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

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Topic Author
pennylane
Posts: 265
Joined: Thu Apr 12, 2018 10:22 am

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

Post by pennylane »

Appreciate all the input. Wouldn’t mind hearing other thoughts.
oldfort
Posts: 1746
Joined: Mon Mar 02, 2020 8:45 pm

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

Post by oldfort »

pennylane wrote: Tue Oct 13, 2020 11:01 pm 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.
I don't agree with the assumption, the pension won't change, unless this is a federal job. Cities/municipal governments go bankrupt. Many state pensions are severely underfunded. States can and do change their pension systems all the time.
finite_difference
Posts: 2007
Joined: Thu Jul 09, 2015 7:00 pm

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

Post by finite_difference »

IMO wrote: Tue Oct 13, 2020 11:50 pm 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.
Federal pensions are good and I think provide around 20-35% of your salary, as you point out. From the little I’ve read, the best pensions are state and local government, not federal. Think state officials, firefighters, police, teachers.

State and local government pensions can be 50%+ salary replacement. However, social security may be forfeited for some of them.

Also, the states with the most lucrative pensions I think have been cutting benefits for new employees and some of them may be in enough trouble to need to make retroactive changes.

I think it comes down to which work environment is better. Also, if both spouses are working, maybe having one in government and one in the private sector provides a nice hedge for job security vs pay.
The most precious gift we can offer anyone is our attention. - Thich Nhat Hanh
bltn
Posts: 882
Joined: Mon Feb 20, 2017 9:32 pm

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

Post by bltn »

Watty wrote: Wed Oct 14, 2020 11:23 am
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.
Checking the security of the pension based on current funding is a very good idea.

I have a current neighbor who is a pilot for a major airline that bankrupted in 2003. The pilots, the only union employees, lost their company pension plan. My neighbor was fairly new with the company at that time and lost about 50,000 dollars in retirement money. A former neighbor was a retired pilot from that airline and lost his pension. The government insurance paid him about 5500-6000 a month, the maximum payout back then. He got a job selling real estate at age 68. He moved a year or two later. That airline has historically been one of the most fiscally strong airlines in the world.

I guess the choice is whether your friend would rather try to accumulate her own money and manage her own finances, or pay a price to have someone manage her retirement money for her. The security of a pension can be illusory.
Post Reply