Should you view an available pension as a reduction in salary?

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$=WxTxI
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Should you view an available pension as a reduction in salary?

Post by $=WxTxI »

Should a pension be viewed as a reduction in salary after the earliest available retirement date?

Using simple numbers:

Salary 100k
Pension at 50yrs old 25k
Pension at 55yrs old 50k
Pension at 60yrs old 75k

If you work past 50 which is the earliest possible date to draw your Pension, are you working for a salary of 75k? Same goes for 55yrs old. Are you working for 50k?

Should it be viewed this way?

Should you jump ship at 50 and find work elsewhere?
TheDDC
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Re: Should you view an available pension as a reduction in salary?

Post by TheDDC »

You have it backwards. A pension is “salary yet to be paid”. That’s how I view it. They could pay you now or pay you later. They choose to pay you later not to work. ;)

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life in slices
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Re: Should you view an available pension as a reduction in salary?

Post by life in slices »

I agree with DDC that is the other way around - a pension is an additional retirement benefit on top of your current salary

Looked at another way, if you retired at 60 - the $75K/yr pension payment is like having an equivalent 1.875M+ in a 401k/tIRA and taking ~4% withdrawals
life in slices
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Re: Should you view an available pension as a reduction in salary?

Post by life in slices »

ETA - there is probability though that your salary at $100K with pension is lower than a similar role at another company with no pension; the other company might compensate for the lack of pensions with a higher salary
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CyclingDuo
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Re: Should you view an available pension as a reduction in salary?

Post by CyclingDuo »

$=WxTxI wrote: Wed Jun 16, 2021 8:19 am Should a pension be viewed as a reduction in salary after the earliest available retirement date?

Using simple numbers:

Salary 100k
Pension at 50yrs old 25k
Pension at 55yrs old 50k
Pension at 60yrs old 75k

If you work past 50 which is the earliest possible date to draw your Pension, are you working for a salary of 75k? Same goes for 55yrs old. Are you working for 50k?

Should it be viewed this way?

Should you jump ship at 50 and find work elsewhere?
A pension is a future steady stream of income in retirement, along with Social Security. SS has a COLA, so find out if your pension is a non-COLA pension, or if it will have a COLA. If not, then a portion of the third leg of your retirement income stream should include enough to provide your own DIY COLA to keep the pension income stream keeping pace with inflation.

I wouldn't go so far as to call retirement income streams "salary", but they are certainly replacement of what was formerly your "salary" which included your contributions into the pension fund and FICA payroll tax into the SS & Medicare system during your working career.

Should you jump ship at 50 and find work elsewhere? That all depends if you have built your portfolio + future retirement income streams enough to do what you want. Many teachers when they reach the qualifications for their full pension around age 55-57 do retire from teaching (jump ship, if you will) and pursue another job. We even have some in our state who live along the state border who retire from our state at age 55-57 after they qualify for the full pension, retire from that job and take a teaching job across the state line in one of the border states and can work long enough to qualify for a second state pension in the neighboring state by working an additional 8-10 years.

Regardless, pensions are a stream of income in retirement.

CyclingDuo
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$=WxTxI
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Re: Should you view an available pension as a reduction in salary?

Post by $=WxTxI »

Using the above example wouldn't the person above be better served finding another job that pays 100k at 50 and begin drawing pension from the previous job?
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Re: Should you view an available pension as a reduction in salary?

Post by galawdawg »

$=WxTxI wrote: Wed Jun 16, 2021 8:19 am Should a pension be viewed as a reduction in salary after the earliest available retirement date?

Using simple numbers:

Salary 100k
Pension at 50yrs old 25k
Pension at 55yrs old 50k
Pension at 60yrs old 75k

If you work past 50 which is the earliest possible date to draw your Pension, are you working for a salary of 75k? Same goes for 55yrs old. Are you working for 50k?

Should it be viewed this way?

Should you jump ship at 50 and find work elsewhere?
I get what you are saying and theoretically you are correct, but your theory only applies during your working years. For example, let's say that at age 50 you do jump ship and secure a job paying $100k elsewhere. Now you are making your same $100k salary AND the $25k pension. But your pension stops growing at that point.

Assume that you do that and then retire fully from all employment at age 65, that the second $100k job has no pension, and that you pass away at age 90. Let's also disregard all COLAs, returns on investments, social security and other adjustments for simplicity sake. You'll earn $125k per year from age 50 to age 65 between your salary and your pension, where if you stayed at your original employer, you would have only earned $100k per year. So you earned an extra $25k for fifteen years. That is $300k extra earnings from age 50 to age 65.

However, at age 65 you are now down to your $25k pension. So your earnings from age 65 to age 90 are only $625k. If you had stayed at your original employer, you would be earning a $75k pension and your earnings from age 65 to age 90 are $1.875 million. Under that very, very simplistic scenario, you are better off remaining at your employer and forgoing the "double dip" from age 50 to retirement and instead letting your pension continue to grow.

Hope that makes sense.
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Nestegg_User
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Re: Should you view an available pension as a reduction in salary?

Post by Nestegg_User »

I'll take a slightly different tack:
A fed I knew was in the old CSRS system and had already 42 years in... and was contemplating moving to FL but was still working and planning to work another year and a half.
In his case, he had already "maxed out" and wouldn't get higher pension except any COLA's. I did say that basically, since he would still have to pay towards retirement in his current salary, without any concurrent increase in pension, that he should look at it similarly to what you premise ...
basically, if he looked at it he was being paid pennies to work (and possibly even paying to go to work when considering the commuting costs). I said that he would better off even working part time at a place like Home Depot than continue at current position. He ended up retiring immediately and moving to florida (don't know if he got anything part time)

The other consideration with the pension is that it wouldn't be subject to social security taxes (and that some states don't tax pensions)... so actually they can be more valuable than regular income. As noted above in other responses, if you start then you can't build up additional "credits"/value, which is usually important as most pensions were designed that the later years added considerably more to the value than the earlier years (in the above case, he was maxed out, but the same consideration could be made if the pension had been frozen such that no additional value would be obtained by continued employment at that position).
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simplesimon
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Re: Should you view an available pension as a reduction in salary?

Post by simplesimon »

You may not be seeing a benefit directly in the form of cash during the working years but that growth in pension value can be tremendous.

Using your numbers on immediateannuities.com, the pension is worth approximately: $590k at age 50, $1.0m at age 55, and $1.4m at age 60. So your annual compensation is roughly $100k salary + $80k ignoring any discounting factor.
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beernutz
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Re: Should you view an available pension as a reduction in salary?

Post by beernutz »

I know several people who've retired, drawn a pension, then taken another job. My dad did this. But if you want to do an apples to apples comparison I suggest considering how pensions and salaries are different when determining how much of a salary reduction there is between them.

Many pensions require a salary deduction. For my state pension I contribute 7.5% of my salary to my pension plan which will stop when I start drawing the pension.

Also I won't have deductions from my pension payments for social security, Medicare, 401k/403b, nor is there any state tax withholding since my state doesn't tax pensions (or social security).

Unlike my salary, my pension has a beneficiary with survivorship options.

Also for my pension plan I have to be at least 60 or have 25 years of service to start drawing it after I've vested and I can't retire and go to work at another job that is also under the same state pension plan.
Last edited by beernutz on Wed Jun 16, 2021 9:46 am, edited 1 time in total.
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Re: Should you view an available pension as a reduction in salary?

Post by rich126 »

Wouldn't it depend on the pension and how much it increases, etc.?

I was thinking about this recently because I have an offer to return the the federal government. I can also retire (from previous service time) in about 18 months after returning to the government and get my pension (with COLA). If I continue to work past 60 (where I would be in 18 months), my pension will increase but only around $1500 for each extra year working. I haven't ran the numbers but while the pension would increase by $1500, I would be forgoing collecting it until I actually do retire.

For example, retire at 60 and get a pension, assume $34K and work at another job for $150K or stay and work 2 more years and increase pension by $3K but lose out on $68K (pre-taxed). In this example the extra pension would only pay off after ~22 years of retirement.

Of course complicating things is that at 62 you get a 10% boost in the pension so the increase would be more like $6K. Another complication is that the salary outside the government would be substantially higher (20-40%) than the example I used and the matching money would be higher (often 6-10%).

Back to the original post, working 5 years and gaining $25K sounds tough to pass up but clearly it depends on other savings and financial needs. Also depends on whether you enjoy your job. I knew government folks retiring early (FERS) and take some substantial permanent cuts in their pensions simply because they dreaded coming to work and simply could not deal with the job any longer.

While numbers frequently seem to rule things here (at least in replies), often the intangibles (stress, quality of life, etc.) are more important.
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Re: Should you view an available pension as a reduction in salary?

Post by Thesaints »

If the OP thinks his pension is a reduction in compensation, he could donate an equal amount and not only would he be made whole, but he would also enjoy a tax break !
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Re: Should you view an available pension as a reduction in salary?

Post by $=WxTxI »

Thesaints wrote: Wed Jun 16, 2021 9:50 am If the OP thinks his pension is a reduction in compensation, he could donate an equal amount and not only would he be made whole, but he would also enjoy a tax break !
:sharebeer

Im just looking at the change from being 49 to 50 yrs old.

At 49 person gets 100k for working
At 50 person gets 25k for not working, or 100k for working.
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Re: Should you view an available pension as a reduction in salary?

Post by $=WxTxI »

rich126 wrote: Wed Jun 16, 2021 9:40 am Wouldn't it depend on the pension and how much it increases, etc.?

I was thinking about this recently because I have an offer to return the the federal government. I can also retire (from previous service time) in about 18 months after returning to the government and get my pension (with COLA). If I continue to work past 60 (where I would be in 18 months), my pension will increase but only around $1500 for each extra year working. I haven't ran the numbers but while the pension would increase by $1500, I would be forgoing collecting it until I actually do retire.

For example, retire at 60 and get a pension, assume $34K and work at another job for $150K or stay and work 2 more years and increase pension by $3K but lose out on $68K (pre-taxed). In this example the extra pension would only pay off after ~22 years of retirement.

Of course complicating things is that at 62 you get a 10% boost in the pension so the increase would be more like $6K. Another complication is that the salary outside the government would be substantially higher (20-40%) than the example I used and the matching money would be higher (often 6-10%).

Back to the original post, working 5 years and gaining $25K sounds tough to pass up but clearly it depends on other savings and financial needs. Also depends on whether you enjoy your job. I knew government folks retiring early (FERS) and take some substantial permanent cuts in their pensions simply because they dreaded coming to work and simply could not deal with the job any longer.

While numbers frequently seem to rule things here (at least in replies), often the intangibles (stress, quality of life, etc.) are more important.
Those numbers in my OP are not actual true values of a pension. I was using simple numbers as a way to view working past the earliest pension draw date.
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Re: Should you view an available pension as a reduction in salary?

Post by junior »

$=WxTxI wrote: Wed Jun 16, 2021 8:19 am Should a pension be viewed as a reduction in salary after the earliest available retirement date?

Using simple numbers:

Salary 100k
Pension at 50yrs old 25k
Pension at 55yrs old 50k
Pension at 60yrs old 75k

If you work past 50 which is the earliest possible date to draw your Pension, are you working for a salary of 75k? Same goes for 55yrs old. Are you working for 50k?

Should it be viewed this way?

Should you jump ship at 50 and find work elsewhere?
Your analysis is obviously the wrong way to look at it. At 50 if you continue to work until 55 you get 25k more in retirement per year. If we use the 4 percent rule you might need 625,000 in a portfolio to reach that extra 25k- so that's 625,000 for 5 years of work- a huge raise. It's like at 50 they start paying you 225,000 per year salary.

You obviously made up numbers but it shows how crazy off your analysis is.
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Re: Should you view an available pension as a reduction in salary?

Post by $=WxTxI »

junior wrote: Wed Jun 16, 2021 11:04 am
$=WxTxI wrote: Wed Jun 16, 2021 8:19 am Should a pension be viewed as a reduction in salary after the earliest available retirement date?

Using simple numbers:

Salary 100k
Pension at 50yrs old 25k
Pension at 55yrs old 50k
Pension at 60yrs old 75k

If you work past 50 which is the earliest possible date to draw your Pension, are you working for a salary of 75k? Same goes for 55yrs old. Are you working for 50k?

Should it be viewed this way?

Should you jump ship at 50 and find work elsewhere?
Your analysis is obviously the wrong way to look at it. At 50 if you continue to work until 55 you get 25k more in retirement per year. If we use the 4 percent rule you might need 625,000 in a portfolio to reach that extra 25k- so that's 625,000 for 5 years of work- a huge raise. It's like at 50 they start paying you 225,000 per year salary.

You obviously made up numbers but it shows how crazy off your analysis is.
Right the numbers were made up. If the increase in pension per year amounted to less than a 4% real return would it then make sense to jump ship?
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Re: Should you view an available pension as a reduction in salary?

Post by Cruise »

OP: I know an economist who was an associate dean for our state university who ran the numbers when the university was faced with a large percentage of its faculty working into the late 60s and into their 70s. Many of these people were considered unproductive, but were tenured.

This economist determined that a professor who had (1) reached the university's criteria for full retirement and (2) who was 66 to gain full SS benefits, would be working in their full-time job for just $16K extra income a year.

So yes, working when eligible for retirement benefits can be like a huge reduction in salary.
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Re: Should you view an available pension as a reduction in salary?

Post by IMO »

galawdawg wrote: Wed Jun 16, 2021 8:59 am
$=WxTxI wrote: Wed Jun 16, 2021 8:19 am Should a pension be viewed as a reduction in salary after the earliest available retirement date?

Using simple numbers:

Salary 100k
Pension at 50yrs old 25k
Pension at 55yrs old 50k
Pension at 60yrs old 75k

If you work past 50 which is the earliest possible date to draw your Pension, are you working for a salary of 75k? Same goes for 55yrs old. Are you working for 50k?

Should it be viewed this way?

Should you jump ship at 50 and find work elsewhere?
I get what you are saying and theoretically you are correct, but your theory only applies during your working years. For example, let's say that at age 50 you do jump ship and secure a job paying $100k elsewhere. Now you are making your same $100k salary AND the $25k pension. But your pension stops growing at that point.

Assume that you do that and then retire fully from all employment at age 65, that the second $100k job has no pension, and that you pass away at age 90. Let's also disregard all COLAs, returns on investments, social security and other adjustments for simplicity sake. You'll earn $125k per year from age 50 to age 65 between your salary and your pension, where if you stayed at your original employer, you would have only earned $100k per year. So you earned an extra $25k for fifteen years. That is $300k extra earnings from age 50 to age 65.

However, at age 65 you are now down to your $25k pension. So your earnings from age 65 to age 90 are only $625k. If you had stayed at your original employer, you would be earning a $75k pension and your earnings from age 65 to age 90 are $1.875 million. Under that very, very simplistic scenario, you are better off remaining at your employer and forgoing the "double dip" from age 50 to retirement and instead letting your pension continue to grow.

Hope that makes sense.
I don't really know if it's that simple? I'm not advocating that it isn't better to stay with the pensioned job like you note. However, as examples, if one invested the $25K year over the 15 years, one would have $556K at 5%, $720K at 8%, and $947K at 11% rates of returns. I'm only using positive rates of returns because that seems to be the norm on this site when one discusses future returns.

There are issues that can also come into play if one chooses to retire earlier than the 65 years old as noted in the example.

It would also get tricky in terms of survivorship of the pension. If one does/doesn't have some level of survivorship and how much that costs would need to be factored into the situation. I suppose one could also look at this is a similar sense as when to take social security. Some may want to get "something" financially out of their pension vs. potentially ending up dead before they ever collect a penny. In the example above, one could die at 65 yrs old single person and never get a penny out of their pension, or one could have died as a single person and left a legacy of about $1 million (11% return) to someone or even some personal cause they cared about during their lifetime.

But there are also many other factors such as how much one has invested outside their pension, what there annual expenses are, etc.

I think the point being, there can be "math" answers to tell one what is the best thing to do (such as working longer in life or never retiring) and then there is the "personal" part of finances that one must always consider.
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Re: Should you view an available pension as a reduction in salary?

Post by galawdawg »

Of course it isn't that simple, the analysis depends on much more than what I termed a very, very simplistic view.

I merely used the specific example that OP gave in his original post to respond to OP's specific question posed in his first and subsequent post. If OP has a non-theoretical and actionable inquiry, he should post the actual details to get more informed feedback.
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Re: Should you view an available pension as a reduction in salary?

Post by Thesaints »

Cruise wrote: Wed Jun 16, 2021 11:15 am OP: I know an economist who was an associate dean for our state university who ran the numbers when the university was faced with a large percentage of its faculty working into the late 60s and into their 70s. Many of these people were considered unproductive, but were tenured.

This economist determined that a professor who had (1) reached the university's criteria for full retirement and (2) who was 66 to gain full SS benefits, would be working in their full-time job for just $16K extra income a year.

So yes, working when eligible for retirement benefits can be like a huge reduction in salary.
I get it now; thank you.
So, the OP question is not if accumulating pension rights on top of one's salary is a salary decrease, but if continuing to work when eligible for a pension corresponds to working for less.
It depends on how much the accumulating pension rights are worth.

As an example:
Salary at age 49: 100k
Salary at age 50: 100k, would be eligible for a 25k pension

If pension is fixed at 25k going forward, then yes, it would be like working for 75k.
But the likely case is that continuing to work at age 50 one also increases future pension right.
For instance
Salary at age 50: 100k, would be eligible for a 25k pension, but working the extra year future pension grows to 26k.

Let's say residual life expectancy is at age 50 is 30 years and at age 51 is 29 years (it will be >29, but for illustration purposes...)
We have to compare the difference between the present values of a flow of 30 x 25k annual payments vs. a flow of 29 x 26k payments.
We can immediately see that the difference is <4k, so that individual is indeed working for less money.
Of course, that assumes one can find a 100k job easily.
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Re: Should you view an available pension as a reduction in salary?

Post by Cruise »

Thesaints wrote: Wed Jun 16, 2021 12:46 pm
Cruise wrote: Wed Jun 16, 2021 11:15 am OP: I know an economist who was an associate dean for our state university who ran the numbers when the university was faced with a large percentage of its faculty working into the late 60s and into their 70s. Many of these people were considered unproductive, but were tenured.

This economist determined that a professor who had (1) reached the university's criteria for full retirement and (2) who was 66 to gain full SS benefits, would be working in their full-time job for just $16K extra income a year.

So yes, working when eligible for retirement benefits can be like a huge reduction in salary.
I get it now; thank you.
So, the OP question is not if accumulating pension rights on top of one's salary is a salary decrease, but if continuing to work when eligible for a pension corresponds to working for less.
It depends on how much the accumulating pension rights are worth.

As an example:
Salary at age 49: 100k
Salary at age 50: 100k, would be eligible for a 25k pension

If pension is fixed at 25k going forward, then yes, it would be like working for 75k.
But the likely case is that continuing to work at age 50 one also increases future pension right.
For instance
Salary at age 50: 100k, would be eligible for a 25k pension, but working the extra year future pension grows to 26k.

Let's say residual life expectancy is at age 50 is 30 years and at age 51 is 29 years (it will be >29, but for illustration purposes...)
We have to compare the difference between the present values of a flow of 30 x 25k annual payments vs. a flow of 29 x 26k payments.
We can immediately see that the difference is <4k, so that individual is indeed working for less money.
Of course, that assumes one can find a 100k job easily.
I lost you when you said "assumes one can find a 100k job easily." What does that have to do with whether or not the added value of continuing to work is minuscule compared the pension and ss benefit floor?
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Re: Should you view an available pension as a reduction in salary?

Post by Thesaints »

Cruise wrote: Wed Jun 16, 2021 1:07 pm I lost you when you said "assumes one can find a 100k job easily." What does that have to do with whether or not the added value of continuing to work is minuscule compared the pension and ss benefit floor?
The choice is between continuing to work for the same employer and not collect the 25k pension, or change employer and collect the 25k pension.
If the two job's salary is the same, then the second solution is of course superior, resulting in a 125k effective salary.
But if it is not easy to find equivalent employment paying 100k, then one has to consider.
Maybe 90k are good enough (115k total), but 70k are certainly not (95k total).

Of course, increases in pension rights have to be accounted for. In my example they were worth perhaps 3k, so present employment is actually paying 103k/year (100k in cash and 3k in present value of the increase in future pension flow)
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Re: Should you view an available pension as a reduction in salary?

Post by Cruise »

Thesaints wrote: Wed Jun 16, 2021 1:13 pm
Cruise wrote: Wed Jun 16, 2021 1:07 pm I lost you when you said "assumes one can find a 100k job easily." What does that have to do with whether or not the added value of continuing to work is minuscule compared the pension and ss benefit floor?
The choice is between continuing to work for the same employer and not collect the 25k pension, or change employer and collect the 25k pension.
If the two job's salary is the same, then the second solution is of course superior, resulting in a 125k effective salary.
But if it is not easy to find equivalent employment paying 100k, then one has to consider.
Maybe 90k are good enough (115k total), but 70k are certainly not (95k total).
I see where you are, but what about the choice of "just retire?" :)
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Re: Should you view an available pension as a reduction in salary?

Post by Thesaints »

Cruise wrote: Wed Jun 16, 2021 1:16 pm I see where you are, but what about the choice of "just retire?" :)
Sure, but that's not a 100% financial decision.
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Re: Should you view an available pension as a reduction in salary?

Post by $=WxTxI »

Thesaints wrote: Wed Jun 16, 2021 1:13 pm
Cruise wrote: Wed Jun 16, 2021 1:07 pm I lost you when you said "assumes one can find a 100k job easily." What does that have to do with whether or not the added value of continuing to work is minuscule compared the pension and ss benefit floor?
The choice is between continuing to work for the same employer and not collect the 25k pension, or change employer and collect the 25k pension.
If the two job's salary is the same, then the second solution is of course superior, resulting in a 125k effective salary.
But if it is not easy to find equivalent employment paying 100k, then one has to consider.
Maybe 90k are good enough (115k total), but 70k are certainly not (95k total).

Of course, increases in pension rights have to be accounted for. In my example they were worth perhaps 3k, so present employment is actually paying 103k/year (100k in cash and 3k in present value of the increase in future pension flow)

:sharebeer

Yes, thank you. This was one of my questions. Is it better to take a pension with COLA at the earliest date and then find employment elsewhere at atleast the same salary.
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Re: Should you view an available pension as a reduction in salary?

Post by Thesaints »

$=WxTxI wrote: Wed Jun 16, 2021 1:34 pm :sharebeer

Yes, thank you. This was one of my questions. Is it better to take a pension with COLA at the earliest date and then find employment elsewhere at atleast the same salary.
Yes, but keep in mind the increase in pension rights part. I don't know your pension, but mine every year increases by a very large amount, if one is in the right age bracket. So, the equivalent salary with no pension of its own and while cashing the pension accumulated in the previous job is substantially larger than salary in the previous job ex-pension.

It is immediate to see if one replace the pension with a lump-sum payout (which indeed is an option)

Salary at age 50: 100k, with a lump sum payout of 1 M
Salary at age 51: 100k, with a lump sum payout of 1.05 M

The break even salary for changing job (and cashing the payout) would be 150k, minus the projected annual income on 1 M capital
Last edited by Thesaints on Wed Jun 16, 2021 4:51 pm, edited 1 time in total.
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Re: Should you view an available pension as a reduction in salary?

Post by calwatch »

For government pensions, the employer's contribution rate is often disclosed in the CAFR or the actuarial valuation document. So take a defined benefit plan which pays 1.2% at 50 (i.e., 1.2% times years of service times salary), 2% at 61, and 2.4% at 65 (where it tops out and no longer gives a higher pension based solely on age). The employer contribution rate is 24.64% (which consists of a 9.19% normal cost plus the balance as unfunded actuarial accrued liability, or UAAL, comprised mostly of payback for years where the plan's gains did not hit the target 7.5% investment return).

For someone making $100,000 annually in cash with 20 years service you would get 24% back, or $24,000, but the cost to the employer of pension plus cash compensation would be $125,000, which ignores other benefits, payroll taxes, etc. And you keep earning pension credit. So at age 61 assuming salary staying the same relative to cost of living, that is now 31 years of service, or 62%. You draw 11 years less of pension but you keep earning credit towards it. (This example assumes both pension and salary have COLAs which are fully met. The pension has a maximum COLA of 2% while the worker COLA depends on the vagaries of the economic cycle but also average around 2% long term.)

There are people who we talk about in the office as "working for free" in that they have topped out on the pension chart. Once you are older than 65 you no longer earn a higher percentage based on age. The increase in pension is steep at the start of the eligibility and tapers down as one gets older and works longer. They are mostly working for non-financial reasons, although there are perks of being an employee such as deferring income through defined compensation plans which you couldn't do as a retiree.
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simplesimon
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Re: Should you view an available pension as a reduction in salary?

Post by simplesimon »

$=WxTxI wrote: Wed Jun 16, 2021 1:34 pm Is it better to take a pension with COLA at the earliest date and then find employment elsewhere at atleast the same salary.
When will you retire? When will you die? For most people in the situation you outlined it's better to keep working for the same employer because the increase in benefit in future years is significant.
Admiral
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Re: Should you view an available pension as a reduction in salary?

Post by Admiral »

Let's make this simple:

The pension is guaranteed income. For life. And often (with a reduction) for your spouse's life.

Your current job is not guaranteed. The job you jump ship for is also not guaranteed. The new employer's contribution to a 401k is not guaranteed. Market returns are not guaranteed. Your OWN contributions to a 401k at a new job, too, are not guaranteed (you may find you need the money for something else: education, illness, etc).

You see where this is going? Assuming a healthy DB pension plan, the value is pretty much irreplaceable, and especially for the relatively low cost.

Are there edge cases? Like leaving a $100k job for a $200k job? Possibly. But even with more money available to be saved you still face market risk.
Thesaints
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Re: Should you view an available pension as a reduction in salary?

Post by Thesaints »

What does it matter ?
The discussion is about leaving one job for another when the first job has a vested pension. What is the break even salary offer in the new job ?
I think we agree it is old salary - pension payment + extra pension accrual.
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