Pension Govt vs a High match job with higher pay.

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pdog2006
Posts: 9
Joined: Tue Jul 18, 2017 8:37 am

Pension Govt vs a High match job with higher pay.

Post by pdog2006 » Wed Apr 17, 2019 9:50 am

Hello all.

I thought I would ask the experts to double check my math. Right now I am employed in the government at have a DB plan. I will be fully vested and eligible to retire at age 56 with 32 years of service (20 years). I like my job and its low stress but I also wonder if I could be a bigger benefit to a larger institution and grow more.

Future value of Pension details:
Retire at age 56. (20 years from now)
Receive ~58k a year plus 1.5% COLA until I die lets say this is 85.
$2,087,924.65 =FV(0.015,29,-58000,0,0)

Future value of pension. If I would leave my current pension I would still get a pension but it would start at age 67:
$409,787.51 =FV(0.015,18,-20000,0,0)

Difference
2,087,924.65
- 409,787.51
=$1,678,137.14

Potential Company 5% employee contribution and 10% Match. Basing this on if I would make a large sum of money 100-130k a year.
115000*.15=$17,250 invested a year. At monthly compounding interest in 20 years at 7%:
$748,795.71 =FV(0.005833,240,-1437.5,0,0)

=$1,678,137.14-$748,795.71=
$929,341.43 GAP

To make up the gap I would need to:
=PMT(0.005833,240,0,B5,0)*12 Save an additional ($21,409.23) a year and earn around 7% to just match what the pension would give.

Right now i make around 78k with no raises except ~2% a year. The higher paying job would be a step up in pay but also would have a commute which I do not like. Anyways I am interested in others thoughts if they have done this comparison.

Currently I max out a 457b (19k) and a Roth (6k) in addition to my Pension which takes 10% from my paycheck. My wife also works and has an IRA that we contribute up to the match, and we both have HSA's. Thoughts?

JBTX
Posts: 4938
Joined: Wed Jul 26, 2017 12:46 pm

Re: Pension Govt vs a High match job with higher pay.

Post by JBTX » Wed Apr 17, 2019 10:18 am

pdog2006 wrote:
Wed Apr 17, 2019 9:50 am
Hello all.

I thought I would ask the experts to double check my math. Right now I am employed in the government at have a DB plan. I will be fully vested and eligible to retire at age 56 with 32 years of service (20 years). I like my job and its low stress but I also wonder if I could be a bigger benefit to a larger institution and grow more.

Future value of Pension details:
Retire at age 56. (20 years from now)
Receive ~58k a year plus 1.5% COLA until I die lets say this is 85.
$2,087,924.65 =FV(0.015,29,-58000,0,0)

Future value of pension. If I would leave my current pension I would still get a pension but it would start at age 67:
$409,787.51 =FV(0.015,18,-20000,0,0)

Difference
2,087,924.65
- 409,787.51
=$1,678,137.14

Potential Company 5% employee contribution and 10% Match. Basing this on if I would make a large sum of money 100-130k a year.
115000*.15=$17,250 invested a year. At monthly compounding interest in 20 years at 7%:
$748,795.71 =FV(0.005833,240,-1437.5,0,0)

=$1,678,137.14-$748,795.71=
$929,341.43 GAP

To make up the gap I would need to:
=PMT(0.005833,240,0,B5,0)*12 Save an additional ($21,409.23) a year and earn around 7% to just match what the pension would give.

Right now i make around 78k with no raises except ~2% a year. The higher paying job would be a step up in pay but also would have a commute which I do not like. Anyways I am interested in others thoughts if they have done this comparison.

Currently I max out a 457b (19k) and a Roth (6k) in addition to my Pension which takes 10% from my paycheck. My wife also works and has an IRA that we contribute up to the match, and we both have HSA's. Thoughts?
To stay apples to apples you have to include your current 457b and Roth into the equation, which means you would have to save even more if you left.

Just based on numbers, staying where you are looks like it makes the most sense. But really the decision is heavily affected by other less quantifiable factors:

- how much you like your job? Do you think you'll like it for another 20 years?
- what is the likelihood of you being able to stay in your job for 20 more years.
- what is the overall solvency of the pension plan? There could be the possibility of future changes to it
- how do those factors weigh against the generally more volatile and less job stable private sector?

delamer
Posts: 7498
Joined: Tue Feb 08, 2011 6:13 pm

Re: Pension Govt vs a High match job with higher pay.

Post by delamer » Wed Apr 17, 2019 10:35 am

Other things to consider:

Survivor benefits for your spouse with pension.
Access to pre-Medicare health insurance with pension.
Salary growth in either job.
How much you’ll actually need to cover expenses in retirement. You are currently saving quite a bit now for someone who will get a substantial pension.

Topic Author
pdog2006
Posts: 9
Joined: Tue Jul 18, 2017 8:37 am

Re: Pension Govt vs a High match job with higher pay.

Post by pdog2006 » Wed Apr 17, 2019 10:49 am

Than you for the replies and sorry for posting in the wrong forum. I love finance and investing. My goal is to retire early, but new challenges at work would be nice. We may have a kid within the next two years which means we would go down to just my income and my wife doing what she can from home. Right now my wife and I live off around 4000 a month total pretty comfortable but this is because we are trying to max our investments.

Sum of my roth,wife's rollover IRA,457,and wifes 401k
=~160,500 invested in the boggle method of index funds.
I plan to keep maxing the 457 and the Roth as long as we don't have kids. When we have a kid I will have to back it down to around 10% of my pay I assume. After the kid can go to school the wife would hopefully find a job and we could continue investing like crazy. We also do have survivor benefits and all the benefits you state. Its probably the best pension around and is currently funded well.

Another option would be that I would have to relocate if I can find a job in the same pension which pays up to 130k. I know this is the best option overall but we currently don't want to relocate. Who knows how hard it will be to get in the one golden carrot that pays more than what I make.

Thank you

Admiral
Posts: 1880
Joined: Mon Oct 27, 2014 12:35 pm

Re: Pension Govt vs a High match job with higher pay.

Post by Admiral » Wed Apr 17, 2019 10:50 am

IMO the #s (which are projections and may or may not be true, esp for the new job) are secondary. Who knows what the market will return on your defined contribution plan?

How do you know you will stay in your current job for 20 years? Do you love it that much? Seems like the answer is probably "not really" if you're looking at alternatives. Therefore making an assumption about a payout 20 years hence if you stay seems silly.

I'd consider all other non-money factors:
Job fulfillment
Work duties
Job security (private sector=less security)
Lifestyle (paid vacation)
Commute or lack thereof (this is HUGE. I had a job offer for a LOT more money but did not take it due to a hellish potential commute. The money was not worth it.)
Opinion of spouse (if applicable)

The retirement plan is the last thing I would consider.

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Portfolio7
Posts: 544
Joined: Tue Aug 02, 2016 3:53 am

Re: Pension Govt vs a High match job with higher pay.

Post by Portfolio7 » Wed Apr 17, 2019 11:19 am

Just back-of-the-envelope thinking, but you make $84K per year in future value of your pension for every year you work. That takes your salary up to (58 + 84 =) $142K.

As long as the gov't pension is secure, to me it's a no brainer to stay where you are, if low risk and financial security are the only considerations. You avoid a lot of risk and end up with a solid retirement. You don't have to worry about getting kicked to the curb once you're past 50.

The flip side is what do you want out of a career. If you don't like where you are (or are going) in your career, then change is the only way to fix that.

In our family we've done both. I've stayed put for a 25+ year career while DW jumped out and has built a business with a partner. Barbell strategy, if you like. At times we've carried pretty high risk, since my job has been under at least low level threat the entire time (I really have no idea how I survived 25 years of layoffs), and DW has been in part time jobs and school at various points - had I been fired, much would have depended on my ability to find an equivalent job quickly. In sum hasn't quite worked out optimally, but it well may within the next few years. Optimally would be where I can quit my high pressure job and do something simple/fun (or nothing at all if I like.)

Like individual finance, the results will be personal, and the best option will be the one that works for you and your family.
An investment in knowledge pays the best interest.

sawdust60
Posts: 193
Joined: Tue Jul 17, 2018 12:06 pm

Re: Pension Govt vs a High match job with higher pay.

Post by sawdust60 » Wed Apr 17, 2019 11:23 am

You may have a math problem. Calculate the value of everything at age 56. Future value of your company match/savings. Present value of annuity streams. Also remember that the 1.5% COLA is probably not the rate to use for discounting.

Create a spreadsheet with 50 Rows and understand the base numbers. Then apply discount factors, etc. After you know the answer, you may be able to use Excel functions for an equivalent answer.

While the 20k at age 67 may be known, how might the 58k at age 56 change? Does it include the impact of future salary increases? Also factor salary increase into company match/savings.

Admiral
Posts: 1880
Joined: Mon Oct 27, 2014 12:35 pm

Re: Pension Govt vs a High match job with higher pay.

Post by Admiral » Wed Apr 17, 2019 11:25 am

This site may be useful. It was eye opening to me in terms of the value of a pension. (Really, it's invaluable, especially today.) Though, again, hopefully a job is not primarily about money...you know, unless you work on Wall Street :wink:

https://www.financialsamurai.com/how-do ... y-pension/

Carl53
Posts: 1765
Joined: Sun Mar 07, 2010 8:26 pm

Re: Pension Govt vs a High match job with higher pay.

Post by Carl53 » Wed Apr 17, 2019 11:44 am

Does your current job pay into SS? Would your new one? If one does and the other does not, you may run afoul of WEP and GPO down the road. If you get 30 years under SS then there should be no reductions.

Topic Author
pdog2006
Posts: 9
Joined: Tue Jul 18, 2017 8:37 am

Re: Pension Govt vs a High match job with higher pay.

Post by pdog2006 » Wed Apr 17, 2019 12:19 pm

Carl53 wrote:
Wed Apr 17, 2019 11:44 am
Does your current job pay into SS? Would your new one? If one does and the other does not, you may run afoul of WEP and GPO down the road. If you get 30 years under SS then there should be no reductions.
My current job has no social security. The new one would.

carolinaman
Posts: 3555
Joined: Wed Dec 28, 2011 9:56 am
Location: North Carolina

Re: Pension Govt vs a High match job with higher pay.

Post by carolinaman » Thu Apr 18, 2019 7:51 am

What are your career goals? Are you content to have the same or similar job you have when you retire? Sometimes a job change will offer greater career advancement opportunities. This may not be a factor in your decision but you should at least think about your long term goals and how each job addresses that.

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