Leave a job with a pension?

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BradJ
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Leave a job with a pension?

Post by BradJ » Wed Apr 17, 2019 3:32 pm

How much weight would an employer funded pension have on your decision to leave for another opportunity? My current company matches 4% on the 401k, with a fully funded pension with the following formula (years service X Top year earnings of last 5 X 1%). I am looking into an opportunity that is going to pay me 20% more, but has not pension and matches 7%.

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ruralavalon
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Re: Leave a job with a pension?

Post by ruralavalon » Wed Apr 17, 2019 3:41 pm

BradJ wrote:
Wed Apr 17, 2019 3:32 pm
How much weight would an employer funded pension have on your decision to leave for another opportunity? My current company matches 4% on the 401k, with a fully funded pension with the following formula (years service X Top year earnings of last 5 X 1%). I am looking into an opportunity that is going to pay me 20% more, but has not pension and matches 7%.
Don't forget to consider as primary factors whether the jobs involve doing something useful, work that you will enjoy, with good management and co-workers.
Last edited by ruralavalon on Wed Apr 17, 2019 3:42 pm, edited 1 time in total.
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cheese_breath
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Re: Leave a job with a pension?

Post by cheese_breath » Wed Apr 17, 2019 3:41 pm

How old are you? Are you vested in the pension?
The surest way to know the future is when it becomes the past.

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BradJ
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Re: Leave a job with a pension?

Post by BradJ » Wed Apr 17, 2019 3:53 pm

cheese_breath wrote:
Wed Apr 17, 2019 3:41 pm
How old are you? Are you vested in the pension?
I am not vested, I have 2 1/2 more years to go. The good news is that my previous employer of 10 years had a pension and I was/am vested in that one.

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BradJ
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Re: Leave a job with a pension?

Post by BradJ » Wed Apr 17, 2019 3:55 pm

BradJ wrote:
Wed Apr 17, 2019 3:53 pm
cheese_breath wrote:
Wed Apr 17, 2019 3:41 pm
How old are you? Are you vested in the pension?
I am not vested, I have 2 1/2 more years to go. The good news is that my previous employer of 10 years had a pension and I was/am vested in that one.
Also, I am 34 years old.

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Sandtrap
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Re: Leave a job with a pension?

Post by Sandtrap » Wed Apr 17, 2019 4:02 pm

BradJ wrote:
Wed Apr 17, 2019 3:32 pm
How much weight would an employer funded pension have on your decision to leave for another opportunity? My current company matches 4% on the 401k, with a fully funded pension with the following formula (years service X Top year earnings of last 5 X 1%). I am looking into an opportunity that is going to pay me 20% more, but has not pension and matches 7%.
A thought.
You'd be surprised how many seniors and retirees wish they had a juicy pension. :D
OTOH, manage your higher income well over the long term and you can make up for it.
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il0kin
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Re: Leave a job with a pension?

Post by il0kin » Wed Apr 17, 2019 4:15 pm

Will your current employer return your pension contributions or are they gone into a black box forever?

Will you be collecting SS at retirement?

I think if you have an existing pension + SS + well funded 401k type accounts, you’ll have a great mix of income in retirement. A 20% raise is great and gets exponentially more valuable each time you get your annual raise. I would probably move to the new employer, especially if you get your contributions back.

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BradJ
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Re: Leave a job with a pension?

Post by BradJ » Wed Apr 17, 2019 4:18 pm

il0kin wrote:
Wed Apr 17, 2019 4:15 pm
Will your current employer return your pension contributions or are they gone into a black box forever?

Will you be collecting SS at retirement?

I think if you have an existing pension + SS + well funded 401k type accounts, you’ll have a great mix of income in retirement. A 20% raise is great and gets exponentially more valuable each time you get your annual raise. I would probably move to the new employer, especially if you get your contributions back.
The pension is full funded by the employer, which means I have contributed $0.

ExitStageLeft
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Re: Leave a job with a pension?

Post by ExitStageLeft » Wed Apr 17, 2019 4:23 pm

Interesting question and a good opportunity to use a spreadsheet to test a few assumptions. For a 25 year horizon with 4% real returns you need to save half the extra income to match the pension. That's on top of what you are already putting in the 401k now to get the match.

FederalFIRE
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Re: Leave a job with a pension?

Post by FederalFIRE » Wed Apr 17, 2019 4:28 pm

Given your age, and that you've already had 10 years with another employer, I'm guessing that you aren't too far into the period to be vested in your current employer's pension if you still have 2-1/2 years to go. With that, it's likely that a 20% raise now (if you save and invest it as a Boglehead would) will probably end up better for you in the end. However, if you're just going to take the 20% and inflate your lifestyle, then you may want to wait until the pension at the current employer is vested before looking elsewhere.

The other comments about considering enjoyment of your work, work life balance, etc. are all also important considerations, but I assume you've already taken those into account if you're considering this change.

ExitStageLeft
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Re: Leave a job with a pension?

Post by ExitStageLeft » Wed Apr 17, 2019 4:30 pm

Another thing to consider is the retirement plan at each. Are the fund choices and plan expenses comparable?

carmonkie
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Re: Leave a job with a pension?

Post by carmonkie » Wed Apr 17, 2019 4:43 pm

Significant other has a pension and she will be able to collect when she meets the rule of 80, whenever that time comes (year 2200). Having the pension has frozen her from going somewhere else. Just like many other teachers, she is miserable, underpaid, overworked, kids are brats, irresponsible parents, long hours and on and on and on.

If your new job removes many of these factors that make you miserable, by all means. Work balance and health are much more important. Many teachers with the system in place will not live to meet that rule of 80 to collect a penny. Sad but true. I hope mine does.

Determined
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Re: Leave a job with a pension?

Post by Determined » Wed Apr 17, 2019 5:09 pm

carmonkie wrote:
Wed Apr 17, 2019 4:43 pm
Significant other has a pension and she will be able to collect when she meets the rule of 80, whenever that time comes (year 2200). Having the pension has frozen her from going somewhere else. Just like many other teachers, she is miserable, underpaid, overworked, kids are brats, irresponsible parents, long hours and on and on and on.

If your new job removes many of these factors that make you miserable, by all means. Work balance and health are much more important. Many teachers with the system in place will not live to meet that rule of 80 to collect a penny. Sad but true. I hope mine does.

I have learned from these boards that teacher pensions are a different animal. If your significant other loves teaching, then by all means she should stick with it. If she feels as you do, get out sooner than later. And the rule of 80 is really very good for teaching. Many places are the rule of 90. Ohio is 60 and 35 years for full benefits. If I retired under the rule of 80, my pension would be less than half.

megabad
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Re: Leave a job with a pension?

Post by megabad » Wed Apr 17, 2019 5:47 pm

BradJ wrote:
Wed Apr 17, 2019 3:32 pm
How much weight would an employer funded pension have on your decision to leave for another opportunity?
If you want a literal answer. I would value it as an annuity cost that would need to be recouped by increased compensation later. I would determine annuity value using immediateannuities.com. I would then adjust said annuity value by factors based on financial strength (say reduce value by 25% for any state with less than 50% funded ratio; reduce by 50% for IL, KY, NJ; and by 50-75% for any private pension.

mariezzz
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Re: Leave a job with a pension?

Post by mariezzz » Wed Apr 17, 2019 6:13 pm

How large is the employer? How likely is it over the next 30 years that something will happen to either make you lose the pension benefits in full or in part? Many public employee pensions are very inadequately funded; there could be problems down the road for those. (But taxes could be increased to cover the gap - you just don't know for certain, cf. Detroit).

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cheese_breath
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Re: Leave a job with a pension?

Post by cheese_breath » Wed Apr 17, 2019 6:56 pm

IMO 2 1/2 years is too long to hang around to get vesting if it means bypassing better opportunities. Pensions used to be a great benefit, but (IMO again) there's too much uncertainty associated with them now. We don't know if your employer will even be in business 30 years from now to pay the pension, and even if the PBGC takes it over they might not pay the whole thing depending on how large it is.

And don't forget your pension is weighted towards your last five years earnings making it harder to leave as your salary increases even if it evolves into a rotten work environment.

I had small pensions from EDS and GM,and a 403B from a university. Fortunately HP assumed my EDS pension when they bought them, and the GM pension is now a Prudential annuity. But there were times when I was concerned about what would happen to both of them. Total service time with EDS and GM is twice that at the university. I rolled the 403B over to an IRA, and it has increased to the point where its value is more than the EDS and GM pensions combined will pay out over my lifetime.
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Bacchus01
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Re: Leave a job with a pension?

Post by Bacchus01 » Wed Apr 17, 2019 9:02 pm

Assume you make $100k

Each year is worth about $1k per year at retirement (year of service times $100k x 1%)

$1k In a 4% SWD model is worth $25k in future dollars. Discount that back to today, 30 years prior to withdraw and it’s worth what, $10K?

It sure seems like the new gig is better.

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Summit111
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Re: Leave a job with a pension?

Post by Summit111 » Wed Apr 17, 2019 9:34 pm

I worked for Mega Corp my entire career. Within the last 12 years I was there, they suspended the retirement pension plan and retiree medical benefits. So, don’t count on it....

Summit
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MathIsMyWayr
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Re: Leave a job with a pension?

Post by MathIsMyWayr » Wed Apr 17, 2019 11:36 pm

BradJ wrote:
Wed Apr 17, 2019 3:55 pm
BradJ wrote:
Wed Apr 17, 2019 3:53 pm

I am not vested, I have 2 1/2 more years to go. The good news is that my previous employer of 10 years had a pension and I was/am vested in that one.
Also, I am 34 years old.
You are only 34 and need 2 1/2 more years for pension vesting. Why are you so concerned with such a small thing? There are more opportunities in life than that.

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Stinky
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Re: Leave a job with a pension?

Post by Stinky » Thu Apr 18, 2019 4:58 am

Summit111 wrote:
Wed Apr 17, 2019 9:34 pm
I worked for Mega Corp my entire career. Within the last 12 years I was there, they suspended the retirement pension plan and retiree medical benefits. So, don’t count on it....

Summit
This.

I’ve seen many employers reduce or eliminate their generous pensions. Of course, accrued benefits are untouched, but future pension accruals are reduced or eliminated.

I expect that trend will continue in future years.

At age 34, I wouldn’t put a lot of weight in a possible employer paid pension benefit in considering which job to take now. Too many things can change .....
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BradJ
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Re: Leave a job with a pension?

Post by BradJ » Thu Apr 18, 2019 8:42 am

Thank you all for your responses. I wanted to add that an added bonus to taking the job offer is that it is in a state with no state tax, which saves me 6% (my current state tax rate). No doubt property tax will eat away at that, but it is still a plus!

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Re: Leave a job with a pension?

Post by Grt2bOutdoors » Thu Apr 18, 2019 9:47 am

Summit111 wrote:
Wed Apr 17, 2019 9:34 pm
I worked for Mega Corp my entire career. Within the last 12 years I was there, they suspended the retirement pension plan and retiree medical benefits. So, don’t count on it....

Summit
Don’t count on the 7% match either, matches can and do get cut nor are they subsequently reinstated.
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UnclePhil
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Re: Leave a job with a pension?

Post by UnclePhil » Thu Apr 18, 2019 12:32 pm

I too am trying to decide whether to leave job with pension for more money. Good luck OP

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Ybsybs
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Re: Leave a job with a pension?

Post by Ybsybs » Thu Apr 18, 2019 12:44 pm

BradJ wrote:
Thu Apr 18, 2019 8:42 am
Thank you all for your responses. I wanted to add that an added bonus to taking the job offer is that it is in a state with no state tax, which saves me 6% (my current state tax rate). No doubt property tax will eat away at that, but it is still a plus!
In your calculations with regard to state taxes, look at what the difference in sales taxes are in addition to what the differences are in property taxes and income taxes.

Thegame14
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Re: Leave a job with a pension?

Post by Thegame14 » Thu Apr 18, 2019 12:47 pm

I would try to stay to at least vest, then if a better opportunity comes along at least you wont be leaving it on the table.

Ybsybs
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Re: Leave a job with a pension?

Post by Ybsybs » Thu Apr 18, 2019 1:07 pm

BradJ wrote:
Wed Apr 17, 2019 3:32 pm
How much weight would an employer funded pension have on your decision to leave for another opportunity? My current company matches 4% on the 401k, with a fully funded pension with the following formula (years service X Top year earnings of last 5 X 1%). I am looking into an opportunity that is going to pay me 20% more, but has not pension and matches 7%.
Here's my attempt at comparing the financial choices.

Pension Company
$83,333 salary (chosen for simplicity of number)
+$3,333 401k match 4%
-$5,000 state income tax 6% (Please check that the 6% is your TOTAL state income tax rate and not merely your top state income tax bracket)

approx. $4,166 per year increase to pension (estimate based on 1% of 5 x current salary)
$104,166 would be needed in savings to generate that at a 4% annual withdrawal. Assuming pension would start at 60 and OP is 30, the cash equivalent has 30 years to grow to that amount, so at a guessed 6% per year growth rate... that $104,166 is around $18,136 today.

No Pension Company
$100,000 salary (120% of pension company salary)
+$7,000 401k match 7%


So based on my many guesses, I see you choosing between
$81,666/year Pension Company now & $99,803/year Pension Company in 3 years
-vs-
$107,000/year No Pension Company

scotgirl100
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Re: Leave a job with a pension?

Post by scotgirl100 » Thu Apr 18, 2019 4:55 pm

5 years ago I faced the same question. Was at mega company 17 years and was vested in pension. Company had changed and I had a new job opportunity. I considered staying just for the pension knowing the latter years are more important. But changed jobs any way. Left in June and in November the company froze the pension, so only lost 5 months. And even before that, the company had changed how pension worked based on # years service and age. So you cannot depend that pension will not be changed or frozen before even the 2 1/2 years is over let alone years to retirement.

DesertDiva
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Re: Leave a job with a pension?

Post by DesertDiva » Thu Apr 18, 2019 5:01 pm

You're 34--if you were in your mid-fifties, that would be a different scenario. With a 20% pay increase, you should be able to invest more and make up for the missing pension.

Bacchus01
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Re: Leave a job with a pension?

Post by Bacchus01 » Thu Apr 18, 2019 5:50 pm

Ybsybs wrote:
Thu Apr 18, 2019 1:07 pm
BradJ wrote:
Wed Apr 17, 2019 3:32 pm
How much weight would an employer funded pension have on your decision to leave for another opportunity? My current company matches 4% on the 401k, with a fully funded pension with the following formula (years service X Top year earnings of last 5 X 1%). I am looking into an opportunity that is going to pay me 20% more, but has not pension and matches 7%.
Here's my attempt at comparing the financial choices.

Pension Company
$83,333 salary (chosen for simplicity of number)
+$3,333 401k match 4%
-$5,000 state income tax 6% (Please check that the 6% is your TOTAL state income tax rate and not merely your top state income tax bracket)

approx. $4,166 per year increase to pension (estimate based on 1% of 5 x current salary)
$104,166 would be needed in savings to generate that at a 4% annual withdrawal. Assuming pension would start at 60 and OP is 30, the cash equivalent has 30 years to grow to that amount, so at a guessed 6% per year growth rate... that $104,166 is around $18,136 today.

No Pension Company
$100,000 salary (120% of pension company salary)
+$7,000 401k match 7%


So based on my many guesses, I see you choosing between
$81,666/year Pension Company now & $99,803/year Pension Company in 3 years
-vs-
$107,000/year No Pension Company

How are you calculating that pension value?

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cheese_breath
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Re: Leave a job with a pension?

Post by cheese_breath » Thu Apr 18, 2019 6:53 pm

Bacchus01 wrote:
Thu Apr 18, 2019 5:50 pm
How are you calculating that pension value?
I believe he's doing it wrong. He said...
Ybsybs wrote:
Thu Apr 18, 2019 1:07 pm
(estimate based on 1% of 5 x current salary)
OP said...
BradJ wrote:
Wed Apr 17, 2019 3:32 pm
(years service X Top year earnings of last 5 X 1%)
I don't think those are the same thing.
The surest way to know the future is when it becomes the past.

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Chris001122
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Re: Leave a job with a pension?

Post by Chris001122 » Thu Apr 18, 2019 9:32 pm

I have a somewhat dumb question, so please forgive me.

If one leaves a company vested in the pension at age 50 with a benefit of say $1500 a month, does the person at age 67 (retirement):

1. Get nothing for that company's pension
2. still get that money $1500/month but lose out on the future projected value (let's say it would be $3000 a month)?

I'm guessing its 2, but the way folks talk about pensions, I get confused.

I had a friend who said he had mutliple pension checks for his various jobs all over town. They were all smaller amounts, but they all helped him.
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wootwoot
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Re: Leave a job with a pension?

Post by wootwoot » Thu Apr 18, 2019 9:35 pm

With a pension like that I'd stay, that's a good payoff.

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cheese_breath
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Re: Leave a job with a pension?

Post by cheese_breath » Thu Apr 18, 2019 9:45 pm

If the pension is vested you get it at the company's standard retirement age. In some cases you might be able to get it earlier, but at reduced value. I had two small pensions myself until one of them turned into a Prudential annuity.

Typically pensions are based on the person's income and years of service although some may allow employee contributions as well. I'm unaware of any pension plan providing COLA increases for separated employees. (Maybe for politicians, but who knows.) Once you leave the future projected value doesn't change... unless you come back.
The surest way to know the future is when it becomes the past.

SixAlpha
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Re: Leave a job with a pension?

Post by SixAlpha » Fri Apr 19, 2019 6:01 am

You might also check the details of your company's pension. My company offers a similar setup to the OP's, but our pension was converted to a "portable pension" system. In my case, I'm fully vested and if I leave the company I can "take" the pension with me and roll it into an IRA.

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Re: Leave a job with a pension?

Post by GAAP » Fri Apr 19, 2019 11:28 am

You didn't state whether that pension is nominal or real -- makes a big difference over time. If real, what are the limits? I know of a real pension that matches inflation up to 3%, and then no more. I know another that matches up to 3% at a 100% and from 3-6% at 50%.
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Ybsybs
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Re: Leave a job with a pension?

Post by Ybsybs » Fri Apr 19, 2019 11:30 am

cheese_breath wrote:
Thu Apr 18, 2019 6:53 pm
Bacchus01 wrote:
Thu Apr 18, 2019 5:50 pm
How are you calculating that pension value?
I believe he's doing it wrong. He said...
Ybsybs wrote:
Thu Apr 18, 2019 1:07 pm
(estimate based on 1% of 5 x current salary)
OP said...
BradJ wrote:
Wed Apr 17, 2019 3:32 pm
(years service X Top year earnings of last 5 X 1%)
I don't think those are the same thing.
Indeed. I showed my work so the OP could adjust anything to be closer, in his estimation, to what he anticipates being the reality.

As of right now, the previous five years are likely to be the OP's current top earnings. It's likely that his current fifth highest salary is not as high as his current salary. So in that way my estimate of the pension value is TOO HIGH. If he continues to work at Pension-providing Company, his salary will probably go up making the top five years of salary be higher which would make his current year value of the pension be higher such that my estimate is TOO LOW.

OP needs some way of trying to value the comparative financial packages and is, of course, free to accept, reject, or modify my attempt to quantify it.

I welcome your efforts as well if you want to try to quantify the pension or any other part of the compensation packages. I find it interesting to see other people's math.

chrisjul
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Re: Leave a job with a pension?

Post by chrisjul » Fri Apr 19, 2019 1:50 pm

A pension is a HUGE issue these days and rare. Don't underestimate it's value. It can be calculated with a good spreadsheet.

Bacchus01
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Re: Leave a job with a pension?

Post by Bacchus01 » Sun Apr 21, 2019 9:02 am

Chris001122 wrote:
Thu Apr 18, 2019 9:32 pm
I have a somewhat dumb question, so please forgive me.

If one leaves a company vested in the pension at age 50 with a benefit of say $1500 a month, does the person at age 67 (retirement):

1. Get nothing for that company's pension
2. still get that money $1500/month but lose out on the future projected value (let's say it would be $3000 a month)?

I'm guessing its 2, but the way folks talk about pensions, I get confused.

I had a friend who said he had mutliple pension checks for his various jobs all over town. They were all smaller amounts, but they all helped him.
If vested, you’ve earned the benefit and will start drawing that amount when you retire. Most plans stipulate age 65. Take it early, you get less. Take it later, you usually do NOT get more.

There is no future value to accrue because it is usually based on service and you are not accumulating any service.

Bacchus01
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Re: Leave a job with a pension?

Post by Bacchus01 » Sun Apr 21, 2019 9:05 am

wootwoot wrote:
Thu Apr 18, 2019 9:35 pm
With a pension like that I'd stay, that's a good payoff.

It’s a pretty standard calculation. It has value and it can be calculated. I would say it’s good, but not good enough to stay when you have a 20%+ increase potential.

As an FYI to OP, through my career I’ve worked for 4 megacorps. I have never left one for the other without a 25% increase in cash comp. that’s always been my rule and it has worked extremely well.

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Meaty
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Re: Leave a job with a pension?

Post by Meaty » Sun Apr 21, 2019 5:13 pm

BradJ wrote:
Wed Apr 17, 2019 3:32 pm
How much weight would an employer funded pension have on your decision to leave for another opportunity? My current company matches 4% on the 401k, with a fully funded pension with the following formula (years service X Top year earnings of last 5 X 1%). I am looking into an opportunity that is going to pay me 20% more, but has not pension and matches 7%.
I did. I was young (28) and had no guarantee the pension wouldn’t be frozen. Additionally, I got a big pay raise $45k/ur more) to make up for it
"Discipline equals Freedom" - Jocko Willink

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