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When do you value pension benefit vs pay?
Posted on 1/13/24 at 11:55 pm
Posted on 1/13/24 at 11:55 pm
Meaning how much do you value a pension plan? If it meant dropping salary and changing jobs for one, would you do it just for the sake of having that benefit
7
Posted on 1/14/24 at 6:27 am to HailToTheChiz
Never, personally. Does the other option not have a company retirement plan?
A pension plan is simply a company contribution to a retirement plan that is owned by the company. It is a liability for the employer they contribute to but own the assets inside of the plan.
Personal retirement plans are owned by the employee. The contribution from the employee can be the same, less, or more. But it’s an owned by the employee at death.
Both plans can be calculated as a percentage of salary/ value. So that’s the best way to ‘e-value-ate”
A pension plan is simply a company contribution to a retirement plan that is owned by the company. It is a liability for the employer they contribute to but own the assets inside of the plan.
Personal retirement plans are owned by the employee. The contribution from the employee can be the same, less, or more. But it’s an owned by the employee at death.
Both plans can be calculated as a percentage of salary/ value. So that’s the best way to ‘e-value-ate”
Posted on 1/14/24 at 6:57 am to HailToTheChiz
Pension plans are typically earned by working for the same company for a long time so I would assume once you're past mid career it would be better to hold what you got either way.
This post was edited on 1/14/24 at 7:05 am
Posted on 1/14/24 at 9:24 am to PetroBabich
If your current salary minus the new salary is enough to get the same benefit by investing in 401K or IRA, no.
If vesting in the new job is too long, say 7 + years, then no. I worked for 33 years professionally before I retired and was only vested twice out of nine different employers. Some I left because me job was cut, some I left because I didn't like it anymore.
All a pension is is a retirement account that someone else manages for you and you have no control over how the money is invested, or usually even knowledge of it. I prefer to manage my own investments.
If vesting in the new job is too long, say 7 + years, then no. I worked for 33 years professionally before I retired and was only vested twice out of nine different employers. Some I left because me job was cut, some I left because I didn't like it anymore.
All a pension is is a retirement account that someone else manages for you and you have no control over how the money is invested, or usually even knowledge of it. I prefer to manage my own investments.
Posted on 1/14/24 at 10:07 am to HailToTheChiz
As mentioned, a Pension is simply a defined benefit plan vs a defined contribution plan.
Many have long vesting periods or other restrictions to access.
When considering them against jobs, I simply make some assumptions around salary/etc and determine what the Pension projection may look like.
The bigger benefit in many Pension plans is the ability to continue health insurance after retirement. This is a little harder to evaluate, but most of those plans require extensive years of service to receive that benefit.
Many have long vesting periods or other restrictions to access.
When considering them against jobs, I simply make some assumptions around salary/etc and determine what the Pension projection may look like.
The bigger benefit in many Pension plans is the ability to continue health insurance after retirement. This is a little harder to evaluate, but most of those plans require extensive years of service to receive that benefit.
Posted on 1/14/24 at 10:35 am to HailToTheChiz
I have a state pension in my current state where I’ll get half my salary for perpetuity after 25 years. I was 10 years in and had a job offer in Louisiana that had a 401k. I turned it down based on my pension being a better retirement plan and Louisiana having a higher income tax. I would make more money on paper but not worth the hassle of moving when everything was considered, especially the pension.
Posted on 1/14/24 at 10:48 am to HailToTheChiz
quote:
Meaning how much do you value a pension plan? If it meant dropping salary and changing jobs for one, would you do it just for the sake of having that benefit
There's a vast amount of other things you should be taking into account as well (change in travel time/cost, change in potential future earnings, etc). The balance of that determines your opportunity risk.
The short version is that I think it comes down to how risk averse someone is, combined with how content they are with the job and their employer.
For the longer version...
401s can have a greater return but pensions may be more secure. For example, if you work for the state of La. the formula** is (after being in the system for 10 years) you get 2.5% per year of employment of the average of your highest 36 months of earnings (years of service * 2.5%(average of monthly pay over the last 36 months)).
So if your average pay over the last 3 years comes out to $100k/yr and you worked for 30 years, your estimated retirement will be .025*30*$100k, thus $75k/year until you die. If you start early enough you can retire with your pension being 100%. This is something you know the day you start (unless your HR is slacking).
** = there are a couple of different formulas, depending on which part of the state government you work in.
As a final point in all of this, in a pension situation you can also fund your own 401k (you just won't be getting matching from your employer).
Posted on 1/14/24 at 2:00 pm to Drizzt
quote:
I have a state pension in my current state where I’ll get half my salary for perpetuity after 25 years. I was 10 years in and had a job offer in Louisiana that had a 401k. I turned it down based on my pension being a better retirement plan and Louisiana having a higher income tax. I would make more money on paper but not worth the hassle of moving when everything was considered, especially the pension.
But the food alone might make it worth taking that job in Louisiana
Posted on 1/14/24 at 2:07 pm to Bard
quote:
The short version is that I think it comes down to how risk averse someone is, combined with how content they are with the job and their employer.
You still have risk with the pension, even a Government pension. Numerous municipal pensions systems have gone belly up in the past, and I know some state pensions are in trouble now.
Just think of the Flint Michigan and Jackson Mississippi Water systems. The same processes that put those people in charge will be employed to select your pension manager, and you don't get a vote.
Posted on 1/14/24 at 2:54 pm to CharlesUFarley
I have military retirement.
I have a 403b and a 457.
I have a SEP for my side hustle.
I also will get a state pension.
So mine is a mix of defined contribution and defined benefit plans.
I’ll probably live on my SS, military retirement, and state pension.
I look at the other accounts as there if I need them, or the opportunity to leave a legacy to my family.
I have a 403b and a 457.
I have a SEP for my side hustle.
I also will get a state pension.
So mine is a mix of defined contribution and defined benefit plans.
I’ll probably live on my SS, military retirement, and state pension.
I look at the other accounts as there if I need them, or the opportunity to leave a legacy to my family.
Posted on 1/14/24 at 3:35 pm to makersmark1
Good stuff. Thanks 
Posted on 1/14/24 at 5:43 pm to CharlesUFarley
quote:
You still have risk with the pension, even a Government pension. Numerous municipal pensions systems have gone belly up in the past, and I know some state pensions are in trouble now.
Just think of the Flint Michigan and Jackson Mississippi Water systems. The same processes that put those people in charge will be employed to select your pension manager, and you don't get a vote.
Solid point. I work for the state of La and ours has been managed pretty solidly so I tend to get a bit myopic about it.
Posted on 1/15/24 at 8:03 am to Bard
At your death, pension plans are no longer owned by your estate (surviving spouse is different). Where a retirement plan is your own to pass on.
A huge portion of pension plan employees feel obligated to stay at their current employer while giving up potential higher income or happiness because they don’t want to leave their current employer and lose the pension.
I am by no means against a pension, but there’s a lot of factors to consider.
A huge portion of pension plan employees feel obligated to stay at their current employer while giving up potential higher income or happiness because they don’t want to leave their current employer and lose the pension.
I am by no means against a pension, but there’s a lot of factors to consider.
Posted on 1/15/24 at 8:41 am to makersmark1
I look at my pension as a low risk component of my retirement plan akin to bonds. It allows me to put the rest of my retirement funds 100% into stocks. As I get older, I’m not going to do the traditional switch to a higher percentage of bonds because my pension already serves that purpose. This allows for greater growth in my retirement portfolio as I can manage the risk with my pension.
Posted on 1/15/24 at 12:30 pm to Drizzt
quote:
look at my pension as a low risk component of my retirement plan akin to bonds. It allows me to put the rest of my retirement funds 100% into stocks. As I get older, I’m not going to do the traditional switch to a higher percentage of bonds because my pension already serves that purpose. This allows for greater growth in my retirement portfolio as I can manage the risk with my pension.
Very well stated.
Posted on 1/15/24 at 4:44 pm to HailToTheChiz
quote:I valued it so much I cashed it out as soon as I had the option.
Meaning how much do you value a pension plan?
Posted on 1/15/24 at 9:04 pm to HailToTheChiz
Its huge. Basically takes the place of bonds in most portfolios. You would need to run the numbers vs a new job.
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