Retirement Planning - Pension

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MeasureTwiceCutOnce
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Retirement Planning - Pension

Post by MeasureTwiceCutOnce » Tue Sep 10, 2019 10:05 am

Background: 26 year old married couple. We both safely make 75k before bonus or OT, for a conservative combined income of 150K. I have a traditional 401K where I contribute 13% plus company 3% match. We also both max out our Roth IRA's.

My question primarily lies in how to handle my Wife's pension plan in relation to retirement planning. At this time she only contributes the default amount without any deferred compensation. While there are a lot of rules around 401K saving (get to 15% then go to 20%) the advice surrounding pensions is significantly more scattered. Anywhere from don't count on it at all, to that combined with IRA contributions is all you need to be set. Any and all advice is welcome. Obviously the simple answer is always to save more and never look back but we do have other aspirations and while we do a fairly good job avoiding lifestyle creep and contributing at least half of salary increases towards additional saving it would be nice to know if we should make some immediate adjustments or stay the course.

Details on Pension Plan: PERS 2 Washington State

Detailed info can be found here (or googling PERS 2 Washington): https://www.drs.wa.gov/member/handbooks ... rs2hbk.pdf

Basically a defined benefit plan where for every year of service you receive a benefit of 2% of the top 5 pay years averaged. For example 20 years of service would equal 40% of salary until death. There are some additional situations (ie. early retirement, disability, death) but this is the general premise. I've seen people concerned over the health and reliability of pension plans on this forum before but as far as I can tell this pension plan seems to be doing fairly well.

Again open to any advice related to retirement planning but primarily would like suggestions on how to handle pension in regards to planning, and knowing whether we need to make immediate adjustments or stay the course.

Thanks,
Alex

runner3081
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Re: Retirement Planning - Pension

Post by runner3081 » Tue Sep 10, 2019 10:24 am

PERS 2 isn't a bad plan, my in-laws both have that plan and my FIL just retired two-weeks ago.

There is never a guarantee, but a state pension should be okay and pay out, as expected.

Now... how to handle it. That is up to you. I currently have a pension in my job (private company -well funded). It does not figure into my retirement calculations... just as I do not count SS in those calculations. My wife and I have a goal to meet our "number" without counting pension and SS. Those funds can be "fun" money, donated or passed to heirs.

dbr
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Re: Retirement Planning - Pension

Post by dbr » Tue Sep 10, 2019 11:35 am

Pension is probably a classic case of applying successive approximation to retirement planning. The amount and certainty of the pension benefit increases with time, through the five year vesting requirement, the twenty year early retirement mark, and the thirty year unreduced pension mark.

You won't know what you have until you get there. The uncertainty is primarily whether or not she will remain employed at that employer for the duration, either due to her choice or theirs.

As of now that pension is a scenario that may or may not take place. Your planning has to be a range or possibilities that does not include the pension as a likely benefit. Twenty years from now you will know that the pension is vested, and eligible for early retirement, and that she may well be on her way to a thirty year unreduced pension. At that time the pension is a likely benefit and you can plan with more certainty. You will still be in your forties with many years to go.

That's life.

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galawdawg
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Re: Retirement Planning - Pension

Post by galawdawg » Tue Sep 10, 2019 12:04 pm

I'd recommend you ignore the pension for retirement planning purposes and instead save and invest as though your wife won't have a pension. That gives your family flexibility and freedom to make future career decisions that don't hinge on "but we need the pension to retire", forces you to live below your means, and gets/keeps you in the good habit of investing in your family's future.

if your wife does accrue enough years of service to retire with that pension, you may find you reach financial independence much earlier than expected with steady retirement income and a healthy portfolio on top of that! If she decides upon a different career path or chooses to stay home and raise a family, you will be on good footing having saved for retirement without regard to the possible pension.

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LilyFleur
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Re: Retirement Planning - Pension

Post by LilyFleur » Tue Sep 10, 2019 12:24 pm

It seems that the pension is based on retiring at age 65. For every year earlier, you lose 3% of your benefit per year of earlier retirement. So saving aggressively would be a good idea.

You two are off to a great start! And a chance for a pension is a huge plus for young folks these days.

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MeasureTwiceCutOnce
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Re: Retirement Planning - Pension

Post by MeasureTwiceCutOnce » Tue Sep 10, 2019 12:26 pm

I do appreciate the advice so far. Just to clarify the pension vests in 5 years (she has been there almost 4 currently), for this question assume she at least makes it that far. Also if there were a job change she would at that point begin investing in a 401k.

While the simplest (and potentially best) answer is to ignore it and save as though it isn't there, my brain is having a hard time not being able to mathematically model or plan for it in some way or another. I get that "worst" case scenario here is over-saving, but it's harder to make a convincing argument to my Wife that we need to be saving more without any way to make reasonable projections.

dbr
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Re: Retirement Planning - Pension

Post by dbr » Tue Sep 10, 2019 12:29 pm

LilyFleur wrote:
Tue Sep 10, 2019 12:24 pm
It seems that the pension is based on retiring at age 65. For every year earlier, you lose 3% of your benefit per year of earlier retirement. So saving aggressively would be a good idea.

You two are off to a great start! And a chance for a pension is a huge plus for young folks these days.
Yes. Pensions are tricky because much of the benefit flows into place in the last few years before age 65. There is a lot of uncertainty that at age 26 you are still going to be working for that organization 40 years later. There is significant uncertainty that one will still be married or even alive forty years later.

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galawdawg
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Re: Retirement Planning - Pension

Post by galawdawg » Tue Sep 10, 2019 1:11 pm

MeasureTwiceCutOnce wrote:
Tue Sep 10, 2019 12:26 pm
I do appreciate the advice so far. Just to clarify the pension vests in 5 years (she has been there almost 4 currently), for this question assume she at least makes it that far. Also if there were a job change she would at that point begin investing in a 401k.

While the simplest (and potentially best) answer is to ignore it and save as though it isn't there, my brain is having a hard time not being able to mathematically model or plan for it in some way or another. I get that "worst" case scenario here is over-saving, but it's harder to make a convincing argument to my Wife that we need to be saving more without any way to make reasonable projections.
Once your wife vests in a little more than a year, that only means that when she reaches 65 she becomes eligible for a pension benefit. So assume she leaves the State of Washington or an employer covered by PERS 2 after seven total years and that her average high five salary is $75k. That will give her a pension of about $875 per month at age 65 in today's dollars. I don't know what inflation will be like over the next thirty-five years, but if the past thirty-five years is any predictor, then that $875 monthly pension at age 65 may only have the equivalent buying power of about $350 today.

If she retires prior to age 65, even with thirty years of service, it appears that her pension is reduced significantly and it appears that she would not be eligible to continue her health coverage. (My pension plan, Georgia ERS, allowed retirement with a full pension and employee rates on health coverage after thirty years of service without regard to age). To derive the full benefit of her pension plan (full pension and health coverage), she will need to work another thirty-nine years for the State of Washington or a PERS 2 covered employer!

So I still believe that you should disregard her pension in your retirement planning at this stage of your lives. If you are currently a DINK family, I'd encourage you to save as much as possible, first in tax advantaged accounts like 401k and IRA accounts, then any extra in taxable accounts. If at some point you have children, you may likely find your spending and saving priorities change as you spend on raising your children, save for college, etc.

I'm not suggesting that you save and invest to the exclusion of enjoying life. Just that your retirement planning not be influenced at this point by the possible future pension. Too much can change in the next forty years.

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LilyFleur
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Re: Retirement Planning - Pension

Post by LilyFleur » Tue Sep 10, 2019 1:18 pm

dbr wrote:
Tue Sep 10, 2019 12:29 pm
LilyFleur wrote:
Tue Sep 10, 2019 12:24 pm
It seems that the pension is based on retiring at age 65. For every year earlier, you lose 3% of your benefit per year of earlier retirement. So saving aggressively would be a good idea.

You two are off to a great start! And a chance for a pension is a huge plus for young folks these days.
Yes. Pensions are tricky because much of the benefit flows into place in the last few years before age 65. There is a lot of uncertainty that at age 26 you are still going to be working for that organization 40 years later. There is significant uncertainty that one will still be married or even alive forty years later.
if you go through a divorce and have half a pension, it's still better than no pension at all.

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Duckie
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Re: Retirement Planning - Pension

Post by Duckie » Tue Sep 10, 2019 5:55 pm

MeasureTwiceCutOnce wrote:Again open to any advice related to retirement planning but primarily would like suggestions on how to handle pension in regards to planning, and knowing whether we need to make immediate adjustments or stay the course.
I would not include the future pension when making retirement calculations or figuring your portfolio. Too many things can change.

Is she contributing to an elective employer plan like a 457b? She should be.

retiredflyboy
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Re: Retirement Planning - Pension

Post by retiredflyboy » Tue Sep 10, 2019 9:22 pm

time and compound interest are a powerful force. The earlier you put dollars to work the better by far. Pay yourselves first as much as you possibly can handle while still enjoying life of course. You just don’t know yet how long your wife will work at her current position and therefore how to account for the pension. For now, save like it will only be a very small piece of your plan and as the years go by you can adjust to factor more of the pension into your plan. Put those dollars to work early.
Facts are stubborn things. Everything works until it doesn’t.

gr7070
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Re: Retirement Planning - Pension

Post by gr7070 » Tue Sep 10, 2019 11:26 pm

A few things to consider.

What does your wife do for the state? Is it the kind of career or profession where she's far more likely to stay at the state for decades?

I'd rather put money in the wife's 457 than your 401k, especially so if she has access to some quality institutional index funds. The 457 has slightly favorable withdrawal rules.

I'd also rather save in pre-tax than Roth.

Folks here can be a little too conservative with regard to savings rates, amounts needed to retire, etc. Thus they'd be inclined to err on saving more/ignoring pension by default.

I don't think it's unreasonable to consider the pension. However, I'd be far more inclined to consider the cash equivalent (I assume she contributes to pension) she can rollover, until she's accrued roughly 10 more years of service and she thinks she'll work there many more. That's less conservative than ignoring it, and likely far more realistic than counting on it, as well.

For a couple decades, I did ignore my wife's pension - even though she was a teacher and very, very likely to realize that pension. I'm an engineer and have made good income, and could afford to save and spend reasonably. Now that we're closing in on early retirement age I've been counting on that pension in considering just how early to hang it up. So, there's a positive to ignoring it.

Yours is a state pension; it's about as safe as any defined benefit plan. However, there's a very real chance that defined benefit may be reduced (while employee contributions increase) as the decades go by. That's been the case for my wife and my current employees pension.

Make sure you're saving enough by *reasonable* projections. Good luck and enjoy life, as well.

BarbBrooklyn
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Re: Retirement Planning - Pension

Post by BarbBrooklyn » Wed Sep 11, 2019 1:22 am

Does your wife have access to a 403b and/or 457?

In my situation, having a pension AND retirement funds that have grown, tax deferred, for over 30 years, are making for a fun retirement.

I got divorced at age 45. It was a good thing that I had my own retirement monies in addition to pension prospects.

Sock away as much as you can; I especially recommend directing any raises into her tax-deferred savings.
BarbBrooklyn | "The enemy of a good plan is the dream of a perfect plan."

Valuethinker
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Re: Retirement Planning - Pension

Post by Valuethinker » Wed Sep 11, 2019 4:51 am

gr7070 wrote:
Tue Sep 10, 2019 11:26 pm


Yours is a state pension; it's about as safe as any defined benefit plan. However, there's a very real chance that defined benefit may be reduced (while employee contributions increase) as the decades go by. That's been the case for my wife and my current employees pension.

The UK experience, at least, is that final salary pension schemes have been replaced by career average salary in the public sector. That, plus a change in the CPI index used*, and a movement to align with the new higher state retirement age (67-68) was equivalent to about a 40% fall in present value terms.

Career average salary does not solve the whole problem but it's a giant step towards addressing that problem.

* from Retail Price Index to CPI, about a 1% p.a. downward adjustment. But pensions here are legally indexed up to 5% inflation (public and private sector) and at least 50% survivor benefit - legal requirements. Public sector pensions are generally unfunded (Local Government pensions are funded)- civil servant, police, fire, military, teachers, politicians, National Health Service.

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Re: Retirement Planning - Pension

Post by Valuethinker » Wed Sep 11, 2019 4:56 am

MeasureTwiceCutOnce wrote:
Tue Sep 10, 2019 10:05 am
Background: 26 year old married couple. We both safely make 75k before bonus or OT, for a conservative combined income of 150K. I have a traditional 401K where I contribute 13% plus company 3% match. We also both max out our Roth IRA's.

My question primarily lies in how to handle my Wife's pension plan in relation to retirement planning. At this time she only contributes the default amount without any deferred compensation. While there are a lot of rules around 401K saving (get to 15% then go to 20%) the advice surrounding pensions is significantly more scattered. Anywhere from don't count on it at all, to that combined with IRA contributions is all you need to be set. Any and all advice is welcome. Obviously the simple answer is always to save more and never look back but we do have other aspirations and while we do a fairly good job avoiding lifestyle creep and contributing at least half of salary increases towards additional saving it would be nice to know if we should make some immediate adjustments or stay the course.

Details on Pension Plan: PERS 2 Washington State

Detailed info can be found here (or googling PERS 2 Washington): https://www.drs.wa.gov/member/handbooks ... rs2hbk.pdf

Basically a defined benefit plan where for every year of service you receive a benefit of 2% of the top 5 pay years averaged. For example 20 years of service would equal 40% of salary until death. There are some additional situations (ie. early retirement, disability, death) but this is the general premise. I've seen people concerned over the health and reliability of pension plans on this forum before but as far as I can tell this pension plan seems to be doing fairly well.

Again open to any advice related to retirement planning but primarily would like suggestions on how to handle pension in regards to planning, and knowing whether we need to make immediate adjustments or stay the course.

Thanks,
Alex
Assuming CPI Indexed you can estimate a present value at age 65 of 20-25x annual benefit. Non indexed the rule of thumb is 12x I believe.

You then discount back to the present day at say your state government's bond yield (not tax exempt bonds).

Imponderables are, and you'd have to run scenarios.

- personal life change
- changes in state pension plan (almost certain)
- salary progression and inflation (one could perhaps look at historic averages, and assume inflation of 2.0% or 2.5% pa ie 2% is the Fed Reserve Bank target)

There are certain states (Illinois is top of that list) where the pension deficit is so chronic (funding say 30% of future benefits?) that a crisis and probable benefit cuts are inevitable. One has to pay attention to whether one has an employer in that state. I think New Jersey might be another? Taxpayers will not infinitely underwrite these costs.

Generally government pensions are an amazing bargain:

- transfer risk of financial performance onto employer
- degree of inflation protection
- survivor benefit - for those of us with a female spouse, life expectancy to 100 is quite possible

Admiral
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Re: Retirement Planning - Pension

Post by Admiral » Wed Sep 11, 2019 6:34 am

As someone with a spouse who has a pension that is now vested and 10 years from claiming:

Do nothing. Save and save some more, as much as you are able. Once she is vested, also do nothing different. You cannot get the years of compounding back.

When you're in your 40s, or 50s, and assuming she's still in the pension system, that's when you can map out your retirement needs and income and begin to cut back if you are able to.

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Solair of Astora
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Re: Retirement Planning - Pension

Post by Solair of Astora » Wed Sep 11, 2019 6:38 am

For planning purposes I run more than one number. I do this for the same reason others have mentioned with regards to unknowns with being employed at the same place for the full 30 year term. The numbers I run are based around how much do I need to save to get to my retirement number if:

1. I quit now and receive pension at standard retirement age.
2. I work 20 years and retire at early retirement age with reduced benefits.
3. I work 30 years and retire with full benefits.

These three numbers give me wildly different "required" savings rates and greatly affect my projected age at retirement. Think the difference between not saving a penny for the next 20 years vs $20k+ a year. However, doing these numbers gives me direction. It also gives me an understanding of exactly how powerful the pension is when considering my financial future. The general trend I've found after running these numbers for my situation is I need to save in the 457 because I might be able to retire before 59.5 contingent on the pension situation. There's a wide range of possible outcomes for my life over the next 20-30 years and running a couple of "what if" scenarios regarding employment can do nothing but inform me. However, when looking at my possible future benefit, I do feel satisfaction knowing it's enough to cover my monthly food budget and I know I'll never go hungry.

Besides, if you're running projections, why not run a couple?
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Valuethinker
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Re: Retirement Planning - Pension

Post by Valuethinker » Wed Sep 11, 2019 7:01 am

Solair of Astora wrote:
Wed Sep 11, 2019 6:38 am
However, when looking at my possible future benefit, I do feel satisfaction knowing it's enough to cover my monthly food budget and I know I'll never go hungry.

Besides, if you're running projections, why not run a couple?
All very true and good analysis.

One problem is (potential lack of) CPI Indexation.

CPI indexation means one has a reasonable chance of protecting one's purchasing power. There are "hedonics" (if you only keep up with inflation you are falling behind the economy as a whole) that William Bernstein so ably described in "The Retirement Calculator from Hell".

But protecting your purchasing power is no bad thing - the equivalent of a portfolio of TIPS or functionally a CPI-indexed annuity.

If a pension is not CPI indexed then it's really equivalent to a portfolio of nominal bonds. And you are bearing full inflation risk. The period of the 1970s is fairly unique in American financial history as a peacetime event - inflation is usually only associated with the conduct & aftermath of major wars such as Revolutionary War, Civil War, WW1 & WW2 (although one could note Vietnam). But 5,6,7% inflation is so deadly to purchasing power in the long sweep of retirement that it has to be thought about.

Most middle class American retirees will own their own homes and that is a (somewhat) inflation-tracking asset.

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CyclingDuo
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Re: Retirement Planning - Pension

Post by CyclingDuo » Wed Sep 11, 2019 7:11 am

MeasureTwiceCutOnce wrote:
Tue Sep 10, 2019 10:05 am
Background: 26 year old married couple. We both safely make 75k before bonus or OT, for a conservative combined income of 150K. I have a traditional 401K where I contribute 13% plus company 3% match. We also both max out our Roth IRA's.

My question primarily lies in how to handle my Wife's pension plan in relation to retirement planning. At this time she only contributes the default amount without any deferred compensation. While there are a lot of rules around 401K saving (get to 15% then go to 20%) the advice surrounding pensions is significantly more scattered. Anywhere from don't count on it at all, to that combined with IRA contributions is all you need to be set. Any and all advice is welcome. Obviously the simple answer is always to save more and never look back but we do have other aspirations and while we do a fairly good job avoiding lifestyle creep and contributing at least half of salary increases towards additional saving it would be nice to know if we should make some immediate adjustments or stay the course.

Details on Pension Plan: PERS 2 Washington State

Detailed info can be found here (or googling PERS 2 Washington): https://www.drs.wa.gov/member/handbooks ... rs2hbk.pdf

Basically a defined benefit plan where for every year of service you receive a benefit of 2% of the top 5 pay years averaged. For example 20 years of service would equal 40% of salary until death. There are some additional situations (ie. early retirement, disability, death) but this is the general premise. I've seen people concerned over the health and reliability of pension plans on this forum before but as far as I can tell this pension plan seems to be doing fairly well.

Again open to any advice related to retirement planning but primarily would like suggestions on how to handle pension in regards to planning, and knowing whether we need to make immediate adjustments or stay the course.

Thanks,
Alex
That's an excellent document describing the plan.

The good news: it has a COLA!!!!

She's vested at 5 years so even if she leaves, she can either take the lump sum of her contributions or leave it be and receive a smaller pension payment starting at age 65. She can also purchase extra service credits (good to build up a 403b/457b over the years for that rollover purchase if interested and if it makes fiscal sense). After 10 years of service, her pension qualifies for survivorship payouts to you in the event she passes. She will have hit the 30 year service mark by age 55 to qualify for early retirement. Although the reduction in benefits seems less reasonable at age 55, it looks much better if she works to at least the age of 61-63. The link to purchasing service credits and how one could offset that was not working, so I would investigate that in detail to consider for your planning. By that time, all three legs of your retirement income stool should be built up enough to have options that may include early retirement.

Our suggestions...

• Always read the annual report of the pension plan to keep abreast of the health of the plan and any changes.

• For now, simply consider the cash out value she would receive (her contributions to date) if she left her job after she hits the vested point at 5 years of service. You can count that amount as an asset as it would go with her as a lump sum if she were to leave her job (or you could leave it be to collect the small pension payout at age 65). Later on, when approaching her final decade of working and especially during that final decade of working, you can start to plan a bit more for this leg of retirement income to see if any tweaks to the other legs need to be done as an offset.

• Plan and save for the traditional three legged stool of retirement income (pension, Social Security, risk portfolio) as each leg will be of some importance in funding your retirement. Building all three as best you can seems to be a good strategy even when you are this far out in terms of years until you tap all three. The more legs of income in retirement, the better. No need to worry about the strength of each leg at this point, but you have decades to adjust if any one of those legs do diminish.

• Utilize tax strategies for the mandatory amount that is being deducted from her paycheck for the 401a defined benefit plan to help keep your MAGI in the range to fund your Roth IRA's, and minimize/help offset taxable account income. Provided you have no debt, sock away what you can early on with your excellent salaries for your ages via 401k/403b/457b/Roth IRA's/taxable to take advantage of the power of time and compounding. Doing it now means having to save less - in terms of amount of principal you contribute - than if you started later on. In spite of the mandatory pension contribution your wife has deducted from her paycheck, we would strongly suggest she also sets aside at least 15% into her risk portfolio (401k/403b/457b/Roth IRA). That's the conservative plan to build up that leg of her retirement income three legged stool. As others have pointed out upthread, who knows what the future beholds for the two of you? Staying together, moving to another state due to a job transfer, taking other jobs, raising a family, etc... all lead to a lot of unknown at this point in time. Best to plan for a variety of scenarios.

• Set your contributions on automatic pilot to be deducted out of your paychecks and live on the rest. Enjoy your life's journey along the way as your wealth slowly accumulates over the decades.

• Avoid debt outside of a reasonable mortgage. No auto debt. No credit card debt. No consumer loan debt.

We will have a pension in our household and are on the other ends of our working careers as a couple than the two of you. We are in our final decade of working years which means being more in tune with what each leg of the stool for retirement income will provide. Our last suggestion would be to take, if offered by PERS 2, a workshop or seminar they may provide (or consultation) to help you with your planning.

CyclingDuo
"Everywhere is within walking distance if you have the time." ~ Steven Wright

cherijoh
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Re: Retirement Planning - Pension

Post by cherijoh » Wed Sep 11, 2019 7:31 am

dbr wrote:
Tue Sep 10, 2019 11:35 am
Pension is probably a classic case of applying successive approximation to retirement planning. The amount and certainty of the pension benefit increases with time, through the five year vesting requirement, the twenty year early retirement mark, and the thirty year unreduced pension mark.

You won't know what you have until you get there. The uncertainty is primarily whether or not she will remain employed at that employer for the duration, either due to her choice or theirs.

As of now that pension is a scenario that may or may not take place. Your planning has to be a range or possibilities that does not include the pension as a likely benefit. Twenty years from now you will know that the pension is vested, and eligible for early retirement, and that she may well be on her way to a thirty year unreduced pension. At that time the pension is a likely benefit and you can plan with more certainty. You will still be in your forties with many years to go.

That's life.
+1

I certainly wouldn't count it at all until she is fully vested in the plan. Personally, I wouldn't incorporate it into planning before hitting the 20-yr mark.

I worked for 20+ years at a company with a DB pension plan and intended to stay there until retirement. But the site was closed and my job moved out of state to an area to which I had no interest in relocating. So I ended up taking a separation package. Fortunately, the company also had a generous match on the 401k in which I contributed the maximum 15% of salary (20% with match). I was about 10 years short of minimum retirement age so I ended up going back to school for an MS and then working at another Megacorp until retirement. But many of my colleagues who had been counting on the pension to fund most (if not all) of retirement were between a rock and a hard place and were forced to take the transfer.

cherijoh
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Re: Retirement Planning - Pension

Post by cherijoh » Wed Sep 11, 2019 8:22 am

LilyFleur wrote:
Tue Sep 10, 2019 12:24 pm
It seems that the pension is based on retiring at age 65. For every year earlier, you lose 3% of your benefit per year of earlier retirement. So saving aggressively would be a good idea.

You two are off to a great start! And a chance for a pension is a huge plus for young folks these days.
Lily, I don't think you read far enough into the linked document. If they are 26 yo, OP's wife likely didn't start work before May 2013 and therefore a 5% early retirement factor appears to be in play.
Hired on or after May 1, 2013: To retire early, you must be at least 55 and have 20 or more years of service credit. If you are age 55 with 30 or more years of service credit, your benefit reduction will be 5% for each year (prorated monthly) before you turn age 65.

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MeasureTwiceCutOnce
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Re: Retirement Planning - Pension

Post by MeasureTwiceCutOnce » Wed Sep 11, 2019 2:39 pm

First of all, a huge thanks for all of the responses. This was my first post after lurking for a while and I'm blown away by the time individuals spent to look into everything.

I think there is a lot of actionable information here and this gives me an entirely new jumping off point for research. It looks like 403b is the option my wife has.

From what I've gathered so far I will only use the cash-out value for any planning and make no assumptions about future pension (beyond a few simple projections like Solair recommended).

Again, blown away by all the helpfulness and open to any additional ideas/thoughts.

JGoneRiding
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Re: Retirement Planning - Pension

Post by JGoneRiding » Wed Sep 11, 2019 10:41 pm

Funny story. My grandma worked for the state of wa part time for just a few years. When she turned 65 it resulted in a pension of about $75 a month. Which at eas first funny. But grandma is long lived at almost 100 she is getting over $400 which is helping make things a little better.

So pensions are important. I would calculate a rate that the pension is equivalent to for savings and then make up the difference to get an equivalent 15%

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Re: Retirement Planning - Pension

Post by Sandi_k » Sat Sep 14, 2019 6:24 pm

I work for a university with a generous pension plan.

However, both DH and I contribute to retirement savings. Our aim in the early years was to max out IRAs for both of us, which worked out to ~ 10% of gross pay each month.

Our target is now ~ 20% of gross pay, 30 years later. We have also leveraged our starter home into a much nicer home in our 50's; the monthly mortgage payment on a 15 year mortgage is only $100 more per month than the initial 30 year mortgage we started with. So, between grossing up savings, and locking down major costs (housing, transportation, taxes and food) you can make really big strides.

Regardless of your wife's pension possibilities, I'd encourage you to be saving at least 15% of your GROSS income into retirement savings. The compounding from the early years is magical.

StoopieHippo
Posts: 47
Joined: Sat Sep 15, 2018 10:42 am
Location: Seattle, WA

Re: Retirement Planning - Pension

Post by StoopieHippo » Sat Sep 14, 2019 7:47 pm

MeasureTwiceCutOnce wrote:
Wed Sep 11, 2019 2:39 pm
First of all, a huge thanks for all of the responses. This was my first post after lurking for a while and I'm blown away by the time individuals spent to look into everything.

I think there is a lot of actionable information here and this gives me an entirely new jumping off point for research. It looks like 403b is the option my wife has.

From what I've gathered so far I will only use the cash-out value for any planning and make no assumptions about future pension (beyond a few simple projections like Solair recommended).

Again, blown away by all the helpfulness and open to any additional ideas/thoughts.
Hi! I've also got the WA State PERS2 plan. If she's a UW employee, there IS a 457B deferred comp plan available - and since she's a government employee, it's saved for her in a trust and therefore can never be lost. The ERs are a tad higher than the 403B options, but the 457B has a few preferable withdrawal options, mainly that the funds can be accessed at any time, even before 59.5yo. There are definitely fewer options to invest in for the 457B, but if you think you'll need to tap funds at any point before 59.5, it might be something to look into. It's got the same (but separate) contribution limit as the 403B, so theoretically she could put $38k away into tax advantaged savings in addition to her pension if your living expenses allow for it. Good luck! Congrats on starting early!!

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