Author Topic: Pension vs Lump Sum Bail  (Read 423 times)

civil4life

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Pension vs Lump Sum Bail
« on: September 12, 2017, 05:45:02 PM »
I need some Mustachian advice.  Nine years ago I moved to another state for work after graduating college.  I work for a local government that still has a pension system.  I know I am no longer in it for the long haul as I miss my hometown.  I want to get back there as soon as possible.  However I do not want to shoot myself in the foot financially.  I need some advice on how much longer I should stay. 

At a minimum I need 10 years to be vested in the pension system.  I will have 10 years on 10/1/19.  My future pension is based on the average base pay for my 3 highest pays.  Then, I would get 2% per year of service annually starting at age 60.  For example if my basepay averaged $100,000 and worked 10 years I would receive $20,000 annually after age 60 for the rest of my life.  The other possibility is to bail at any time and get a lump sum of my current investment plus interest.

10/1/17 - $96,390
10/1/18 - $96,390*
10/1/19 - $96,390*

*Worst case no raise or cost of living raise.

Assuming I leave when I am vested on 10/1/19 my average base pay would be at least $96,390, with 20% being $19,278.

Pension contribution with interest as of 12/1/16 was $42,201.44

Since then I have contributed $2,919.40.  Interest earned on my contribution would be 4.25%

I contribute 4% of my salary per pay which is biweekly.  Right now that is $148.

So do I stick it out until October 2019 or bail taking my lump sum plus interest and invest myself to be used whenever?

Additionally, I will be 34 in November.

Thanks in advance!





civil4life

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Re: Pension vs Lump Sum Bail
« Reply #1 on: September 15, 2017, 07:21:18 AM »
Bump...Any comments would be greatly appreciated.

Basenji

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Re: Pension vs Lump Sum Bail
« Reply #2 on: September 15, 2017, 08:01:39 AM »
$20k at 60 is pretty good. Could you make to 10? Take 2 years to get yourself positioned to move, get your finances in order, etc. You're young, that money will be welcome later.
« Last Edit: September 15, 2017, 08:04:33 AM by Basenji »

Jaayse

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Re: Pension vs Lump Sum Bail
« Reply #3 on: September 15, 2017, 01:24:51 PM »
Here are your choices as I see them:

A)  Wait it out - you receive the promised 20k a year starting at age 60, the equivalent of 4% SWR on $500,000 with out the risk of the market.  However if this is a pension fund, it needs to survive to be paid out and you need to survive to collect it.

B) Take the money and go back to your hometown - you have approximately 45k right now, which is estimated to double every 10 years with investing over the 25 years until you are 60.  That would be the equivalent of around 90k in 10 years, 180k in 20 years and 360k in 30 years. 

Looking at the money alone, option A is your choice.  Looking at it from a life perspective, you would like to go back home as soon as possible, and if you retire early the lump sum will add to your FIRE number.  Risk vs reward is your choice in this case and either way, you will be fine with the skills you have to save.  Do what is right for you.
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