Author Topic: advice on a new job  (Read 11462 times)

sol

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advice on a new job
« on: June 02, 2015, 09:39:32 PM »
I'm considering taking a new job.  It pays more, but has a longer commute.

Assuming the jobs were otherwise equal, how much would money would an employer have to offer you to convince you to commute an extra 30 minutes each direction?


mlipps

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Re: advice on a new job
« Reply #1 on: June 02, 2015, 09:44:21 PM »
Enough to retire 1-3 years earlier. I fucking hate commuting though.

Bearded Man

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Re: advice on a new job
« Reply #2 on: June 02, 2015, 11:14:08 PM »
Depends, are there promotional opportunities?

Ricky

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Re: advice on a new job
« Reply #3 on: June 02, 2015, 11:54:35 PM »
As long as you feel the increased pay is worth it. I'd have to get paid at least the equivalent of another 2 hours work everyday since I'd be commuting an extra hour per day. That only makes sense, right? One hour of additional pay would cover the commute and the other hour of additional pay would give a reason to take the new job in general. So if you're making $10/hour then it would need to be another $20 a day, minimum, to get me to switch. Of course these numbers are arbitrary, but that would be my personal minimum.
« Last Edit: June 03, 2015, 12:03:40 AM by Ricky »

okits

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Re: advice on a new job
« Reply #4 on: June 02, 2015, 11:56:30 PM »
It would depend on how far your existing commute is.

Going from 15 minutes to 45 minutes is kind of shitty but do-able.  Going from 1 hour to 1.5 hours per way?  That would need to pay a whole lot more, even though the additional time is still only 30 min per way.

Doubleh

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Re: advice on a new job
« Reply #5 on: June 03, 2015, 12:44:49 AM »
Agree with previous poster that it makes a difference what the total commute is. I've done everything from 15 mins to 2 hours each way and, to me at least, up to 1 hour is doable but the jump to 1.5 hours is really unpleasant. At 3 hours round trip that's half a working day.

Other things to consider are what the working hours are like - a longer commute but shorter or more flexible hours could offset; whether you could work from home a day or two a week which would bring down your average commute; and whether you can use your commute time doing leisure activities eg reading or working in train or learning languages /listening to podcasts in the car.

If the job otherwise looks good there's not much to lose by interviewing and if they offer it asking for concessions like working from home a day to make it feasible for you

Good luck

sol

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Re: advice on a new job
« Reply #6 on: June 03, 2015, 12:59:18 AM »
Figuring in the increased salary and tax benefits, and subtracting off the lost pension and 401k match and commuting costs, I figure it would net about $15k/year extra. 

The promotion opportunities probably aren't important to me, since I might only work for another two or three years anyway.  Maybe five at the outside.  It wouldn't help me retire any earlier.

Just the whole idea of leaving a career federal appointment seems crazy, like I don't think I know anyone who's ever done it. 

My current commute is about 15 minutes on days I don't have to do kid drop-offs, and 45 minutes on days that I do, split about 50/50.  My new commute would consistently be an hour each way.

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Re: advice on a new job
« Reply #7 on: June 03, 2015, 03:35:02 AM »
No way would I do that commute for +$15k. What's the hourly rate on that commute time, anyway, especially subtracting out the extra fuel.


I'd have to think hard about it at an extra $50k, but $15k is a no-brainer.

happy

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Re: advice on a new job
« Reply #8 on: June 03, 2015, 04:00:51 AM »
5 hours/week extra commute @52 weeks/yr = 260 hours more.
$15k/260 hours = $57/hour for driving the car.
Not too bad a rate for driving the car.

However going on gut feel, increasing to a 2 hour a day commute, for an extra 15k doesn't seem worth it to me, particularly if it will make no difference to FIRE.  I'm a downshifter, so if the jobs were equal, as you say, then I wouldn't do it period, unless the money were enough to make a substantial impact on my retirement date or stash size.

dcheesi

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Re: advice on a new job
« Reply #9 on: June 03, 2015, 04:11:47 AM »
5 hours/week extra commute @52 weeks/yr = 260 hours more.
$15k/260 hours = $57/hour for driving the car.
Not too bad a rate for driving the car.

However going on gut feel, increasing to a 2 hour a day commute, for an extra 15k doesn't seem worth it to me, particularly if it will make no difference to FIRE.  I'm a downshifter, so if the jobs were equal, as you say, then I wouldn't do it period, unless the money were enough to make a substantial impact on my retirement date or stash size.


For an additional hour/day roundtrip, that's a pretty good hourly wage; however, you still have to subtrfact the mileage costs.

Example (guessing 15 mi for that 30 min commute, and using a common mileage reimbursment):

15mi * 2 *. $0.50/mi = $15/ day cost
$57 - 15 = $43/day
* 1hr/day = $43/hr

Of course you have to consider whether you'd accept that as an overtime wage, assuming that you can't subtract travel time from your regular working hours. Plus the general psychological impact of a long commute, which is harder to quantify.

You mention you'd be leaving a federal job; keep in mind that private sector can change its mind at the drop of a hat, screwing you over in the process. What if they hire you, and then next quarter they decide to close the local site, or move it to a new site another hour down the road? If you're only a few years from RE, I'd probably stay put and just ride it out in the more secure government job...

ShoulderThingThatGoesUp

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Re: advice on a new job
« Reply #10 on: June 03, 2015, 04:47:55 AM »
For me? 10x. But right now I don't commute at all and it's awesome.

Doubleh

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Re: advice on a new job
« Reply #11 on: June 03, 2015, 05:09:58 AM »
To be honest for the details you've just described I probably wouldn't do it particularly if it doesn't significantly impact your FI date. Of course if you're current job is unbearable is worth looking but certainly here in the uk government work is far more flexible and respectful of employees than private sector and it sounds like us is similar.

For what it's worth I'm about to start back at work after a year career break to do the final stretch towards FI. I took the offer that would pay about 10% less but offer a better work life balance, shorter hours and more flexibility. It's one of the benefits we get from this path!

civil

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Re: advice on a new job
« Reply #12 on: June 03, 2015, 05:51:48 AM »
Just the whole idea of leaving a career federal appointment seems crazy, like I don't think I know anyone who's ever done it. 

Counterpoint: My federal agency is losing people all over the place! The job market has recovered a little, while the feds didn't get any COLA for years, promotions are few and far between (result: real salaries have fallen almost 10%) and furlough/shutdown and threat of RIFs made a lot of people reconsider their job security. Combine that with technical atrophy, a HCOL location, and the constant threat of increased FERS contributions (I.e. pay cuts), and it's not surprising that people leave their 'cushy' job. Seems the only people staying are the CSRS folks.

Is there a 'push' factor here? Why do you want to leave the feds?

I would probably require about 40k more for a longer commute. But I am in a location where a longer commute would mean insane metrorail, light rail, or toll prices, so the company would have to cover those with the new salary. To switch without a commute, I would like 10k, but my market rate is more like +25-30k, so I'd go for that. Just waiting for a vesting milestone at this point :)

forummm

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Re: advice on a new job
« Reply #13 on: June 03, 2015, 07:01:30 AM »
Don't forget to take into account the cost of driving that extra distance too. Gas, wear, depreciation, maintenance. And there's a job security cost of leaving federal employment. Maybe you don't need the money if they were to let you go, but if you're making this decision based on financial considerations, that's one to consider. If you don't need the money, why are you thinking about making your life a little more difficult to change? Driving a lot is not so fun. Would the hours at the job be the same or longer? Would you enjoy the change in some other way?

asiljoy

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Re: advice on a new job
« Reply #14 on: June 03, 2015, 07:21:03 AM »
Have you ever done a long commute consistently? It is soul-suckingly terrible. And remember, if an average is an hour, there will be days due to weather/accidents/etc that will make it much longer than that.

brooklynguy

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Re: advice on a new job
« Reply #15 on: June 03, 2015, 07:43:23 AM »
Is the commute by car as everyone has assumed?  I commute a little under an hour each way by bike and it's the most enjoyable part of my workday.

It wouldn't help me retire any earlier.

How is that possible?  Do you mean it wouldn't materially help you retire any earlier?  And if you are considering making this move solely for the compensation bump (which seems to be implicit in your original question), then doesn't this fact defeat the purpose of making the move (or else prove itself not to be true)?

Quote
Just the whole idea of leaving a career federal appointment seems crazy, like I don't think I know anyone who's ever done it.

But you will be doing it in "two or three years anyway.  Maybe five at the outside."  Why is it crazy to do it once you're ready to FIRE but not when you're just a few years away from FIRE?

TimmyTightWad

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Re: advice on a new job
« Reply #16 on: June 03, 2015, 08:05:32 AM »
Once upon a time I took a 40 mile each way commute for an extra $10k + good name to have on my resume. I think you have to factor in more than just the money. Will the job propel your career in other ways?

ColaMan

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Re: advice on a new job
« Reply #17 on: June 03, 2015, 09:13:11 AM »
It seems to me that the principal purpose of FI is control of one's time -- the freedom to avoid trading away pieces of your life for money.  If the new job does not materially advance FIRE date, you are making exactly such a trade (and this ignores the extra aggravation and stress associated with a longer commute).  Personally, I wouldn't do it unless the current job situation is sufficiently grim that a change of scenery feels necessary.

thd7t

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Re: advice on a new job
« Reply #18 on: June 03, 2015, 09:55:45 AM »
Figuring in the increased salary and tax benefits, and subtracting off the lost pension and 401k match and commuting costs, I figure it would net about $15k/year extra. 

The promotion opportunities probably aren't important to me, since I might only work for another two or three years anyway.  Maybe five at the outside.  It wouldn't help me retire any earlier.

Just the whole idea of leaving a career federal appointment seems crazy, like I don't think I know anyone who's ever done it. 

My current commute is about 15 minutes on days I don't have to do kid drop-offs, and 45 minutes on days that I do, split about 50/50.  My new commute would consistently be an hour each way.
Based on the part I bolded, this seems like a sacrifice with little-to-no reward.

sol

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Re: advice on a new job
« Reply #19 on: June 03, 2015, 11:00:17 AM »
The job pays more like $25k more plus comes with about 10k in tax savings via a 457 plan.

The pension is better but would require a five year tenure to vest, so I subtracted off the lost pension benefits of my current job without adding in the new pension benefit.  I also already subtracted off the additional costs of the commute, including buying a new car.  The 15k/year number was my estimated net benefit after costs if I don't vest in the pension.

If I DID vest in the pension, the total compensation is worth an extra $42k/yr.  52k if you count the tax savings.  This is a classic OMY type problem, where working the two extra years gets me three years of income and two fewer years of retirement to support.  My rough estimate suggests it would almost double my retirement income.  For doing two years of work that I really believe in.

The extra commute would be by car, though I suspect telework would reduce the number of hours of driving to at most four days per week.  That would be a condition of my acceptance, I think.

I'm seriously considering deliberately postponing my FIRE date by taking a job like this.  Unlike many people here, I'm not morally opposed to the idea of working, especially if the work is fulfilling and meaningful.  This new job would be a better platform for me to really make a difference.

My current job is comfortable but sometimes frustrating.  I study problems and offer solutions and those solutions get ignored. The new job would conceivably let me make real decisions about how to implement the same solutions I already provide to people who ignore them.
« Last Edit: June 03, 2015, 11:15:56 AM by sol »

thd7t

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Re: advice on a new job
« Reply #20 on: June 03, 2015, 11:10:36 AM »
You hadn't brought fulfillment into the discussion, before.  That changes the situation.  If you would have five happy working years vs. 3 frustrating ones, it might be a good excuse for OMY.

Doubleh

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Re: advice on a new job
« Reply #21 on: June 03, 2015, 11:24:05 AM »
X2 - I wouldn't make the shift for money, but the fulfilment aspect sounds like a good opportunity. I understand that there is now going on than fi add soon as possible at any cost, and the opportunity to do work that you care about is a big one. Of course if it doesn't work out as hoped you would still be in a position to go after 3 years which drastically reduces the risk of making the change

brooklynguy

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Re: advice on a new job
« Reply #22 on: June 03, 2015, 11:38:38 AM »
I'm seriously considering deliberately postponing my FIRE date by taking a job like this.  Unlike many people here, I'm not morally opposed to the idea of working, especially if the work is fulfilling and meaningful.  This new job would be a better platform for me to really make a difference.

That's all well and good, but if that's really what's motivating you to consider making this move then why are the golden pension handcuffs a "problem"?  You can take the new job and still retire on your original schedule (or a bit earlier), and you wouldn't have gotten the new job's pension you'd be forgoing if you had kept your current job anyway.  Or you can continue doing the fulfilling and meaningful work of the new job for an additional 2 years (or 20 years), if that's really what you want to be doing.  But I'm hearing some serious cognitive dissonance in your posts, so let me remind you about these words of wisdom from a very smart man:

some people LIKE to work and enjoy what they do! They enjoy the sense of purpose and social interactions. They would be bored in early retirement and feel lost. Really!

Anyone who says this has clearly missed the point of this website, so let me spell it out for you.

"Sense of purpose" is a bad reason to be a wage slave.  You can find purpose in life a million different ways.  Volunteer for the United Way.  Walk dogs at your local animal shelter.  Teach a child how to read.  I seriously doubt your cubicle or office offers the best and highest purpose a human being can find on Earth.

"Social interaction" is a bad reason to be a wage slave.  Do you think early retirees sit home alone all day in darkened rooms?  Quite the opposite, they are free to choose their activities and their company with complete discretion, unlike the office worker who is forced to spend 1/3 of his life in the company of people of someone else's choosing, in a place of someone else's choosing, doing work of someone else's choosing.  Do you really aspire to be told what to do, and when, and where, and with whom?

It's great that you love your job, I love mine too.  But would you do the exact same job if you won the lottery?

Very few people, if being honest with themselves, would claim they would continue their current jobs if they never needed to worry about money again.  They would at least change some small aspect of it, or give up some part they don't like very much.
 
Most of humanity, for most of history, has been obligated to follow orders given to them by people more rich and powerful than they are.  We live in a unique moment in history, one with such abundance that everybody born in a westernized nation is finally capable of breaking free from this kind of slavery.  And yet people keep showing up here to claim "but I LIKE being a slave!"

Work is great.  Purpose is great.  I recommend everyone strive to find both in their lives, as much as possible, and to do so in such a way that your freedom and your economic well being are not dependent on continued obedience.  I am skeptical of anyone who claims he has achieved perfection in both their work and their life's purpose, and even more skeptical of anyone who claims to have found it while being ordered around by a pointy-haired boss.

arebelspy

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Re: advice on a new job
« Reply #23 on: June 03, 2015, 12:29:52 PM »
Following.

Much good stuff has been said, so I'll just highlight what I agree with and other random thoughts:
1) I would break it down to a cost/hour basis, rather than a flat number.

2) Job satisfaction (and life satisfaction/happiness) > money

3) The grass isn't always greener--you assume your suggestions will be implemented, but even though government is partcularly thick with bureaucracy, corporations often suffer from the same problems.  One idiot boss up the chain and you may be just as frustrated there.

4) The post above this was a real smart guy quoting a real smart guy.  Worth thinking about.

5) If the job gets you more money, and more satisfaction, there's no reason it needs to be a OMY thing if it doesn't work out.  You can collect the more money, do the same amount of time, and FIRE if you aren't loving it, or find more purpose elsewhere.

6) I know from your posts on the "Lotto vs. Dream Job" thread you're down on what seems like a lot of people here not wanting to work, but I think subsequent posts after your last one (including my reply) show that isn't necessarily the case.  Many of us want to continue to be meaningful and contribute (even if--and perhaps especially if--that involves hard work), but that doesn't necessarily mean at a "job," other than one we create ourselves.
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milesdividendmd

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Re: advice on a new job
« Reply #24 on: June 03, 2015, 05:24:00 PM »
Sol,

Reading your most recent description of the job, I think you'd be crazy not to take the new job, and I absolutely hate commuting.  Giving yourself the opportunity to really use your training to make a difference in your chosen field is priceless.  Turning your wheels in a well paid cage sounds painful.

The additional money is secondary.

AZ

pdxvandal

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Re: advice on a new job
« Reply #25 on: June 04, 2015, 12:20:35 AM »
An hour each way is pretty brutal. Are you driving to Hillsboro on the 26? Not sure I could do that from my eastside location.

But if the position feels right/good, do it. I just started a job last week in PDX with a 457 plan and pretty excited about it. And I can still bike to work in 20 minutes. Good luck.

forummm

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Re: advice on a new job
« Reply #26 on: June 04, 2015, 07:21:47 AM »
I think I have similar situation coming up where I would have to make a decision in the next 6 months or so, and starting the job in about a year. In my case the commute would only be 10-20 minutes longer. It's really the changing from a comfortable but frustrating job into one where I'd most likely end up with larger net income and have a lot more freedom and direct impact. I haven't really decided yet. I'm also to the point where I could FIRE within 2 years from now, regardless of the job. Or I could keep going if I felt it was worth it. I feel like the new opportunity is something I would want to do or even feel obligated to do for at least a few years if I switched. So it would be delaying FIRE for me. I'm still not sure yet.

Part of my issue is how much money is enough. We're about to have a kid and that's an unclear impact on long-term finances. And we'll probably have another one in a few years.

Anyway, not sure if this post is at all helpful. But I think you don't really have a bad option here. If the commute is a drag, you can power through it for a couple years.

Have you tried actually doing the commute during the hours you would normally be driving each way? It may be better or worse than you think.

mm1970

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Re: advice on a new job
« Reply #27 on: June 04, 2015, 11:31:37 AM »
Well, you are looking at an extra 5 hours a week of commuting, but making $15k per year.  Is it worth that to you?

With the kids, I would go with no.  But I don't know how you and the spouse hand off the kid stuff.  I am the lower income.  It would be super awful if I took a job that required an extra hour of commuting.

As it is, our commute is similar.  15 minutes without kid, 45 min- 1 hr with kids.  (So in the morning it's 15 mins for me and 45 for him, because spouse does dropoff.  In the afternoon it's 15-20 mins for him, and 50min-1 hour for me because I do pickup.)

So does the extra hour mean your spouse is doing more of the kid stuff, and how hard is that?  If I had to commute an extra 30 min...
Then to pick up both kids by 5:30, I would have to leave at 4 instead of 4:30.
To do a full 8 hours, I'd have to start at 7 instead of 7:30 (factoring in lunch).
So I'd have to leave home at 6:15 (assuming a 45 min commute instead of 15 minute).
Which means my husband (or I) would not be able to exercise in the morning - not with our current schedules of working out until 6:30 or 7 am.

If the extra time is on the other spouse - (the later working spouse)
So my schedule would still be 7:30 to 4:30 pm
Hubby would drop off the kids.
Instead of getting to work at 8:45, he would get to work at 9:15.
He'd have to work 8 hours (plus lunch) - till 6:15.
Then he wouldn't get home until 7 pm.  (that's really late, our dinner is at 6).

forummm

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Re: advice on a new job
« Reply #28 on: June 04, 2015, 02:35:02 PM »
What does your SO think about the job opportunity? If you aren't around a few extra hours per week, that might mean more work for them and less time with you.

Guesl982374

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Re: advice on a new job
« Reply #29 on: June 04, 2015, 03:02:12 PM »
...For doing two years of work that I really believe in...

...This new job would be a better platform for me to really make a difference...

My current job is comfortable but sometimes frustrating.  I study problems and offer solutions and those solutions get ignored. The new job would conceivably let me make real decisions about how to implement the same solutions I already provide to people who ignore them.

At this point the money is secondary. Be as sure as you can be that this would increase your happiness and the lines above aren't just a 'grass is always greener' situation. The real question is, if I were FI today and had no use for extra money, would I take the position?

brooklynguy

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Re: advice on a new job
« Reply #30 on: June 12, 2015, 10:07:49 AM »
Sol, any update?

sol

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Re: advice on a new job
« Reply #31 on: June 12, 2015, 01:01:15 PM »
Sol, any update?

Waiting to hear back from them, so not really.

I think it's easy to romanticize any new opportunity, thinking it will be great when you don't really know the specifics yet.  Job descriptions are like dating website profiles, they tend to highlight the positives and gloss over (or entirely neglect) any glaring flaws.  Maybe it will be awesome, maybe it would be a nightmare, but I figure there's no harm in going on that first date to find out, right?

arebelspy

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Re: advice on a new job
« Reply #32 on: June 12, 2015, 01:02:43 PM »
Sol, any update?

Waiting to hear back from them, so not really.

I think it's easy to romanticize any new opportunity, thinking it will be great when you don't really know the specifics yet.  Job descriptions are like dating website profiles, they tend to highlight the positives and gloss over (or entirely neglect) any glaring flaws.  Maybe it will be awesome, maybe it would be a nightmare, but I figure there's no harm in going on that first date to find out, right?

Sure.  Just make sure you tease em a little and play hard to get, don't just put out right away.
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BlueHouse

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Re: advice on a new job
« Reply #33 on: June 12, 2015, 02:25:22 PM »
I spent a shit-ton of money a few years ago to end my 45-minute commute.  I would have to be retired on the spot in order to start it up again on purpose.  But I suppose I would probably do it for an increase of $100K.  Maybe. 

In your situation, I'd ask for a 4-40 work week (40 hours in 4 days) and work from home at least one of those 4 days. 

mozar

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Re: advice on a new job
« Reply #34 on: June 12, 2015, 06:00:36 PM »
Quote
Sure.  Just make sure you tease em a little and play hard to get, don't just put out right away.

What do you mean exactly? (Seriously, I have an interview coming up)

jba302

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Re: advice on a new job
« Reply #35 on: June 12, 2015, 07:30:41 PM »

My current job is comfortable but sometimes frustrating.  I study problems and offer solutions and those solutions get ignored.

Apparently we have the same job.

DoubleDown

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Re: advice on a new job
« Reply #36 on: June 17, 2015, 11:50:54 AM »
How did you calculate the value of the pension at your current Fed job?

Whenever I considered other outside offers against my Federal job and the pension value + job security, I never found it worthwhile to leave. If you assume you'll live 30 years after starting your pension (a nice round figure), and multiply that by 1% of your salary for every additional year worked, it's a startlingly large amount of money.

So, let's say you earn $120k currently. For every year you work, you'll get an additional $1200 x 30 years = $36,000. If the new job doesn't provide at least that much in additional salary/benefits, it's not worth leaving (from the financial perspective). If you stayed 3 years at the fed job (when you are eligible to ER), that's an additional $108k in money earned, and you're already vested.

Jeremy E.

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Re: advice on a new job
« Reply #37 on: June 17, 2015, 11:58:27 AM »
Things to consider
1. They must pay enough to cover an extra hour of your time every work day, I would value this hour higher than other hours, as it's an overtime hour, maybe act like you're hourly and value it at 1.5x the value of a normal hour.
2. They must pay enough to cover 60 minutes worth of commute costs/work day, including gas and devaluation of your car.
3. Were you able to ride a bike to work even if it was only 1 day per week, and are now unable to do so? If so, they will also need to pay you for an extra X amount of time to exercise that you would normally have gotten from biking to work.
« Last Edit: June 17, 2015, 02:47:04 PM by Jeremy E. »

sol

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Re: advice on a new job
« Reply #38 on: June 17, 2015, 12:12:35 PM »
How did you calculate the value of the pension at your current Fed job?

By using a net present value calculation that estimates the pension deposit growth rate until withdrawn and the payout rate after that.

The assumptions you use for those numbers are critically important to the answer in current dollars, but there is enough information out there about the federal pension system to make some informed guesses.

My results suggest that the sum total of your pension contributions (yours plus matching) are significantly more than your pension's value early in your career, and significantly less than its value late in your career.  I'm seven years in and my pension NPV is about 2/3 of what has been paid towards it.  By contrast, if you work 40 years then the last year your pension NPV goes up by more than your entire salary.  So effectively, people who work shorter time periods are subsidizing the pensions of people who work the longest.

What this means in practice is that while a pension gets harder and harder to abandon the longer you stay in government, it is easier to give up the sooner you do it.  In my case, the new job would have to replace that lost annual pension NPV increase with a corresponding salary increase or better pension arrangement.

forummm

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Re: advice on a new job
« Reply #39 on: June 17, 2015, 12:16:03 PM »
How did you calculate the value of the pension at your current Fed job?

Whenever I considered other outside offers against my Federal job and the pension value + job security, I never found it worthwhile to leave. If you assume you'll live 30 years after starting your pension (a nice round figure), and multiply that by 1% of your salary for every additional year worked, it's a startlingly large amount of money.

So, let's say you earn $120k currently. For every year you work, you'll get an additional $1200 x 30 years = $36,000. If the new job doesn't provide at least that much in additional salary/benefits, it's not worth leaving (from the financial perspective). If you stayed 3 years at the fed job (when you are eligible to ER), that's an additional $108k in money earned, and you're already vested.

Your estimates are too high. The nominal value of those payments is going to be far less than the net present value of those payments. And if you RE, the undiscounted payment stream doesn't start until 62, and it's not adjusted for inflation until after the annuity starts. So with average life expectancy, the payment stream would probably only last about 16 years for a male. The better way to think of it is--what would an annuity cost in today's dollars that would provide that marginal level of payment starting XX years in the future. If you are getting close to MRA and the 10 years of service, that value of working another year is pretty high. If you're in your 30s, it's pretty low. Maybe a few grand or less.

The way I think about it is how much cash would I need if I were to invest that cash in the stock market until hitting 62, and then have that cash buy me an annuity (or alternatively, a 4% SWR) that would match the additional amount of pension gained by 1 additional year of working. It's around $1k for someone in their 30s making $100k.

sol

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Re: advice on a new job
« Reply #40 on: June 17, 2015, 12:23:22 PM »
Quote

The way I think about it is how much cash would I need if I were to invest that cash in the stock market until hitting 62, and then have that cash buy me an annuity (or alternatively, a 4% SWR) that would match the additional amount of pension gained by 1 additional year of working. It's around $1k for someone in their 30s making $100k.

Except that your pension contributions aren't invested in the stock market until age 62, they're invested in the G fund.

And the government's annuity rates are slightly better than private market ones, because they have a much larger client pool and operate with zero profit margin, unlike an insurance company.

And the "times years of service" part of the pension calculation really hits hard.  A federal employees in his 30s might have two years of service or 20 years of service, and those two scenarios offer vastly different pension payments.
« Last Edit: June 17, 2015, 12:26:47 PM by sol »

forummm

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Re: advice on a new job
« Reply #41 on: June 17, 2015, 01:55:17 PM »
Quote

The way I think about it is how much cash would I need if I were to invest that cash in the stock market until hitting 62, and then have that cash buy me an annuity (or alternatively, a 4% SWR) that would match the additional amount of pension gained by 1 additional year of working. It's around $1k for someone in their 30s making $100k.

Except that your pension contributions aren't invested in the stock market until age 62, they're invested in the G fund.

And the government's annuity rates are slightly better than private market ones, because they have a much larger client pool and operate with zero profit margin, unlike an insurance company.

And the "times years of service" part of the pension calculation really hits hard.  A federal employees in his 30s might have two years of service or 20 years of service, and those two scenarios offer vastly different pension payments.

I gave a few options, because you can't really compare the exact amount very easily. For the one that uses the stock market return, it's the best (in terms of expected return) alternative investment available. So in your scenario, to account for the missed years of pension accrual, you have the option of taking X amount of money from your non-federal salary for that first year and putting it in a taxable stock fund, letting that grow until 62, and then paying yourself 1% of your forgone federal salary from that fund. Solve for X is what I was saying. It's of course not a guarantee. But if we believe the 4% SWR is pretty close to a guarantee, it's one way of looking at it.

I was only calculating the amount needed in extra non-federal annual salary (i.e. one year) to compensate for not getting the pension that comes with that salary for that year. So each additional year you worked the amount would change a little. But for someone retiring in their 30s, the amount of change would be somewhat small. You already have earned the pension for those 5 (saying 5 and not 2 because you need 5 to get anything) or 20 years. It's the marginal increase in pension that counts.

sol

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Re: advice on a new job
« Reply #42 on: June 17, 2015, 02:00:38 PM »
It's the marginal increase in pension that counts.

Yes.  In my case the marginal increase in my pension value from staying a fed for one extra year is about 2/3 of the total pension contributions, which suggests I would be better off if the just paid me those contributions directly instead of putting them into my pension for me.

Alas, that is not a choice I am allowed to make.  I will end up forfeiting a significant portion of my pension by not working until full retirement age.

brooklynguy

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Re: advice on a new job
« Reply #43 on: June 17, 2015, 02:15:23 PM »
I will end up forfeiting a significant portion of my pension by not working until full retirement age.

Don't feel too bad about it, because essentially every early retiree effectively forfeits a huge amount of financial remuneration in one form or another by retiring early.

forummm

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Re: advice on a new job
« Reply #44 on: June 17, 2015, 03:34:05 PM »
It's the marginal increase in pension that counts.

Yes.  In my case the marginal increase in my pension value from staying a fed for one extra year is about 2/3 of the total pension contributions, which suggests I would be better off if the just paid me those contributions directly instead of putting them into my pension for me.

Alas, that is not a choice I am allowed to make.  I will end up forfeiting a significant portion of my pension by not working until full retirement age.

I don't think of it as forfeiting. You still get to keep what you've already earned. You're just declining to take the extra money (pension, salary, healthcare, etc) they would give you later because you don't value it as much as the additional time you'd have to give them in exchange for that money.

It is irritating that the benefits are setup so that every form of compensation increases the longer we work. Pension, salary, and healthcare benefits are typically more valuable each additional year of work (up until a certain more advanced age, and then salary and healthcare benefits may decline). It would be much nicer for early retirees if they were more steady throughout life.

DoubleDown

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Re: advice on a new job
« Reply #45 on: June 19, 2015, 05:45:09 PM »
I still think multiplying your (salary) x (.01) x (30) gives a good "finger to the wind" guesstimate when doing salary comparisons. Sure, if you're really young and your pension will get hit hard by inflation in the intervening years, it may be over-estimating. But my general point is: don't forget how valuable the pension is when doing job comparisons; the extra 1% (for each year worked) aggregated over 25 - 40 years of your retired life is a very substantial benefit beyond salary.