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Message
re: Pay Cut v. Government Pension
Posted on 5/28/15 at 10:23 am to kywildcatfanone
Posted on 5/28/15 at 10:23 am to kywildcatfanone
quote:
Governments at all levels need to abolish pension for new hires immediately. It's not sustainable in a continually shrinking taxpayer base
You don't understand how pensions actually work then. Taxes are in no way supposed to "support" a pension fund. They are in no way designed to be a "tax payers put money in jar" then "pension takes money immediately out of jar" cash in cash out system. Blame politicians for pulling money out.
The problem you are referring to is due to policiticans dipping into the cookie jar for funds. Employee/Employer contributions should be made yearly and those contributions are invested up until retirement. Compounding interest allows for the contributions to grow and afford the "deferred annuity" aka pension
If properly managed, pension funds shouldn't be a huge problem except for the fact we are in a historically low bond yield market. Also, mortality assumptions are changing
1
Posted on 5/28/15 at 10:27 am to GenesChin
Put it this way, the issue is more that pensions aren't operated right because people are short sighted. People who run pensions are fairly good at what they do and can design a proper plan.
Here are why pensions are better retirement vehicle than 401k
401k your planning is contingent on your lifespan which is obviously uncertain. As a result, a prudent planner has to save more to adjust for that risk
Pension plan can diversify away the mortality risk as they have a group and have a better prediction of the life span of the group.
Here are why pensions are better retirement vehicle than 401k
401k your planning is contingent on your lifespan which is obviously uncertain. As a result, a prudent planner has to save more to adjust for that risk
Pension plan can diversify away the mortality risk as they have a group and have a better prediction of the life span of the group.
This post was edited on 5/28/15 at 10:33 am
Posted on 5/28/15 at 11:39 am to GenesChin
But but but if you put it all in VTSMX you could make a lot more money!!! Lol
Posted on 5/28/15 at 12:12 pm to DayBowBow
Would I be wrong to assume that, after reducing the private sector job for your 401k contribution and increase in taxes, your take home pay would be higher with the gov job? Also, assuming no overtime with either job, your hourly rate based on take home pay would have to be higher with the gov job.
Is there a vesting period in the pension? If you are worried about job satisfaction, the vesting period would need to be considered as a negative factor. The same may be true for the 401k match as well though, so could be a wash.
Is there a vesting period in the pension? If you are worried about job satisfaction, the vesting period would need to be considered as a negative factor. The same may be true for the 401k match as well though, so could be a wash.
Posted on 5/28/15 at 3:38 pm to Shepherd88
A well run pension plan is better than a well run 401k, without a doubt.
The problem comes in with bankruptcy risk (GM) and poor governance (government funds).
There are exceptions to the rule, with most of those exceptions working in finance and having the intention of building wealth beyond what is simply needed to retire. However, they could just supplement their pension with IRA accounts.
For pure retirement purposes, pensions are generally better deals.
The problem comes in with bankruptcy risk (GM) and poor governance (government funds).
There are exceptions to the rule, with most of those exceptions working in finance and having the intention of building wealth beyond what is simply needed to retire. However, they could just supplement their pension with IRA accounts.
For pure retirement purposes, pensions are generally better deals.
Posted on 5/28/15 at 3:42 pm to CubsFanBudMan
quote:
Would I be wrong to assume that, after reducing the private sector job for your 401k contribution and increase in taxes, your take home pay would be higher with the gov job?
More than likely. Do you think gov't employees don't pay toward their retirement?
Posted on 5/28/15 at 3:50 pm to LNCHBOX
quote:
More than likely. Do you think gov't employees don't pay toward their retirement?
No, I don't think that they do, but I may be wrong. I've never had a gov't job, or a job with a pension. My understanding was that pensions were 100% funded by the employer, gov't in this case. The employee settled for a smaller salary now with the benefit of the pension later. In the government case, it would cost taxpayers less now, kicking the liability down the road. I may be totally off base here, so correct me if I'm wrong.
Posted on 5/28/15 at 3:52 pm to CubsFanBudMan
quote:
No, I don't think that they do, but I may be wrong. I've never had a gov't job, or a job with a pension. My understanding was that pensions were 100% funded by the employer, gov't in this case. The employee settled for a smaller salary now with the benefit of the pension later. In the government case, it would cost taxpayers less now, kicking the liability down the road. I may be totally off base here, so correct me if I'm wrong.
You're wrong
Gov' employees, at least for state of LA, contribute 8%.Posted on 5/28/15 at 4:01 pm to TheHiddenFlask
So an annuity is a better retirement vehicle than investing it into those same mutual funds without the insurance wrapper......?
Posted on 5/28/15 at 4:11 pm to LNCHBOX
quote:
You're wrong Gov' employees, at least for state of LA, contribute 8%.
Although inaccurate on my part, the contribution should still be considered. If he has to contribute 8% for the gov't job, and 6% to max the company match in the 401k, that is widening the take home pay some more.
Is the gov't job still subject to 6.2% Social Security?
Posted on 5/28/15 at 4:27 pm to CubsFanBudMan
quote:
Is the gov't job still subject to 6.2% Social Security?
No, but they also don't get any payout for SS either. Also, unless the private industry is as a 1099 or contractor, they'd only pay half of the 6.2%.
Posted on 5/28/15 at 4:55 pm to LNCHBOX
quote:
No, but they also don't get any payout for SS either. Also, unless the private industry is as a 1099 or contractor, they'd only pay half of the 6.2%.
Employee pays 6.2% and employer pays 6.2%, total of 12.4%, which is a break even at best. Plus, if he has already paid into SS, and/or works private after the gov't, then he might have enough SS credits already to qualify.
Posted on 5/28/15 at 5:02 pm to Shepherd88
You missed the entire point.
Pension funds can focus on achieving maximum total return while 401k investors have to adjust their risk based on age. Pension funds also don't "invest in those same mutual funds". They have access to top flight hedge funds and asset managers that simply cannot be had in a standard 401k.
The pension fund is a much more efficient way to deliver retirement benefits. It's not even close.
Pension funds can focus on achieving maximum total return while 401k investors have to adjust their risk based on age. Pension funds also don't "invest in those same mutual funds". They have access to top flight hedge funds and asset managers that simply cannot be had in a standard 401k.
The pension fund is a much more efficient way to deliver retirement benefits. It's not even close.
Posted on 5/28/15 at 5:03 pm to LNCHBOX
Contribute 8% and don't have to pay the 6% payroll tax. So for a net of 2%, you get a great deal.
Posted on 5/28/15 at 6:01 pm to TheHiddenFlask
But wait isn't the whole premise of this board that index funds beat even the best money managers out there??
And GM is not the only company to cut their pension. AT&T, VZ, GE, AAL have all cut theirs.
So if these managers don't have to lower their risk (which they don't PERs of MS has a current allocation of 60% stock 40% bonds btw) and can achieve max returns why are they cutting them? It's because they did not in fact calculate the actuarial tables right with mortality. So essentially you have a majority of folks sucking these plans dry with minimal flows going in. And employers sure as hell don't want to maintain that risk, they would rather defer it to the employee to risk his own savings in a 401k plan.
So no a dying pension plan is not the better option. Like I said in the next 5-10years they will be non-existent.
And GM is not the only company to cut their pension. AT&T, VZ, GE, AAL have all cut theirs.
So if these managers don't have to lower their risk (which they don't PERs of MS has a current allocation of 60% stock 40% bonds btw) and can achieve max returns why are they cutting them? It's because they did not in fact calculate the actuarial tables right with mortality. So essentially you have a majority of folks sucking these plans dry with minimal flows going in. And employers sure as hell don't want to maintain that risk, they would rather defer it to the employee to risk his own savings in a 401k plan.
So no a dying pension plan is not the better option. Like I said in the next 5-10years they will be non-existent.
Posted on 5/28/15 at 7:07 pm to DayBowBow
quote:
10 miles closer
That would seal the deal for me.
Posted on 5/28/15 at 8:25 pm to Shepherd88
quote:
So no a dying pension plan is not the better option. Like I said in the next 5-10years they will be non-existent.
So no pension plans will exist? You can't say that with certainty so I wouldn't give such opinion to the OP. If that is the case, say goodbye to your govt workers, firefighters, and policeman. They can hardly keep people now.
Posted on 5/28/15 at 8:54 pm to blades8088
Dude look at the numbers.. They say for certainty within itself... Baby boomers are retiring and drawing on it.. Millenialls are not in a pension plan anymore. There's only one way or can go.
Posted on 5/28/15 at 9:03 pm to Shepherd88
Meh, depends on the system or state. To say all pension plans will cease in 5-6 years is rediculous
Posted on 5/29/15 at 12:39 pm to Shepherd88
quote:
So no a dying pension plan is not the better option. Like I said in the next 5-10years they will be non-existent.
But you're referring to a government pension, right? A CEO and a board of directors have a different set of incentives than politicians.
Politicians have moved to make pensions more sustainable in order to avoid abolishing them because they are constrained by the mentality of the average voter. When politicians do act, they tend to grandfather in those hired under the past rules, and they tend not to make retroactive changes. The retroactive changes that are made tend to be relatively insignificant to the average employee, because it is the sum total of "savings" counted by the politicians that they regard as a victory.
I got into government work about 17 years ago making $32k per year. Simply by showing up to work on time, doing what I was asked while disagreeing politely when asked to do something unwise was enough to get me where I am today - pulling in a quarter mil per year in total compensation. For the record, I'm no Rhodes Scholar, but neither are my coworkers. By comparison, I am a genius. Some have actually used that phrase to describe me. I can't imagine an alternative career path that would have provided someone like me a more successful (and lucrative) career.
Take the government job
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