[USER]

Would you take a $15k salary cut for 6 years for a pension that pays $20k/yr for life at 65?

Additional info:
I have a 401 with my current employer. 3% employee contribution, 7% employer contribution.

Obviously, the 401 contributions will end and the new employer will require me to contribute 9% to the pension plan.

No Social Security taxes will be withheld. I have enough SS points to qualify for full SS benefits at retirement age.

Summary:
$15K less per year salary
Contribute 9% of my salary to pension instead of 3% to 401
No SS taxes (about $8k a year savings)

Defined pension benefit of $20K for life starting at 65.

How do I solve this math problem?

[Sam]

Depends heavily on how many years you are from retirement and how the pension accounts for inflation (if it does).

For example, if you are only 6 years from retirement then the compounding period from your higher income would not likely be long enough to provide a greater benefit than you would get with the pension, but if you are 18…

that’s a lot of years for compounding to work

[Ely]

You should do some research on the Windfall Elimination Provision. It doesn’t matter if you have enough social security credits.

If you have a pension that’s alternative to SS, your benefit amount will be reduced.

Congress is discussing the repeal of this provision, but as of now, you’re not “saving” on SS taxes because you’ll get a big cut on your SS benefits if you participate in an alternative system not covered by SS.

[Clayton]

If your on a government pension your social security will probably be cut by 50 percent Windfall Elimination Provision.

[Dave]

Use an annuity calculator to work out the value of 20k/yr for life at age 65.

Factor in any inflation protection the pension has.

On a purely financial basis looks like a good deal to me.

You may have 403b option on top of that if you want

[Amber]

Depends on where you live/how it will be taxed. Math aside here are some considerations: It’s guaranteed $ for the rest of your life, correct?

What else will give you that type of guarantee? You could be a high earner but get laid off or an entrepreneur but then your industry tanks.

Which one is going to be the most tax efficient in the end?

Recommend reading “The Power of Zero” to help fully understand the Tax implications and how SS will be affected in regards to retirement before making any decisions.

[Rob]

If it requires you to contribute to the pension plan, I’d have to crunch numbers. Is this pension inflation protected? Does it have a survivor benefit?

How secure is the pension fund?

How do you know it’s $20k? Is it tied to your income?

Why do you think you won’t have SS taxes, does this job not have you pay SS taxes while working?

I have a pension and it’s a game changer, but mine is a military pension.

[Abbie]

I think there are some good thoughts here. I’d recommend you check the vesting schedule if you haven’t already.

The two pension plans I’m aware of personally have a seven year vesting schedule, so just FYI.

[Mark]

What a mess! You do NOT save $48k in SS taxes (do the math, it’s easy!) and a $20k/year pension starting at age 65 is worth nowhere near $295k (find an annuity calculator online) and the $15k giveup is now and the pension is far in the future so you have to discount that too.

The AI analysis is way off.

[Molly]

Consider: Do you have a spouse or kids? What happens if you die early? Will there be anything for them?

[Author]

Posts