun Dec 02, 2018 8:01 am

chomsky81 wrote:
Sat Dec 01, 2018 6:30 pm
Are there specific guidelines, whether general agreed upon rules of thumb or Boglehead wisdom, for retirement savings advice for those with pensions?

I'll be able to retire in about 20 years with 55-60% of my salary through my pension. What are some good perspectives/guidelines to save additionally for retirement? I have had the idea that it wasn't as important compared to workers who don't have a pension, therefore have not done too aggressive of saving.

I have access to a 403(b) and send about 7% of my net/take home pay each paycheck though only started doing so about 10 years into my career.
Lots of great advice has been shared with you. Kudos to you for already having started your 403b. Thanks to the power of time and compounding, the most bang for your buck comes investing in your early career years, so the percentage going into your 403b - even though it is only 7% at your current level - will pay off handsomely.

Think of your retirement as the old classic, traditional three legged stool in terms of income streams:

Image

Currently, you are working on all three legs of the stool (contributing the mandatory salary deduction to one leg - your pension; paying into SS; and saving money in your risk portfolio (personal savings). The percentage going into the pension is set by your state and requires your mandatory contribution plus the contribution made by your employer. Our state pension for teachers requires 6.29% of salary contribution from the employee, and 9.44% of salary contribution from the employer for a combined total of 15.73%.

The risk portfolio "leg" can be a lot of things including 403b, 457b, tIRA, Roth IRA, deferred annuity, taxable investment account, bank savings/CD's, investment real estate, etc... . That's the leg of the stool that you have the most control over during your working career to utilize whatever is leftover from your salary after taxes and all expenses have been met. So it is the leg everyone throws advice at you about since the other two legs are pretty much out of your control outside of choosing how long and where you are employed.

Ideally, we want all the legs of our retirement income streams to be stable and solid - be it a 2 legged, 3 legged, 4 legged, 5 legged, or more piece of "furniture". We are closing in on the latter years of our careers, so the legs we have been working on for retirement include: pension, SS, risk portfolio, dividends, rental income, and will both also consider part-time work as an additional source for at least some of the transition years.

The obvious concerns you raised with your mention of living in a HCOL area is running out of salary to be able to max out and fill some of the risk portfolio spaces and still meet your other expenses. That's okay, as you don't have to max out things at your age yet if you don't have a salary that can support maxing out a 403b and covering all of your expenses. Striking the balance of saving, living, and enjoying life (we only get one chance at this journey) is key.

As a teacher, are there any side gigs you could pick up to increase income? Summer job, part-time job on weekends/holidays, coaching, judging, officiating, etc...? That could be one way to increase income and set aside more in your risk portfolio.

Finding an eventual roommate of the best kind (a spouse that also has an income) is a great way to share expenses, enjoy life, and free up cash flow due to being able to save more. :beer

I assume you are tracking your expenditures so you know exactly how much goes to needs, wants, and variables to identify if there are any current expenses that could be trimmed a bit to free up more money for saving. If not, that might be a first step to see if there is a spare $25, $50, $75, or $100 a month that could be going into your risk portfolio without crimping your lifestyle too much.

Plenty of things to contemplate.

What percentage to save for retirement?

Image

What are the sources of income by income group in retirement?

Image

Is your current monthly savings rate going to get you where you want to be in retirement? Ignore the goal of $1M, and focus on how the power of time and compounding is illustrated that the monthly saving amount needed while younger provides the most bang for the buck.

Image
Last edited by CyclingDuo on Sun Dec 02, 2018 8:25 am, edited 1 time in total.
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indexonlyplease
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Re: Saving for Retirement when one has a Pension

Post by indexonlyplease » Sun Dec 02, 2018 8:13 am

Make it simple

Max out your 403b or any tax deferred plan you can at work. believe it's around 18k a year. If you max that out go fund a Roth IRA. In the end you will have your pension and a really large taxed deferred account. Forget trying to figure out a percent. Just try to max it out over the years the best you can.
You could have changes to your pension in future years. One never knows. So having a large tax deferred account will help if that happens.

Income
Pension
403b
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SS one day

Looking good.

Bacchus01
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Re: Saving for Retirement when one has a Pension

Post by Bacchus01 » Sun Dec 02, 2018 9:17 am

What about IRA (regular or ROTH) outside your employer plans?
HSA?
529s?
What marginal tax bracket are you in?

This all matters.

That said, I think most will advise you out more in. That’s the Bogleheads way.

That said, I’d suggest using up as much tax-advantaged space as possible before after-tax, assuming you have an emergency fund already filled and high-interest debt paid off.

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F150HD
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Re: Saving for Retirement when one has a Pension

Post by F150HD » Sun Dec 02, 2018 9:20 am

Long is the way and hard, that out of Hell leads up to light.

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CyclingDuo
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Re: Saving for Retirement when one has a Pension

Post by CyclingDuo » Sun Dec 02, 2018 9:37 am

indexonlyplease wrote:
Sun Dec 02, 2018 8:13 am
Make it simple

Max out your 403b or any tax deferred plan you can at work. believe it's around 18k a year. If you max that out go fund a Roth IRA. In the end you will have your pension and a really large taxed deferred account. Forget trying to figure out a percent. Just try to max it out over the years the best you can.
You could have changes to your pension in future years. One never knows. So having a large tax deferred account will help if that happens.
It's $18,500 for 2018, and goes up to $19,000 for 2019. ($24,500 for age 50+ going to $25,000 for 2019)

The OP wrote:

That would be $700+ a paycheck/ $1400/month! I can’t see saving that much in a 403b as smart - it would strangle my current ability to juggle rent, leisure, saving for a home/car/emergency fund, and general gifts for people, etc.

I guess my current $400/month to 403b is too low and I’ll up it, but no way can I save $1400/month, haha!

I don’t own a home or have a family yet but am in the 28%, now 24%, tax bracket but don’t forget I’m in a HCOL state and my rent is around $1600-$1800/month over the past 6 years!

I am currently saving about 18% of my net pay or 11% of my gross pay in total - 7% of my net salary/4% of gross is going toward retirement and 11% of net/7% of gross is going toward general investment/saving.

Bank Saving account: 7% of net
403(b) retirement: 7% of net
Vanguard Money Market: 4% of net

I'll try to allocate a bit more to my 403(b) and get it to 10% and see how I can manage my monthly bills.


Using reverse percentage, we can calculate that the OP's net income is $68,571, and gross is $114,027.

Current rate going into the OP's 403b is $400 a month, or $4800 a year.
Current rate going into Bank Saving is $400 a month, or $4800 a year.
Current rate going into Vanguard MM is $229 a month, or $2943 a year.

That's $12,543 of net income per year or, 18.2% and 11% of gross. We don't know the amount that is deducted from gross income as the mandatory pension contribution the OP makes, but suffice it to say - that gets added into the equation of what is being saved on top of the 11% of gross income to most likely be at least 15% total from the OP's contribution standpoint. Looks like about (and I'm guessing here) 11-12% of gross combined is probably going to health/dental and the mandatory pension contribution.

If we use a standard percentage of saving 15% for retirement, the OP is falling short of that as nearly 1/2 of the savings are going into non-retirement accounts (Bank Saving and Money Market) for home, car, and emergency fund goals.

Boosting retirement savings to 15% of gross (which could include the pension contribution if we knew that figure) would be sold advice for the OP indeed as a base rate minimum. It would also help lower current taxes if the OP would increase the amount going into the 403b pre-tax, not to mention a potential max out of the 403b when combined with the standard deduction. Either way, it would lower the taxable income.

Can the OP afford to max out a 403b?

We know that $1800 a month, or $21,600 annually goes to rent. We don't know if that does or does not include utilities.

That leaves the OP with $34,428 remaining after the current savings and the rent. That's $2869 a month remaining for food, transportation, clothing, entertainment, renter's insurance, cell/internet plans, personal grooming, travel, other expenses, etc... in a HCOL area. Maxing out the 403b would require an additional $13,700 from pre-tax deduction annually which would ratchet down what is leftover for the OP's expenses to only have around $1725 per month (after rent) for food, transportation, clothing, entertainment, renter's insurance, cell/internet plans, personal grooming, travel, etc... in a HCOL area. Doable in a LCOL area, but in a HCOL area.....? :?:

We're not saying it couldn't be done, but the OP mentioned things would be strangled. Without seeing a full break down of the budget, it's hard to tell if there are areas where excess could be trimmed.

Obviously, some proven techniques could be used such as for every pay increase, maintain current level of lifestyle, and use the pay increase to increase one's contributions to savings. The other would be to slowly raise the percentage being saved in small increments and adjust to the change in cash flow as a result. In other words, something like saving an additional 1% - 2% of gross income each year to slowly ratchet the savings rate up to not feel suddenly strangled.

Leads back to how much does the OP want to work on trimming expenses to free up cash flow, take on a side gig for extra income to help save more than the current level, and forego a few things to accumulate wealth. We've all been there and had to go through adjustments to make it work. The sad thing about living in a HCOL area is that the OP's rent at $1800 may already include having a roommate or two! :shock: So that option may be out. If not, we'd jump on that option ASAP to cut costs.
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CyclingDuo
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Re: Saving for Retirement when one has a Pension

Post by CyclingDuo » Sun Dec 02, 2018 9:51 am

Quite true and not a bad strategy. One does not have to max out both, but could split the contributions to increase the options if one would be retiring early.

If one has enough salary, and cover all expenses on the home front - max out both! More doable for a dual income household that brings in enough salary to be able to do that.

If one would max out both, that's $37K for 2018, and $38K for 2019. Or for the 50+ crowd, that's $49K for 2018, and $50K for 2019. Sure would be nice if teacher salaries were high enough to cover the mandatory pension contribution, plus max out a 403b and a 457b leaving enough leftover to cover all expenses and taxes. :beer
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indexonlyplease
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Re: Saving for Retirement when one has a Pension

Post by indexonlyplease » Sun Dec 02, 2018 10:02 am

CyclingDuo wrote:
Sun Dec 02, 2018 9:51 am
Quite true and not a bad strategy. One does not have to max out both, but could split the contributions to increase the options if one would be retiring early.

If one has enough salary, and cover all expenses on the home front - max out both! More doable for a dual income household that brings in enough salary to be able to do that.

If one would max out both, that's $37K for 2018, and $38K for 2019. Or for the 50+ crowd, that's $49K for 2018, and $50K for 2019. Sure would be nice if teacher salaries were high enough to cover the mandatory pension contribution, plus max out a 403b and a 457b leaving enough leftover to cover all expenses and taxes. :beer
In my example I use myself. No one starts to max out retirment account right away. So, OP, invest the best and the most you can. Just increase the investment amount along the way. Also, don't forget to live along the way. If your pension stay the same and you build a nice investment account you will be fine. Especially when one day you can leave the HCOL when you retire.

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CyclingDuo
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Re: Saving for Retirement when one has a Pension

Post by CyclingDuo » Sun Dec 02, 2018 10:21 am

indexonlyplease wrote:
Sun Dec 02, 2018 10:02 am
In my example I use myself. No one starts to max out retirment account right away. So, OP, invest the best and the most you can. Just increase the investment amount along the way. Also, don't forget to live along the way. If your pension stay the same and you build a nice investment account you will be fine. Especially when one day you can leave the HCOL when you retire.
We are in total agreement with not being able to start out with the luxury of being able to max out any retirement plan in our 20's, or 30's, or even 40's for most. The mantra or chant we read here often of "max out your 401k/403b/457b" is simply not an attainable goal for most and the data proves that. Most - including us - ran out of salary long before being able to do that. It was only as a dual income household and in our 50's that we were finally ever able to even consider it - and that was only after the nest was emptied and our salaries increased. However, the 15-20% we did devote to retirement savings over the prior three decades have allowed time and compounding to work their magic.

In terms of the OP, there's a lot of territory between contributing $400 a month and maxing out by contributing $1542 per month (rising to $1583 per month next year) to max out a 401k/403b/457b. Good chance the OP could find an extra $25-100 per month to contribute now and not alter the current lifestyle too much at all. That small change will provide some nice bang for the buck when you factor in time and compounding over the next two to three+ decades. The reality of the pension helps a lot for the OP in addition to the SS compared to those who do not have a job that includes a pension.
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Re: Saving for Retirement when one has a Pension

Post by ruralavalon » Sun Dec 02, 2018 10:59 am

A solid pension, in addition to Social Security, does mpact the amount necessary for your retirement savings. Twenty years ahead of time it is difficult to determine how much impact.

A 7% savings rate may be adequate, with a pension and Social Security, unless you have fairly high earnings. But a 7% savings rate would make me nervous.

chomsky81 wrote:
Sat Dec 01, 2018 7:09 pm
Thanks for the insights all!

I am receiving a pension through a state teacher's retirement system. I will obviously also receive SS but will wait till 65-67 to receive it and retire between 55-60, again with:

1. 60% of my final salary.
2. No state taxes but Federal taxes on the pension
3. COLA: 5 years after retirement: a minimum of 1% to a maximum of 3% on the fi rst
$18,000 of their retirement benefi t. The percentage is 50% of the Consumer Price Index (CPI) increase from one March to the next, rounded up to the next higher one-tenth of 1%.
4. SS: benefits are not affected by Social Security benefits. Also, there is no Social Security tax on your System retirement benefit
5. Health Insurance: Until you become eligible for Medicare, which in most cases is age 65, your health insurance coverage will depend on the choices your former employer offered you. The cost and extent of coverage will vary by employer.
6. Pension is pretty solid in my state


I'm too far away from that stage of life to know much else. I'm trying to get a rough estimate as to whether I should increase from 7% of my net pay contribution to a 403b or keep it as is and continue to allocate the rest of my savings to general index funds etc. either for investments in the market or a potential home in the future.
What is your age? About how much do you expect you might want for the down payment for a home purchase? When do you plan the home purchase?

What funds are offered in your 403b plan? Please give fund names, tickers and expense ratios. Is there an employer match offered in your 403b plan, and are you already contributing enough to get the full employer match?

Do you have other accounts like IRAs of a taxable account?

The issue of additional 403b contributions versus contributions to a taxable account will largely depend on the quality and expense of the funds offered in your 403b plan.
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Ron Ronnerson
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Re: Saving for Retirement when one has a Pension

Post by Ron Ronnerson » Sun Dec 02, 2018 11:38 am

msk wrote:
Sun Dec 02, 2018 3:12 am
Youngsters: Save and invest 30% of after tax income regardless of your pension situation. Building up home equity (and of course your in-company pension contributions) can be counted within the 30%, though not mortgage interest or purchasing a consumable like a car. You will quickly get used to the lowered cash spending. My background: worked for a Fortune 10 company with a COLA pension at 75% final salary. Many fellow employees did not save anything and of course they retired fine on the 75% COLA pension. But because of my 30% savings, very quickly, by my 40s, my investment income surpassed my job income (mix of RE and stocks). Having an additional income stream gives you tremendous freedom and you are then able to afford expensive toys that those who have not practised delayed gratification (instilled by dear Mom, Thanks!) never enjoy. So, youngsters: invest to generate a second income stream. You will not regret it. I retired at 55. Oldsters: worry more about your pension intricacies.
I agree with you very much on advocating that people work on generating a second income stream beyond the pension. I’m a public school teacher in California and am expecting a pension of 75% of final salary around age 60. That’s with the 100% option so that my wife will continue to receive my full pension if I predecease her. Since there won’t be deductions for retirement contributions, union dues, etc. in retirement, my pension should be around the same as my paycheck. Additionally, we’ll have social security (my wife isn’t a teacher) and the house payments will be gone.

I’m less sure about counting employer pension contributions and home equity toward the 30% figure, though. For example, I contribute 10.25% of salary toward the pension. My employer contributes 16.28% (will be going up to 18.13% in 2019 and 19.1% in 2020) and the state contributes 7.328%. So, I’d be at 34% right there. I’m in the Bay Area and our home equity has shot up quickly (we purchased our home 9 years ago when prices had dipped quite a bit). If I include pension contributions by all parties (employer, state, and me), average annual home equity increases over the past 9 years, and what I contribute to retirement accounts, I’m saving over 100% of gross income. So, I'm just not sure if counting home equity and employer contributions should be included in the 30%, but I do agree that not totally relying on the pension is the way to go.

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Re: Saving for Retirement when one has a Pension

Post by Ron Ronnerson » Sun Dec 02, 2018 11:50 am

TheDDC wrote:
Sat Dec 01, 2018 8:01 pm
We are in the 12% bracket and I pay 0 federal tax due to a combination of a tIRA, my pension contribution, and 403(b) space as well as the savers credit afforded based on the above. Also helps to have two kids to write off as well. ;)

-TheDDC
It's quite something how much taxes can go down when contributing toward a pension as well as funding retirement accounts. I'm a teacher in California with a low six-figure income. My wife isn't working at this time and we have one kid (age 4). We pay less than 2k in federal tax and only $100 in state tax to California. If we had two kids like you, we wouldn't owe any federal or state income taxes. We also qualify for the Saver's Credit. An additional bonus of contributing toward various retirement accounts for us is qualifying for $14,400 in premium tax credits for health insurance bought on the exchange.

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Re: Saving for Retirement when one has a Pension

Post by Mr Potter » Sun Dec 02, 2018 12:24 pm

I am in your shoes and retired 2 years ago. My suggestion would be until you get about 30k in your 403 put it all in total US market 100%. It will go up and down but it sure seems to gather momentum at 30k. Second, I would invest in a Roth and fill it 100%, I prefer a dividend ETF, VYM is my choice. Until you can take the dividends just redirect it back into the fund. At 59.5 you can feed the dividends straight into your checking account. I do like the 3 fund and divide it 50% US, 30%TIPs and 15% International and about 5% short term bonds. I never put more that 20% in international, trade disputes, currency manipulation, unfriendly courts. But still you need some international, like bonds if the US tanks. Bonds are also awful right now, at your age why buy a depreciating asset. One more thing, being a low paid public employee; if you get an inheritance, win the lottery, in short fall into some money. This is what I did, put in the credit union and put my deferred comp to 100% and of course the Roth. I simply pulled from the credit union savings if there was any abnormal need, repair etc.

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Re: Saving for Retirement when one has a Pension

Post by Watty » Sun Dec 02, 2018 12:43 pm

chomsky81 wrote:
Sat Dec 01, 2018 6:30 pm
Are there specific guidelines, whether general agreed upon rules of thumb or Boglehead wisdom, for retirement savings advice for those with pensions?
One thing I would suggest is that in your planning that you only count the value of your pension as if you left that job today.

Until you get really close to starting the pension there are too many things that can happen that would make it worth less than you are hoping for.

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Re: Saving for Retirement when one has a Pension

Post by fposte » Sun Dec 02, 2018 1:04 pm

chomsky81 wrote:
Sat Dec 01, 2018 7:09 pm

4. SS: benefits are not affected by Social Security benefits.
Be aware the reverse is not necessarily true--your Social Security benefits may be impacted by your pension benefits. Check out the Windfall Elimination Provision to see if it will apply to you.

Another thing that hasn't been mentioned: when you're receiving a pension, you may not have the post-retirement tax drop that a lot of people here will talk about, which would mean not having the convenient and obvious interval for doing things like Roth conversions. I've actually ended up doing in-plan Roth rollovers prior to retirement on my 457 because it'll work out better tax-wise.

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Re: Saving for Retirement when one has a Pension

Post by dm200 » Sun Dec 02, 2018 2:31 pm

chomsky81 wrote:
Sat Dec 01, 2018 6:30 pm
Are there specific guidelines, whether general agreed upon rules of thumb or Boglehead wisdom, for retirement savings advice for those with pensions?

I'll be able to retire in about 20 years with 55-60% of my salary through my pension. What are some good perspectives/guidelines to save additionally for retirement? I have had the idea that it wasn't as important compared to workers who don't have a pension, therefore have not done too aggressive of saving.

I have access to a 403(b) and send about 7% of my net/takehome pay each paycheck though only started doing so about 10 years into my career.
One (of many_ factor is how the survivor benefits of the pension are specified. In a way, if the survivor get a large amount of the pension if the person with the pension dies first - then you may tend to treat both as having a pension. The more the survivor will or might get, the less the retiree gets.

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Re: Saving for Retirement when one has a Pension

Post by Angst » Sun Dec 02, 2018 5:20 pm

chomsky81 wrote:
Sat Dec 01, 2018 7:09 pm
Thanks for the insights all!

I am receiving a pension through a state teacher's retirement system. I will obviously also receive SS but will wait till 65-67 to receive it and retire between 55-60, again with:

[Snip...]
The fact that you state "obviously" above gives me a bit of pause. When it comes to teachers pensions and social security, there's nothing "obvious" about SS participation except that it varies a lot. I think roughly 1/3 of states still opt-out of SS for teachers and sometimes others such as police, firefighters? And there can be WEP issues sometimes. Anyhow, you probably know what you're talking about, perhaps this is just your way of saying that if you weren't also getting SS, you would "obviously" have to be saving a lot more to complement your pension. I always kinda prefer precision when misunderstandings can be costly. Nothing's obvious to me!

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Re: Saving for Retirement when one has a Pension

Post by 9liner » Sun Dec 02, 2018 6:00 pm

I will have two pensions. One state pension that kicks in at age 50. It's about $1500 per month. I will have an active duty pension beginning at age 53, should I choose to officially retire. My wife does not work for an employer who provides a pension. We still max out both of our ROTH IRAs along with my TSP and her 401k.

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Re: Saving for Retirement when one has a Pension

Post by krow36 » Sun Dec 02, 2018 6:48 pm

ruralavalon wrote:
Sun Dec 02, 2018 10:59 am
What funds are offered in your 403b plan? Please give fund names, tickers and expense ratios. Is there an employer match offered in your 403b plan, and are you already contributing enough to get the full employer match?
This link to 403bcompare gives the funds and fees that Fidelity’s 403b plan offers to K-12 school districts throughout the US: https://www.403bcompare.com/products/68
Fidelity is the lowest-cost 403b vendor to K-12 schools. These are non-ERISA plans with no vetting from the employer. It's very likely run at below-cost, with an expectation that they will sell some of their more expensive actively-managed funds.

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Re: Saving for Retirement when one has a Pension

Post by msk » Mon Dec 03, 2018 8:28 am

Ron Ronnerson wrote:
Sun Dec 02, 2018 11:38 am
msk wrote:
Sun Dec 02, 2018 3:12 am
Youngsters: Save and invest 30% of after tax income regardless of your pension situation. Building up home equity (and of course your in-company pension contributions) can be counted within the 30%, though not mortgage interest or purchasing a consumable like a car.
I’m less sure about counting employer pension contributions and home equity toward the 30% figure, though. For example, I contribute 10.25% of salary toward the pension. My employer contributes 16.28% (will be going up to 18.13% in 2019 and 19.1% in 2020) and the state contributes 7.328%. So, I’d be at 34% right there.
Point well taken! I should have restricted it to "employee contributions" and excluded "employer" contributions. The latter can vary a lot over the years. E.g. with my employer the employer contribution varied between 22.5% and nil over just the few years I was on the pension fund Board of Trustees. Basically each alternate year we had an outside actuarial evaluation of the pension fund against its liabilities. After an excellent market run-up the fund would tend to be over-funded and hence employer contributions would be cut, and of course vice versa. Employee contributions stayed constant for decades.

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