Pension vs Invest

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Topic Author
PhillipR
Posts: 4
Joined: Sat Jun 27, 2020 6:58 pm

Pension vs Invest

Post by PhillipR » Sun Jun 28, 2020 8:59 pm

OK my work this summer was going to offer a pension buy out. They moved it because of covid till the new year
we can keep the pension or increase my 401k match by the percentage they were adding to the pension .
It is hard because i know i can make more with my 401k.. But as long as the company is around and going strong i dont have to worry about what the market is doing. ( yes i think the company will be around.. but im sure my mom said the same thing about Pan Am )

38 and hope to retire at 60 and been with the company only 5 years. but will i be with them till i retire ? who knows

Doing the math it 4.5% of my paycheck company matches to my pension with a growth of around 3.2% would be around 200k retirement age (more if i get raise / promotion witch i will )

Would you take the 4.5% and hope to make better return in you 401k then the 3.2% return in the pension?

At 17.5 years after retire i would of collected all the money that was put it but still get a pay check if i unfortunately live to 105.
or i could take out the roughly 200k and invest it when i retire as a lump some.

Yes the company offers pension and 401k match.. So its currently 4.5% into pension and 3.5% into 401k as a match.. If i decide to stop the pension it would be 8% match in total.

Only thing im not sure of is the 20k ish already in the pension if i could role that over into a IRA or 401k ect or if it stays and they pay me out yearly from the 20k when i retire.

Its 100% company funded pension i don't add my own money or have the option to add my own money

No i am not going to say the name of the company

Thank you anyone that has any suggestions.

sport
Posts: 9317
Joined: Tue Feb 27, 2007 3:26 pm
Location: Cleveland, OH

Re: Pension vs Invest

Post by sport » Sun Jun 28, 2020 9:09 pm

I like the idea of the pension providing diversification. You might make some terrible investment decisions, or the markets could collapse just when you need it the most. By having the pension, your investments, and social security, you would have all the bases covered.

L82GAME
Posts: 242
Joined: Sat Dec 07, 2019 9:29 am

Re: Pension vs Invest

Post by L82GAME » Sun Jun 28, 2020 9:34 pm

PhillipR wrote:
Sun Jun 28, 2020 8:59 pm
OK my work this summer was going to offer a pension buy out. They moved it because of covid till the new year
we can keep the pension or increase my 401k match by the percentage they were adding to the pension .
It is hard because i know i can make more with my 401k.. But as long as the company is around and going strong i dont have to worry about what the market is doing. ( yes i think the company will be around.. but im sure my mom said the same thing about Pan Am )

38 and hope to retire at 60 and been with the company only 5 years. but will i be with them till i retire ? who knows

Doing the math it 4.5% of my paycheck company matches to my pension with a growth of around 3.2% would be around 200k retirement age (more if i get raise / promotion witch i will )

Would you take the 4.5% and hope to make better return in you 401k then the 3.2% return in the pension?

At 17.5 years after retire i would of collected all the money that was put it but still get a pay check if i unfortunately live to 105.
or i could take out the roughly 200k and invest it when i retire as a lump some.

Yes the company offers pension and 401k match.. So its currently 4.5% into pension and 3.5% into 401k as a match.. If i decide to stop the pension it would be 8% match in total.

Only thing im not sure of is the 20k ish already in the pension if i could role that over into a IRA or 401k ect or if it stays and they pay me out yearly from the 20k when i retire.

Its 100% company funded pension i don't add my own money or have the option to add my own money

No i am not going to say the name of the company

Thank you anyone that has any suggestions.
Hi PhillipR:
  • Why is the payout being offered? Is the pension fund distressed?
  • What’s the vesting period?
  • When would you be eligible to receive the benefit?
  • How is the benefit calculated?
  • What is the current funded ratio of the trust fund?
  • How is the fund invested and who determines the investment strategy?
  • What is the credit rating of the company?
  • Does the company issue bond debt? If so, what is the rating of its debt issuance?
  • Are you eligible for the benefit after full vestment and you separate from the company?

Topic Author
PhillipR
Posts: 4
Joined: Sat Jun 27, 2020 6:58 pm

Re: Pension vs Invest

Post by PhillipR » Sun Jun 28, 2020 9:55 pm

Hi PhillipR:
  • Why is the payout being offered? Is the pension fund distressed?
funding ratio of 87.8%.. Not sure why its being paid out maybe they just dont want the liability. Im sure i can ask and they wont tell me the real reason. All new employees are not offered the pension only current hired before the start of 2020
  • What’s the vesting period?
Im vested but i think it was 5 years
  • When would you be eligible to receive the benefit?
i can collect them now if i quit or wait till im older
  • How is the benefit calculated?
5% of pay till age 60 then 6% after 60. I did the growth by guess with math and they have a program that tell me how much i will make when im at a different age
  • What is the current funded ratio of the trust fund?
87.8
  • How is the fund invested and who determines the investment strategy?
No clue
  • What is the credit rating of the company?
The senior unsecured debt of ###### 's rated BBB by Standard & Poors and Baa2 by Moody's. ### Corp. commercial paper is rated A2 by Standard & Poors and P2 by Moody's. Standard & Poors and Moody's have our debt outlook as "negative"
  • Does the company issue bond debt? If so, what is the rating of its debt issuance?
NO clue
[/quote]

Almost everything i had to google :D

Topic Author
PhillipR
Posts: 4
Joined: Sat Jun 27, 2020 6:58 pm

Re: Pension vs Invest

Post by PhillipR » Sun Jun 28, 2020 9:59 pm

sport wrote:
Sun Jun 28, 2020 9:09 pm
I like the idea of the pension providing diversification. You might make some terrible investment decisions, or the markets could collapse just when you need it the most. By having the pension, your investments, and social security, you would have all the bases covered.
Good point the money from SS and Pension "should" be there if the market takes a 1-2 year dip and i can reduce my withdraw rate and live off SS and pension and other rental income ( if i still have it ) while i wait for the market to recover.. I kinda like that as a safty net.

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sergeant
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Location: The Golden State

Re: Pension vs Invest

Post by sergeant » Sun Jun 28, 2020 10:19 pm

If the pension plan is solid and stays that way a pension can be a very valuable part of your retirement portfolio. You should also be contributing to your 401k, building SS credit, managing debt, and living a healthy life. This should leave you all set when it comes time to retire.
AA- 20+ Years of Expenses Fixed Income/The remainder in Equities.

infotrader
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Joined: Tue Feb 28, 2017 2:39 pm

Re: Pension vs Invest

Post by infotrader » Sun Jun 28, 2020 10:56 pm

I would stay with the pension option. I think that even your company pension has issues later, they may still offer you something like lump sum.
My company claims their pension funding level is very solid, but only at 80%.
I always prefer to be grandfathered in something. Your plan is not offered for new employees. I feel that they are just want to be cautious.

L82GAME
Posts: 242
Joined: Sat Dec 07, 2019 9:29 am

Re: Pension vs Invest

Post by L82GAME » Mon Jun 29, 2020 5:40 am

+1 to all replies here in favor of keeping your pension benefit. To date, it’s pretty well funded and requires no contributions from you. Having an additional fixed income stream would be great for your retirement years. Work toward maxing out your tax-advantaged retirement account headroom as long as your 401k options are low cost index options.

carolinaman
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Location: North Carolina

Re: Pension vs Invest

Post by carolinaman » Mon Jun 29, 2020 6:37 am

You may be able to make more investing on your own. However, with the pension the company is taking all the market risk, not you. I like that approach (of keeping pension).

slowneasy
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Joined: Tue Dec 11, 2018 10:41 am

Re: Pension vs Invest

Post by slowneasy » Mon Jun 29, 2020 7:33 am

Just to consider a different point of view. I am 48 and went through multiple pension changes in the last 10 years. The pension was funded well and still is but the company wanted to move away from pension liability. Each change was a freeze point and a different formula going forward till the final version was a cash plan that grew at a small interest rate based on Treasure bills (I think). They contracted with a 3rd party to provide support of the benefit and they were not very helpful and gave conflicting information when people called.

I ended up cashing out the pension and rolling to an IRA when I received the opportunity. I debated for a long time about the market and longevity risk of giving up the pension amount (no COLA adjustment). I am very happy to have the money in my fidelity IRA now. I take the risk but I also have complete control. I have flexibility on how and when I draw the money and I dont have to deal with some poor customer service contractor which might change every couple of years. It's not the right answer for everyone but for me the risk was worth the flexibility and control have taking the cash balance. One final factor was that my family history is normally on the low end of life expectancy. I still plan to live to be 100 but I consider my odds less than the average.

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ofcmetz
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Location: Louisiana

Re: Pension vs Invest

Post by ofcmetz » Mon Jun 29, 2020 8:21 am

I'm in the process of retiring on a state pension right now at a fairly young age.That being said, I have trouble trusting a business or a government to run a pension well and have been and will continue to invest my own money as well.

It's likely the company is trying to lower their liability and also trying to slowly get out of the pension game.I think it's fine and about even staying in the pension or taking that money and investing it on your own.Either decision will not likely change your future much, and you can probably find the one that fits you the best.

The main hangup would probably be how the pension vesting works. Most do not stay long enough at their employers to get fully vested and pensions therefore tend to transfer wealth from short term employees to longer term ones. At least this tends to be true in government circles. Since you are vested already, it might be a nice diversifier to your own investments.
Never underestimate the power of the force of low cost index funds.

rich126
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Re: Pension vs Invest

Post by rich126 » Mon Jun 29, 2020 3:04 pm

Generally if a company is changing something or offering to move you to a new plan, it is rarely good for the employee.

Generally to do well with a pension you need to stay with a company long term in order to maximize your high salary years. Most pensions are based on # of years worked times a high 3 or 5 year salary. So if you work 15 years and leave at $100K salary you'd might get $15K (assuming 1% per year). If you had instead left with a $150K salary and still only worked 15 ys you'd get $22.5K. And of course, the number of years multiplier is also in your favor the longer you stay.

Ideally a pension coupled with 401K savings and social security is a nice way to retire. While the stock market (and bonds) have done well over the last 10/20 years, you never know what the future will bring.

I have a fairly small pension from one contractor, another bigger (but nothing great) from the federal government along with my 401K savings.

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Kenkat
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Re: Pension vs Invest

Post by Kenkat » Mon Jun 29, 2020 4:16 pm

This sounds like a cash balance pension plan. They promise to put 4.5% of salary into the plan every year and guarantee you will get a certain return on that every year. If they are just offering to put the 4.5% into your 401(k) instead, I don’t really see what value the cash value pension plan provides you over the 401(k) except the guarantee of a certain return that in this case doesn’t sound all that high for a long term investor (3.2% if I am reading right).

Contrast that with a traditional pension which agrees to pay you a monthly benefit based on some percentage of salary times years of service which in my opinion is better for the long term employee.

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