Does it make sense to quit high paying job for pension?

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pennylane
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Does it make sense to quit high paying job for pension?

Post by pennylane »

A friend of mine asked for my financial opinion but this one is tricky. I am seeking the wisdom of my fellow bogleheads to help her answer this.

Friend is currently earning somewhere between 160k-190k per year with potential to earn more but no job security. Potential for layoffs is a risk but she is in a field where it would not be hard to replace her current job with another with similar pay. No matching 401k, 15 vacation days per year, health benefits are a nonfactor as she gets them from her spouse.

She is contemplating leaving this position for a much more secure position that she thinks she will get more satisfaction doing.

This job starts off at 50k per year and tops out at 90k per year after 5 years. Overtime pay can be estimated at 10k-30k per year in addition to her salary. Vacation time tops out at 25 days per year, no matching 401k. She would get a pension after 20 years. Pension would be around 60-75k per year for life.

Her cost of living is $2000-2500 all in per month (includes housing, car etc) either job would not impact her current lifestyle by much.


What job should she go with? Does she take a 6 figure paycut for the guaranteed pension and a job she might love or does she roll the dice and continue to accumulate wealth?

Latest post:

To clarify..without going into detail yes it is a government job, the numbers are absolute what they are. The pension is 50% of your pay at retirement. Compensation with overtime after 5 years will be about $110,000.

The pension vests after 10 years. If you leave, it’s 25% of the last few years of average income. If going to full retirement it’s 50%. That’s just what it is, it is not going to change or not be there at retirement as you lock into your contract at the start of the job.

The true comparison here is 110k with pension VS 160k no pension but more upside in income.
Last edited by pennylane on Wed Oct 14, 2020 8:58 am, edited 1 time in total.
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whodidntante
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Re: Does it make sense to quit high paying job for pension?

Post by whodidntante »

No way would I do this based on financials. If there are other overriding reasons, fine.

If you want a pension, you can buy one. Price SPIAs, looking only at those that meet the criteria to be guaranteed in your state.

Whenever someone tells me they make a lot, but that they could easily find another job paying the same, it tells me they might be underpaid. It should be at least a little difficult to get a job paying near the limit of your value.
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pennylane
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Re: Does it make sense to quit high paying job for pension?

Post by pennylane »

whodidntante wrote: Tue Oct 13, 2020 11:05 pm No way would I do this based on financials. If there are other overriding reasons, fine.

If you want a pension, you can buy one. Price SPIAs, looking only at those that meet the criteria to be guaranteed in your state.

Whenever someone tells me they make a lot, but that they could easily find another job paying the same, it tells me they might be underpaid. It should be at least a little difficult to get a job paying near the limit of your value.
How would she go on about purchasing a pension?
chalet
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Re: Does it make sense to quit high paying job for pension?

Post by chalet »

income from investments or annuities.
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Watty
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Re: Does it make sense to quit high paying job for pension?

Post by Watty »

She also need to look at how much a pension she would get if she leaves that job after 10 or 15 years. Most likely is it a small fraction of what she would get if she worked until the normal retirement age in 20 years.

pennylane wrote: Tue Oct 13, 2020 11:01 pm This job starts off at 50k per year and tops out at 90k per year after 5 years. ......

She would get a pension after 20 years. Pension would be around 60-75k per year for life.
That sounds exceedingly generous for working just 20 years under then pension plan. I don't think that even a military pension would pay that much.

It would be good for her to double check the details.

Some government and university jobs have a good looking pension but they are not under the Social Security so a large part of the pension may be instead of Social Security so it is not as nice as it sounds.

I took a quick look at https://www.immediateannuities.com/ and it looks like a 65 year old woman could buy a similar annuity for a bit over a million dollars. In her current high paying job she could easily save up a lot more than that over 20 years if she lives like she is making $50 to $90K a year.

Even if the pension details are right(which I doubt) it would be a bad financial decision.

There can be other non-financial reasons to take a much lower paying job but that is something that only she can judge.
Tingting1013
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Re: Does it make sense to quit high paying job for pension?

Post by Tingting1013 »

Watty wrote: Tue Oct 13, 2020 11:34 pm She also need to look at how much a pension she would get if she leaves that job after 10 or 15 years. Most likely is it a small fraction of what she would get if she worked until the normal retirement age in 20 years.

pennylane wrote: Tue Oct 13, 2020 11:01 pm This job starts off at 50k per year and tops out at 90k per year after 5 years. ......

She would get a pension after 20 years. Pension would be around 60-75k per year for life.
That sounds exceedingly generous for working just 20 years under then pension plan. I don't think that even a military pension would pay that much.

It would be good for her to double check the details.

Some government and university jobs have a good looking pension but they are not under the Social Security so a large part of the pension may be instead of Social Security so it is not as nice as it sounds.

I took a quick look at https://www.immediateannuities.com/ and it looks like a 65 year old woman could buy a similar annuity for a bit over a million dollars. In her current high paying job she could easily save up a lot more than that over 20 years if she lives like she is making $50 to $90K a year.

Even if the pension details are right(which I doubt) it would be a bad financial decision.

There can be other non-financial reasons to take a much lower paying job but that is something that only she can judge.
Let’s say the pension is worth $1M lump sum at age 65.

That basically means the company is paying $50k per year into a pension account for her for 20 years. It would be somewhat less due to growth in the account.

$50k pension + $50k base salary is still much lower than what she could earn in the private sector.

Doesn’t seem crazy to me.
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pennylane
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Re: Does it make sense to quit high paying job for pension?

Post by pennylane »

Watty wrote: Tue Oct 13, 2020 11:34 pm She also need to look at how much a pension she would get if she leaves that job after 10 or 15 years. Most likely is it a small fraction of what she would get if she worked until the normal retirement age in 20 years.

pennylane wrote: Tue Oct 13, 2020 11:01 pm This job starts off at 50k per year and tops out at 90k per year after 5 years. ......

She would get a pension after 20 years. Pension would be around 60-75k per year for life.
That sounds exceedingly generous for working just 20 years under then pension plan. I don't think that even a military pension would pay that much.

It would be good for her to double check the details.

Some government and university jobs have a good looking pension but they are not under the Social Security so a large part of the pension may be instead of Social Security so it is not as nice as it sounds.

I took a quick look at https://www.immediateannuities.com/ and it looks like a 65 year old woman could buy a similar annuity for a bit over a million dollars. In her current high paying job she could easily save up a lot more than that over 20 years if she lives like she is making $50 to $90K a year.

Even if the pension details are right(which I doubt) it would be a bad financial decision.

There can be other non-financial reasons to take a much lower paying job but that is something that only she can judge.
Let’s assume they’re right, down to the penny she would be eligible to receive a pension at 46 of that amount. Assuming she lives to an average age of 82 she would have collected let’s say an average of $65,000 a year X 36 = $2,340,000. This is where I’m having a hard time advising her.
rich126
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Re: Does it make sense to quit high paying job for pension?

Post by rich126 »

This is a personal decision and not a money decision. People will do what makes them happy and comfortable.

I've gone to and from government jobs multiple times. In this case that is a large pay difference. There was no mention of a spouse or other financial concerns. In my case I might give up $50K+ to go back. A pension bump up would help some but in my case I prefer the gov side to the contracting side.

Some people go for money others go for security or something else. Money makes a lot of things easier but I know a lot of unhappy wealthy people and a lot of happy people who make very little.

An older guy, at the time, once said "I should have listened to my father and taken the government job because I would have been retired by now". He wasn't technical. I know many here have a tough time dealing with anything but minimizing expenses and maximizing income but there is much more to happiness for most people.
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Re: Does it make sense to quit high paying job for pension?

Post by IMO »

Your friend can essentially make $100k more per year in the job without a pension correct?

Let's just say she nets 60% of that after taxes or $60k per year. How much would that be if invested over 20 yrs (or longer)?

20 yrs is a long commitment with a single employer, a lot can happen in 20 years. Imagine finding out you're not happy at 6 yrs in with that employer, do you stay for say 14 more long years in a less than desirable career? How many years to vest? How much is the pension with different vesting at different years of service and age collecting pension?

Are you certain those pension numbers are correct for 20 yrs of service? Even one of the best pensions (military) for 20 yrs effectively only provides 30% of one's total compensation (base salary + housing/other allowances), and even less than 30% for those such as pilots/physicians who's annual compensation includes significant bonus pay that doesn't count in their pensions.

Edit: The grass is always greener. Working lower pay with pension, the outside world is greener. Work higher pay without pension, the outside word is greener.
Last edited by IMO on Tue Oct 13, 2020 11:54 pm, edited 2 times in total.
Tingting1013
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Re: Does it make sense to quit high paying job for pension?

Post by Tingting1013 »

pennylane wrote: Tue Oct 13, 2020 11:45 pm
Watty wrote: Tue Oct 13, 2020 11:34 pm She also need to look at how much a pension she would get if she leaves that job after 10 or 15 years. Most likely is it a small fraction of what she would get if she worked until the normal retirement age in 20 years.

pennylane wrote: Tue Oct 13, 2020 11:01 pm This job starts off at 50k per year and tops out at 90k per year after 5 years. ......

She would get a pension after 20 years. Pension would be around 60-75k per year for life.
That sounds exceedingly generous for working just 20 years under then pension plan. I don't think that even a military pension would pay that much.

It would be good for her to double check the details.

Some government and university jobs have a good looking pension but they are not under the Social Security so a large part of the pension may be instead of Social Security so it is not as nice as it sounds.

I took a quick look at https://www.immediateannuities.com/ and it looks like a 65 year old woman could buy a similar annuity for a bit over a million dollars. In her current high paying job she could easily save up a lot more than that over 20 years if she lives like she is making $50 to $90K a year.

Even if the pension details are right(which I doubt) it would be a bad financial decision.

There can be other non-financial reasons to take a much lower paying job but that is something that only she can judge.
Let’s assume they’re right, down to the penny she would be eligible to receive a pension at 46 of that amount. Assuming she lives to an average age of 82 she would have collected let’s say an average of $65,000 a year X 36 = $2,340,000. This is where I’m having a hard time advising her.
How much would she have in her retirement portfolio from saving the extra income from the job she has now?
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Watty
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Re: Does it make sense to quit high paying job for pension?

Post by Watty »

pennylane wrote: Tue Oct 13, 2020 11:45 pm Let’s assume they’re right, down to the penny she would be eligible to receive a pension at 46 of that amount. Assuming she lives to an average age of 82 she would have collected let’s say an average of $65,000 a year X 36 = $2,340,000. This is where I’m having a hard time advising her.
She would have also given up around $100K a year for 20 years.

It is also important to double check to see when the pension would actually start. Years ago I had a nongovernment pension where if you left the job when you would 50 you could not collect anything before you were in your 60s and there was steep reduction if you started it before you were 65.
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Watty
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Re: Does it make sense to quit high paying job for pension?

Post by Watty »

pennylane wrote: Tue Oct 13, 2020 11:45 pm Assuming she lives to an average age of 82 she would have collected let’s say an average of $65,000 a year X 36 = $2,340,000. This is where I’m having a hard time advising her.
One more thought. A better comparison would be what a SPIA with the same terms would cost.
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Re: Does it make sense to quit high paying job for pension?

Post by BernardShakey »

pennylane wrote: Tue Oct 13, 2020 11:01 pm A friend of mine asked for my financial opinion but this one is tricky. I am seeking the wisdom of my fellow bogleheads to help her answer this.

Friend is currently earning somewhere between 160k-190k per year with potential to earn more but no job security. Potential for layoffs is a risk but she is in a field where it would not be hard to replace her current job with another with similar pay. No matching 401k, 15 vacation days per year, health benefits are a nonfactor as she gets them from her spouse.

She is contemplating leaving this position for a much more secure position that she thinks she will get more satisfaction doing.

This job starts off at 50k per year and tops out at 90k per year after 5 years. Overtime pay can be estimated at 10k-30k per year in addition to her salary. Vacation time tops out at 25 days per year, no matching 401k. She would get a pension after 20 years. Pension would be around 60-75k per year for life.

Her cost of living is $2000-2500 all in per month (includes housing, car etc) either job would not impact her current lifestyle by much.


What job should she go with? Does she take a 6 figure paycut for the guaranteed pension and a job she might love or does she roll the dice and continue to accumulate wealth?
20 years is a really long time. I would question the "guaranteed pension" --- we've seen many pension plans that ended up distributing much lower benefits than planned. The new position is secure now, but might not be 10 years from now. Also, who's to say she'll like the job a few years into it.
An important key to investing is having a well-calibrated sense of your future regret.
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Re: Does it make sense to quit high paying job for pension?

Post by IMO »

Watty wrote: Wed Oct 14, 2020 12:04 am
pennylane wrote: Tue Oct 13, 2020 11:45 pm Let’s assume they’re right, down to the penny she would be eligible to receive a pension at 46 of that amount. Assuming she lives to an average age of 82 she would have collected let’s say an average of $65,000 a year X 36 = $2,340,000. This is where I’m having a hard time advising her.
She would have also given up around $100K a year for 20 years.

It is also important to double check to see when the pension would actually start. Years ago I had a nongovernment pension where if you left the job when you would 50 you could not collect anything before you were in your 60s and there was steep reduction if you started it before you were 65.
It can be better for one's significant other/children if you die (which you will) if you've saved up your own big nest egg that will remain ($$$$) over a pension that will either stop once your dead (No $$). In some situations there is a percentage survivorship of a pension, but even that might have a financial cost associated with it.
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Re: Does it make sense to quit high paying job for pension?

Post by Nate7out »

pennylane wrote: Tue Oct 13, 2020 11:01 pm A friend of mine asked for my financial opinion but this one is tricky. I am seeking the wisdom of my fellow bogleheads to help her answer this.

Friend is currently earning somewhere between 160k-190k per year with potential to earn more but no job security. Potential for layoffs is a risk but she is in a field where it would not be hard to replace her current job with another with similar pay. No matching 401k, 15 vacation days per year, health benefits are a nonfactor as she gets them from her spouse.

She is contemplating leaving this position for a much more secure position that she thinks she will get more satisfaction doing.

This job starts off at 50k per year and tops out at 90k per year after 5 years. Overtime pay can be estimated at 10k-30k per year in addition to her salary. Vacation time tops out at 25 days per year, no matching 401k. She would get a pension after 20 years. Pension would be around 60-75k per year for life.

Her cost of living is $2000-2500 all in per month (includes housing, car etc) either job would not impact her current lifestyle by much.


What job should she go with? Does she take a 6 figure paycut for the guaranteed pension and a job she might love or does she roll the dice and continue to accumulate wealth?
What is her current financial position? Making 160 and spending 25-30, should be FI already.
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Re: Does it make sense to quit high paying job for pension?

Post by MathIsMyWayr »

pennylane wrote: Tue Oct 13, 2020 11:01 pm Friend is currently earning somewhere between 160k-190k per year with potential to earn more but no job security. Potential for layoffs is a risk but she is in a field where it would not be hard to replace her current job with another with similar pay. No matching 401k, 15 vacation days per year, health benefits are a nonfactor as she gets them from her spouse.

She is contemplating leaving this position for a much more secure position that she thinks she will get more satisfaction doing.
I don't think pension is the main motivation. Her job pays well, but she will face a difficult time in finding another employment in her field. There are well-paying jobs which are specialized in a very narrow market with only a couple of employers in the world. How about vacuum tube designing skills for applications in the high rad environment? Or a spare parts manufacturer for McDonnell Douglas F-4 Phantom II?
vveat
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Re: Does it make sense to quit high paying job for pension?

Post by vveat »

It doesn't say that the new job is government. If it's not I wouldn't trust at all that the pension will survive the next 20 years. My company had offered pension for many years, they cancelled it a few years ago (we were nicely compensated with pro-rated lump sum, but still the outcome was no pension). A friend in a pharma company also saw their pensions cancelled around the same time. Not something to bet on, especially over such a long period.
mbres60
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Re: Does it make sense to quit high paying job for pension?

Post by mbres60 »

vveat wrote: Wed Oct 14, 2020 6:51 am It doesn't say that the new job is government. If it's not I wouldn't trust at all that the pension will survive the next 20 years. My company had offered pension for many years, they cancelled it a few years ago (we were nicely compensated with pro-rated lump sum, but still the outcome was no pension). A friend in a pharma company also saw their pensions cancelled around the same time. Not something to bet on, especially over such a long period.
Finally!! I had the same thought and as I read all the posts wondered why no one else mentioned it. Who says this pension will still be around in 20 years? Maybe it will and maybe it will be something a little a different which is not beneficial to employee. Or maybe it will be totally gone. I would stay with same company and invest all the excess money. Later, if wanted, she could invest in an annuity and therefore have her pension.
Admiral
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Re: Does it make sense to quit high paying job for pension?

Post by Admiral »

pennylane wrote: Tue Oct 13, 2020 11:01 pm A friend of mine asked for my financial opinion but this one is tricky. I am seeking the wisdom of my fellow bogleheads to help her answer this.

Friend is currently earning somewhere between 160k-190k per year with potential to earn more but no job security. Potential for layoffs is a risk but she is in a field where it would not be hard to replace her current job with another with similar pay. No matching 401k, 15 vacation days per year, health benefits are a nonfactor as she gets them from her spouse.

She is contemplating leaving this position for a much more secure position that she thinks she will get more satisfaction doing.

This job starts off at 50k per year and tops out at 90k per year after 5 years. Overtime pay can be estimated at 10k-30k per year in addition to her salary. Vacation time tops out at 25 days per year, no matching 401k. She would get a pension after 20 years. Pension would be around 60-75k per year for life.

Her cost of living is $2000-2500 all in per month (includes housing, car etc) either job would not impact her current lifestyle by much.


What job should she go with? Does she take a 6 figure paycut for the guaranteed pension and a job she might love or does she roll the dice and continue to accumulate wealth?

Need more info, specifically when does the pension vest? 20 years is irrelevant at this point. If the vesting period is 5 years, then that is the calculation I would use (i.e. what will the pension be at Age X based on a realistic guess of her average salary at the vesting point.) And, will it be COLAd?

My spouse has a pension (gov't). We did not even think about its value (aside from surrender value) until she became vested. Once that happens, you can start to run the #s on how much future income it will provide, and then adjust upward for each year of service. Because it is only occasionally COLA-adjusted, if she were to separate many years before it is payable (age 60) the payment is frozen and thus its future purchasing power is diminished.
Kelrex
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Re: Does it make sense to quit high paying job for pension?

Post by Kelrex »

I seriously question those pension numbers. If they are accurate, I seriously question the viability of that pension program to exist in 20 years.

I know a lot of people with pensions, and the only ones I see paying out 65-70K(+inflation) annually are for people who made well over 100K, and they aren't eligible for that amount until the age of 60.

I can't fathom a pension fund that can afford to payout upwards of 100% of working salary indefinitely even if the person retires early. The math just doesn't makes sense to me.
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Re: Does it make sense to quit high paying job for pension?

Post by FoolMeOnce »

pennylane wrote: Tue Oct 13, 2020 11:45 pm
Watty wrote: Tue Oct 13, 2020 11:34 pm She also need to look at how much a pension she would get if she leaves that job after 10 or 15 years. Most likely is it a small fraction of what she would get if she worked until the normal retirement age in 20 years.

pennylane wrote: Tue Oct 13, 2020 11:01 pm This job starts off at 50k per year and tops out at 90k per year after 5 years. ......

She would get a pension after 20 years. Pension would be around 60-75k per year for life.
That sounds exceedingly generous for working just 20 years under then pension plan. I don't think that even a military pension would pay that much.

It would be good for her to double check the details.

Some government and university jobs have a good looking pension but they are not under the Social Security so a large part of the pension may be instead of Social Security so it is not as nice as it sounds.

I took a quick look at https://www.immediateannuities.com/ and it looks like a 65 year old woman could buy a similar annuity for a bit over a million dollars. In her current high paying job she could easily save up a lot more than that over 20 years if she lives like she is making $50 to $90K a year.

Even if the pension details are right(which I doubt) it would be a bad financial decision.

There can be other non-financial reasons to take a much lower paying job but that is something that only she can judge.
Let’s assume they’re right, down to the penny she would be eligible to receive a pension at 46 of that amount. Assuming she lives to an average age of 82 she would have collected let’s say an average of $65,000 a year X 36 = $2,340,000. This is where I’m having a hard time advising her.
If she invests the extra $100k from her current salary every year, it only needs to earn less than 2% per year to end up with more than $2.34 million in 20 years, and that's a lump sum at year 20 rather than spread out over the following 36 years, when it will continue to grow.

Plus it gives her a better ability to retire before 20 years if she wants to, especially because she will likely experience greater than 2% returns.

And all the comments above about staying in the job for 20 years without the pension changing.

This would be a bad financial decision. If she wants the job for other reasons, it won't break her since she has such low expenses, but the finances weigh on the "stay" side of the ledger.
petulant
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Re: Does it make sense to quit high paying job for pension?

Post by petulant »

Moving into a job that only makes sense if you stay for 20 years is very risky because you have no idea if you'll actually like it for 20 days, let alone 20 years. One gives up significant bargaining power in a bad way--even if it seems nice for a few years, managers change, and you can be miserable. Plus, the pension could be terminated or changed in some way; budget cuts could happen that result in a layoff along the way; anything is possible.

As others have pointed out, the numbers indicate that staying in the current job is a better idea because the amount of money that can be saved there more than makes up for the pension. What I am saying is that even if the numbers are the same, it's actually better to stay with the higher-paying job due to greater flexibility, bargaining power, etc.

That said, there could be bigger satisfaction issues that make this an interesting proposition to the friend. Everybody has some set of preferences for what they want to be doing indefinitely, whether it's complete retirement or a certain kind of job they find meaningful. It could be that the friend wants to be doing this work, and the pension mitigates some of the financial pain.

If this is accurate, I would suggest talking about the friend's broader finances and seeing if they've gotten to the point that J.L. Collins calls "F--- You Money." What that means is a pile of cash large enough that if something happens and the friend loses this career altogether, maybe can't find a job for a year or so, etc., then the friend will be fine. If something undesirable happened at any employer, the friend could just quit, take a moment, and then look for something else. It's not quite FIRE money, but it's bigger than your average emergency fund. It's an amount of money where it's good to have a job that can pay the bills, but saving for retirement or college or to pay off debt isn't a desperate imperative.

I would suggest that the friend figure out how much it takes to have "F--- You Money." The friend should stay at the higher-paying job until obtaining "F--- You Money." Then the friend should ask what job is most desirable to work indefinitely, knowing that if it doesn't work out after a couple years, one can walk away and do something else thanks to the "F--- You Money."
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Re: Does it make sense to quit high paying job for pension?

Post by Sandtrap »

pennylane wrote: Tue Oct 13, 2020 11:01 pm A friend of mine asked for my financial opinion but this one is tricky. I am seeking the wisdom of my fellow bogleheads to help her answer this.

Friend is currently earning somewhere between 160k-190k per year with potential to earn more but no job security. Potential for layoffs is a risk but she is in a field where it would not be hard to replace her current job with another with similar pay. No matching 401k, 15 vacation days per year, health benefits are a nonfactor as she gets them from her spouse.

She is contemplating leaving this position for a much more secure position that she thinks she will get more satisfaction doing.

This job starts off at 50k per year and tops out at 90k per year after 5 years. Overtime pay can be estimated at 10k-30k per year in addition to her salary. Vacation time tops out at 25 days per year, no matching 401k. She would get a pension after 20 years. Pension would be around 60-75k per year for life.

Her cost of living is $2000-2500 all in per month (includes housing, car etc) either job would not impact her current lifestyle by much.


What job should she go with? Does she take a 6 figure paycut for the guaranteed pension and a job she might love or does she roll the dice and continue to accumulate wealth?
Priorities change through stages of life.

And, in taking the broadest and deepest, and longest view of these things. . . .what is most important at the moment?

There are always compromises as things are rarely as black and white or clear cut as they actually are or we want to view them.
And, paths are often planned on a spreadsheet with the assumption of a long life and zero black swans.

What would be the choice if life expectency going forward is:
1 month
3 months
1 year
3 years
10 years
????

j :D
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pennylane
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Re: Does it make sense to quit high paying job for pension?

Post by pennylane »

To clarify..without going into detail yes it is a government job, the numbers are absolute what they are. The pension is 50% of your pay at retirement. Compensation with overtime after 5 years will be about $110,000.

The pension vests after 10 years. If you leave, it’s 25% of the last few years of average income.

The true comparison here is 110k with pension VS 160k no pension but more upside in income.
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Re: Does it make sense to quit high paying job for pension?

Post by carolinaman »

pennylane wrote: Tue Oct 13, 2020 11:01 pm A friend of mine asked for my financial opinion but this one is tricky. I am seeking the wisdom of my fellow bogleheads to help her answer this.

Friend is currently earning somewhere between 160k-190k per year with potential to earn more but no job security. Potential for layoffs is a risk but she is in a field where it would not be hard to replace her current job with another with similar pay. No matching 401k, 15 vacation days per year, health benefits are a nonfactor as she gets them from her spouse.

She is contemplating leaving this position for a much more secure position that she thinks she will get more satisfaction doing.

This job starts off at 50k per year and tops out at 90k per year after 5 years. Overtime pay can be estimated at 10k-30k per year in addition to her salary. Vacation time tops out at 25 days per year, no matching 401k. She would get a pension after 20 years. Pension would be around 60-75k per year for life.

Her cost of living is $2000-2500 all in per month (includes housing, car etc) either job would not impact her current lifestyle by much.


What job should she go with? Does she take a 6 figure paycut for the guaranteed pension and a job she might love or does she roll the dice and continue to accumulate wealth?
Why does she think she will get more satisfaction doing the new job? Switching jobs is always risky and there are usually unknowns about the new job that could diminish her satisfaction with it. Companies present themselves in the best manner possible when recruiting but reality sets in when you take the job.

I once left a good job for another job with a 30% paycut and the expectation of better quality of life. I got the 30% paycut but not the quality of life. I worked as many long hours in the new job and had to put up with a lot of work pressure and politics. Had I known half of that would have happened I would never have taken the job. The irony was that I knew a lot about the new company but obviously not enough.
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Re: Does it make sense to quit high paying job for pension?

Post by Admiral »

pennylane wrote: Wed Oct 14, 2020 8:50 am To clarify..without going into detail yes it is a government job, the numbers are absolute what they are. The pension is 50% of your pay at retirement. Compensation with overtime after 5 years will be about $110,000.

The pension vests after 10 years. If you leave, it’s 25% of the last few years of average income.

The true comparison here is 110k with pension VS 160k no pension but more upside in income.
10 year vesting? No way is it worth it financially. And particularly so since your friend is already living well below her means. She can/could/should save so much that having a pension won’t be necessary.

If it’s more appealing for other reasons then sure go ahead.
ETA: so conservatively if she stays for 10 years not 20 and earns $120k average over that time the pension is $30k.

That’s about as far out as I would plan. And even that is optimistic.
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Re: Does it make sense to quit high paying job for pension?

Post by tashnewbie »

whodidntante wrote: Tue Oct 13, 2020 11:05 pm No way would I do this based on financials. If there are other overriding reasons, fine.

If you want a pension, you can buy one. Price SPIAs, looking only at those that meet the criteria to be guaranteed in your state.

Whenever someone tells me they make a lot, but that they could easily find another job paying the same, it tells me they might be underpaid. It should be at least a little difficult to get a job paying near the limit of your value.
+1. After reading through all the comments, I just came back to the first one.

Financially, it sounds like she can make it on her spouse's salary alone, so her job is really gravy. Really nice gravy that gives her flexibility for the future. Based on her really low current expenses, she and her spouse may already be financially independent!

How old is your friend? I personally don't necessarily want to work another 20 years for money, so I wouldn't want to take a significant pay cut for potential job satisfaction (which isn't guaranteed), with the hope that I could stay in the job for 20 years and get a pension. Now, if the current job were killing me, then yeah, I'd be looking at other options, but my first choice wouldn't be taking a >50% pay cut.

I'd rather keep earning more $$$ as long as I could, saving tons, and retiring when I want. I'd rather have options to live the way I want to live.
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Re: Does it make sense to quit high paying job for pension?

Post by PluckyDucky »

No way. Put that extra 70k (100k minus taxes...) in investments. There's your pension.
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Re: Does it make sense to quit high paying job for pension?

Post by investnoob »

Might be important to know how old she is. If she is in her 40s and wants to work into her 60s, then maybe she gets one answer.
If she is in her 20s and and wants to do civil service until vested and then move one, then maybe she gets another answer.

I'll say this, I've been in the Canadian civil service for over 20 years. I don't really understand why she thinks she may get more satisfaction in government. I get believing in a mission, but the really - the mission is not the mission. The mission is about preserving the status quo until you are dragged kicking and screaming into changing things.

If she hopes to contribute to change, she may need to keep her expectations in check.
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Re: Does it make sense to quit high paying job for pension?

Post by rjbraun »

pennylane wrote: Wed Oct 14, 2020 8:50 am To clarify..without going into detail yes it is a government job, the numbers are absolute what they are. The pension is 50% of your pay at retirement. Compensation with overtime after 5 years will be about $110,000.

The pension vests after 10 years. If you leave, it’s 25% of the last few years of average income.

The true comparison here is 110k with pension VS 160k no pension but more upside in income.
I think OP's friend definitely should factor in personal considerations, as 20 years is a long time. But, looking purely at the information presented, I have a couple of questions / comments:

- what, if any, inflation adjustments are offered
- Ok, it's a "government job", but if it's at the municipal or state level retirement systems' funding levels, protections, etc. vary.
- I would be concerned about the system's terms potentially changing during a 20 year period. Maybe any new conditions would only apply to new hires, but, if not, that could be a negative for OP's friend.
- Government jobs sometimes offer retiree health benefits. Is that an option here? If so, that would be a plus, though I still would be careful to let it drive the decision.
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Re: Does it make sense to quit high paying job for pension?

Post by pennylane »

investnoob wrote: Wed Oct 14, 2020 9:31 am Might be important to know how old she is. If she is in her 40s and wants to work into her 60s, then maybe she gets one answer.
If she is in her 20s and and wants to do civil service until vested and then move one, then maybe she gets another answer.

I'll say this, I've been in the Canadian civil service for over 20 years. I don't really understand why she thinks she may get more satisfaction in government. I get believing in a mission, but the really - the mission is not the mission. The mission is about preserving the status quo until you are dragged kicking and screaming into changing things.

If she hopes to contribute to change, she may need to keep her expectations in check.
Friend is 26.

Health benefits for life at retirement
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Re: Does it make sense to quit high paying job for pension?

Post by cheese_breath »

pennylane wrote: Tue Oct 13, 2020 11:01 pm Friend is currently earning somewhere between 160k-190k per year...

...Her cost of living is $2000-2500 all in per month (includes housing, car etc) ...
And she can't afford to fund her own retirement ???????
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Re: Does it make sense to quit high paying job for pension?

Post by fedpharmer »

pennylane wrote: Wed Oct 14, 2020 8:50 am To clarify..without going into detail yes it is a government job, the numbers are absolute what they are. The pension is 50% of your pay at retirement. Compensation with overtime after 5 years will be about $110,000.
Federal employee pension calculations are based off of base pay, not including overtime or bonuses. Your friend may want to clarify if this is also the case for her pension since it seems like she is expecting a large amount of OT.
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Re: Does it make sense to quit high paying job for pension?

Post by greg24 »

Does your friend assume they'll work consistent overtime for the next 20 years?

Do they want to work overtime for the next 20 years?

EDIT: Above poster calls into question one of the base assumptions of the pension calculations.
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Re: Does it make sense to quit high paying job for pension?

Post by Church Lady »

In purely financial terms, she should keep her current job and work hard to become financially independent (FI) if she is not already so. A lot of people would envy her job.

Once she is FI, she can do what she wants without impacting her standard of living. True satisfaction!

In today's world, I wouldn't take such a pay cut, much less on the hope of a future pension and retiree health benefits. Even if it were secure, she would be signing up for twenty years of bondage. At her current salary, she can wave adios to the work force much earlier if she puts her mind to it.
He that loveth silver shall not be satisfied with silver; nor he that loveth abundance with increase: this is also vanity.
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Re: Does it make sense to quit high paying job for pension?

Post by pennylane »

greg24 wrote: Wed Oct 14, 2020 10:22 am Does your friend assume they'll work consistent overtime for the next 20 years?

Do they want to work overtime for the next 20 years?

EDIT: Above poster calls into question one of the base assumptions of the pension calculations.
Friends current job requires 50 hours per week. It’s an apples to apples comparison. Pay/Pension likely to go up due to salary keeping up with inflation
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Re: Does it make sense to quit high paying job for pension?

Post by case_of_ennui »

I'm a contractor. If I went GOV I believe the pension formula for that particular branch is something like 1% of your average pay from your 3 highest earning years (not counting bonuses/OT/etc) multiplied by the number of years of service.

So for example if I switched to GOV and worked with them for 20 years. If my 3 highest earning years of service I made 99k, 100k, 101k. My yearly pension would be (((99,000+100,000+101,000)/3)*0.01)*20. Or $20,000/yr.
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Re: Does it make sense to quit high paying job for pension?

Post by investnoob »

pennylane wrote: Wed Oct 14, 2020 10:34 am
greg24 wrote: Wed Oct 14, 2020 10:22 am Does your friend assume they'll work consistent overtime for the next 20 years?

Do they want to work overtime for the next 20 years?

EDIT: Above poster calls into question one of the base assumptions of the pension calculations.
Friends current job requires 50 hours per week. It’s an apples to apples comparison. Pay/Pension likely to go up due to salary keeping up with inflation
here in Canada, many government budgets don't have money for overtime. So they offer vacation in-lieu of cash. Something to think about and keep in mind. Also, I think furlough is a risk in the US (here its strikes).

I would say that getting into government in your 20s might make sense if you like the benefits (health benefits, vacation, hours etc.). But typically, what I see is that 20 somethings start in private sector when they can stomach the hours to chase a dollar, and then switch over to public sector in their 30s and 40s when they prefer a slower pace and more stability.

I am 42. If I were offered a job, in the private sector, at $160k with company matching and other benefits, I might turn it down. But, if I was given the same offer in my 20s....I think I would have taken it.
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Re: Does it make sense to quit high paying job for pension?

Post by Grt2bOutdoors »

pennylane wrote: Wed Oct 14, 2020 10:34 am
greg24 wrote: Wed Oct 14, 2020 10:22 am Does your friend assume they'll work consistent overtime for the next 20 years?

Do they want to work overtime for the next 20 years?

EDIT: Above poster calls into question one of the base assumptions of the pension calculations.
Friends current job requires 50 hours per week. It’s an apples to apples comparison. Pay/Pension likely to go up due to salary keeping up with inflation
This is a quality of life issue - it has nothing really to do with the money, you said it yourself that your friend derives more satisfaction from the government job so why are you asking if it makes sense financially? Your friend should take the job that makes her happy.
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Re: Does it make sense to quit high paying job for pension?

Post by Watty »

pennylane wrote: Wed Oct 14, 2020 8:50 am Pension would be around 60-75k per year for life......

To clarify..without going into detail yes it is a government job, the numbers are absolute what they are. The pension is 50% of your pay at retirement. Compensation with overtime after 5 years will be about $110,000.

The pension vests after 10 years. If you leave, it’s 25% of the last few years of average income.

The true comparison here is 110k with pension VS 160k no pension but more upside in income.
That would be a lot less than the 60-75K pension that you mentioned in your original post.

I would suspect that it might be some sort of law enforcement or fire fighting job, which is a vital so she could be providing an important service, but would have its own non-financial challenges which might make getting 20 years in difficult.

One thing she should check is how well funded the state or municipality is since the pension could be at risk. There has been a lot of talk about cities and even states needing to declare bankruptcy since their pension plans are not well funded. Even if they do not actually go bankrupt they may be forced to cut back on future pension benefits like most private companies have.
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Re: Does it make sense to quit high paying job for pension?

Post by whodidntante »

pennylane wrote: Tue Oct 13, 2020 11:22 pm
whodidntante wrote: Tue Oct 13, 2020 11:05 pm No way would I do this based on financials. If there are other overriding reasons, fine.

If you want a pension, you can buy one. Price SPIAs, looking only at those that meet the criteria to be guaranteed in your state.

Whenever someone tells me they make a lot, but that they could easily find another job paying the same, it tells me they might be underpaid. It should be at least a little difficult to get a job paying near the limit of your value.
How would she go on about purchasing a pension?
That's what I meant about "price SPIAs" -- Single Premium Immediate Annuity. A pension is functionally equivalent to an annuity. She could buy a SPIA for a million dollars (or whatever) and she would receive a certain payment for life.
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Re: Does it make sense to quit high paying job for pension?

Post by tashnewbie »

Your friend is young (26 years old). At that age, I'd be looking to further develop my skills sets and get the best work experiences I could, which hopefully would make me more marketable generally. It's always nice to have options.

What type of work does your friend do?

What doesn't she like about her current job? Why does she think the government job would be a better experience/more satisfying?
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Re: Does it make sense to quit high paying job for pension?

Post by simas »

pennylane wrote: Tue Oct 13, 2020 11:01 pm A friend of mine asked for my financial opinion but this one is tricky. I am seeking the wisdom of my fellow bogleheads to help her answer this.
She is contemplating leaving this position for a much more secure position that she thinks she will get more satisfaction doing.
likely bad financial decision but who care about that ? instead focus on what is bolded.
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Re: Does it make sense to quit high paying job for pension?

Post by Barcelonasteve »

pennylane wrote: Tue Oct 13, 2020 11:01 pm The true comparison here is 110k with pension VS 160k no pension but more upside in income.
Maybe. Are you sure none of that $110k will be taken as a pension contribution? If there is an employee contribution, that should factor into the comparison. Also, if there is an employee contribution, it might go up. When I started my government job, I think my contribution was 4% of my salary. Twenty years later, it has climbed to 12% to make up for lower than predicted returns in the pension fund. My pension is a contract, but there is no term promising a particular contribution amount; the only guarantee is that my contribution is equal to my employer’s contribution.
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Re: Does it make sense to quit high paying job for pension?

Post by Reamus294 »

I don't think job comparisons are ever apples to apples. Location, the possibility of working from home, management, structure, stress, possibility of future changes, family changes, spouse's job, contributions to social security, etc. all play significant roles. It is kind of like asking which car is better based solely on the tires. It just doesn't make sense.

Beside the possibility of pension changes, personal expectations and opportunities also change. My SO and I are both in jobs we wouldn't have expected 5 years ago, and we are on the far end of the spectrum away from being job hoppers.

All of that said, if I only wanted to compare a pension to another retirement plan, I would put together a pretty simple worksheet that shows what I would expect to put away in my current job, with an average expected return and see what kind of income that would provide in retirement using SPIAs at current rates (they could be very different 20 years from now) or a safe withdrawal rate, which would be very low at that age (and could also be very different 20 years from now).

A good pension can be very valuable. If the formula didn't change, it works in her favor being young. She can have another career after that if she wanted to. Her current job allows for more flexibility and at her age, flexibility is key. I would say no, it doesn't make sense to quit the high paying job for a pension in this scenario since there are too many other variables.
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Re: Does it make sense to quit high paying job for pension?

Post by Work2Fish »

There are too many unknown variables with this scenario but given the limited details, I would say it doesn't make sense to quit the high paying job for the pension. We all have varying tolerances for risk; unfortunately, I'm risk-averse so I opted to chase the lower-paying jobs for the security, benefits, and pensions. As a result, I should be well-positioned for retirement in twelve years (age 62) with $2M+ saved (mostly ROTH-IRAs and ROTH-TSP). I project I'll also get a sum of around $85k+ annually from two pensions (military and federal) and won't need social security until full retirement age at 67 (FRA) so that my wife can also draw spousal SS at the same time as me instead of waiting to max out at age 70.

My point with the comments above is that although it is working out well for me to have taken the pension path, I always felt I was too cautious and should have taken more risks in my younger years to start or grow a business for higher pay and personal satisfaction. Had I taken the risk, perhaps I could have retired by now to spend more time with my kids before they are all off to college. Instead, I have another twelve years to grind it out. Then again, every recession reminds me how fortunate we are and I'm reminded that the grass isn't always greener on the other side and this friend needs to weigh this possibility into their decision as well.
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Re: Does it make sense to quit high paying job for pension?

Post by dziuniek »

One point to add would be diversification of income streams in retirement. Yes you could purchase an SPIA when you're ready to retire - but you don't know what that will cost 20-30 years from now.

If she/he and or partner still make enough to max 401k + roth IRA with the government salary, I might take the gov job.

Maxed 401k. lots of $$$ in the future anyways.
Maxed Roth. lots of tax free $$$ in the future
SS - taxed but will be there (maybe reduced? I doubt it though)
Pension. (this will be atleast federally taxed - some states don't tax pension income)

I guess an argument could be made that diversifying your income streams is a good idea.
If she turned her 'starter' home / or bought a rental - that would be another one.

Full disclosure: I am a state employee. (CT)
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Re: Does it make sense to quit high paying job for pension?

Post by phxjcc »

Data points required:
her age
Her retirement age
Federal pension COLA.
Current forecasted FRA SSA benefit

Then, it is a trivial arithmetic problem.

However, i have a hard time believing you would tell a “friend” to be less happy and less secure.

For what?
Money she would leave to her heirs?
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Re: Does it make sense to quit high paying job for pension?

Post by pennylane »

phxjcc wrote: Wed Oct 14, 2020 8:59 pm Data points required:
her age
Her retirement age
Federal pension COLA.
Current forecasted FRA SSA benefit

Then, it is a trivial arithmetic problem.

However, i have a hard time believing you would tell a “friend” to be less happy and less secure.

For what?
Money she would leave to her heirs?
26
46 for pension
Not sure
Not sure
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Watty
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Re: Does it make sense to quit high paying job for pension?

Post by Watty »

pennylane wrote: Tue Oct 13, 2020 11:01 pm A friend of mine asked for my financial opinion but this one is tricky.
It might be best to tell her that you are not the right person to ask about this.

There are lots of problems with most financial advisors that take commissions but there are some that are fee only and have a fiduciary responsibility to their clients. For such a large decision she might want to hire a good financial advisor that has a fiduciary responsibility to her to go through her numbers, and the rest of her situation, and then to go through the financial consequences of each of her possible choices.
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