Author Topic: how safe is my husband's government pension?  (Read 6399 times)

simplertimes

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how safe is my husband's government pension?
« on: December 05, 2015, 10:38:44 AM »
So my husband works for our local city as a professional at City Hall, and pays into a government pension.  I am a stay at home mom, and we have no other retirement savings.  In our early thirties so pretty far from the typical retirement, I believe he said the earliest he can retire for his pension is 54.

He said that there is a retirement option that allows him to take a little less each month, but which would guarantee I can continue receiving the same monthly amount even if he dies.  Otherwise I would only get 50% of the money each month if he dies before me.

Anyways, I have brought up repeatedly to him my fear that his pension could disappear like the various other stories out there such as United Airlines I think?

He is confident that it won't ever be an issue, and that there is no need for us to save for retirement beyond his pension.  I keep wondering if we should get a Roth IRA for at least me...

The issue is that there is only so much money, so we need to decide if we should invest in Roth IRAs, college savings for the kids, paying off the principal on the house, or some combination of all of these.

I would appreciate some opinions on this matter!  We live in a nice college town that has thus far been pretty recession proof, for example housing prices barely fell during the crash and are back to appreciating absurdly.

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Re: how safe is my husband's government pension?
« Reply #1 on: December 05, 2015, 12:08:09 PM »
It's safe as long as the organisation your husband is working for stays in existence and solvent.  Which is as good a chance as any other organisation of the same type.

If you are that worried, why not start earning your own money?  Even if your kids are pre-school at the moment and taking up all your time, they won't be for ever.  As soon as they are both at the state babysitter (er, school), you will have all that extra time in which to earn your own money and your own pension.  That would set your mind at ease more than anything that can be said here.  You could easilly earn twenty years of your own money, even if you are starting from nothing now.

Villanelle

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Re: how safe is my husband's government pension?
« Reply #2 on: December 05, 2015, 12:29:32 PM »
I would never be comfortable relying 100% on a pension of any kind.  That would feel very, very scary to me. 

In the items you mention as possibilities, you left out two very important ones--earning more and spending less.  Those are the things I would do first.  Scrub your budget.  Nearly *any* budget as room for cuts--usually hundreds of dollars.  Also, you can likely find some work, even if it is just a couple evenings, or something from home.  Can you watch someone else's child during the day a couple days a week?  Do you have any hobbies you could monetize (making sure you'd actually make more than you spend to produce?

If you post a full and detailed budget, everyone here can help find savings.  If I had zero retirement savings, I would be doing things like selling one car (if you have two), moving to a smaller, closer home, stopping any and all eating out, canceling cable, etc. 

As for the survivor plan, it you feel it's necessary, look at the amount it would cost him monthly and see if you could get a comparable amount of life insurance for less money. 

crispy

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Re: how safe is my husband's government pension?
« Reply #3 on: December 05, 2015, 12:47:20 PM »
My husband's company has a defined benefit pension plan (well, not anymore- new employees aren't offered the option).  We have always saved and invested independently of it because we don't want to put all of our eggs in one basket.  We both invest in our 401(k)s and I have an additional account since I was a SAHM for several years. You never know what will happen, and I for more comfortable this way.

pbkmaine

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Re: how safe is my husband's government pension?
« Reply #4 on: December 05, 2015, 12:58:07 PM »
My husband has a very good pension. We have saved enough in our 401(k)s to equal his pension at a 4% withdrawal rate. We will also have the max Social Security. We belong to the "you can't save too much for retirement" camp.


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seattlecyclone

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Re: how safe is my husband's government pension?
« Reply #5 on: December 05, 2015, 01:20:10 PM »
People on Detroit's pension program had their benefits cut 6.7% as a result of that city's municipal bankruptcy. It may not seem likely to happen in your city at the moment, but who would have expected Detroit to go bankrupt in 1980, for example? You will be retired for a long time. The pension will probably be there for you in some form, but it's good to have a bit of extra money set aside in case something happens to it.

cawiau

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how safe is my husband's government pension?
« Reply #6 on: December 05, 2015, 02:01:33 PM »
Why does your husband feel you guys do not need to save?

How much of his income will the pension plan replace?

I would definitely considers other options just in case:

- Maybe a Roth or Traditional  IRA for you since you are not working or both of you.

Both my wife and I have pensions at our respective employers and will probably stay with them long term (both 30) but we still max our 401k and 403b).

Better be safe than sorry! We figure pension and social security will be our "fun" money/income stream.


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« Last Edit: December 06, 2015, 05:57:12 AM by cawiau »

Argyle

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Re: how safe is my husband's government pension?
« Reply #7 on: December 05, 2015, 02:43:49 PM »
I don't think anyone with financial sense is depending solely on a pension.  For one thing, except in extremely rare cases, they only provide a portion of one's income.  How much would his provide?  If he retires or changes jobs before the standard retiring age (probably 65, but it could be later), he'll also get less.  I work for a government-related entity with a pension system, and if I stayed till age 65, I'd get 50% of my salary.  Are you guys okay with living on 50% of his salary?  Are you sure you wouldn't breathe easier with some extra?

He may not realize that he probably has a work-sponsored 401(k) or 403(b) plan, which allows him to put extra retirement savings away in a pre-tax fund.  This means that you get to save X amount of money per month (you choose how much), but his paycheck is not reduced by X amount, only by a percentage of that.  For instance, if you put $1000 in the plan per month, he might see only $500 less in his paycheck.  (I'm making these numbers up, but you get the theory.)  He can save $18,000 per year this way.  If work also offers a 527 plan, that's an extra $18,000 per year he could put away on the same kind of deal.  If the work matches the amount put away, you're on easy street.  However, government entities provide matches much less frequently than private companies.

If he put away money in retirement accounts now, it would have room to grow over the years, and be worth a ton more by the time retirement comes along.

Perhaps he would be open to hearing about these possibilities, which many thousands of people take advantage of.  If not, that's something for you to consider that he's not open to being careful to provide for you, as well as for himself, fully in retirement.  You may wish to look for a job when your kids start school, or to re-enter your career.  No one should be at the mercy of the poor financial decisions of a spouse.  Since right now you're both living off one income, if you make money, you can sock the whole of it away in your own retirement accounts.  (If your company doesn't offer them, at the least in an IRA.)  Then you'll have a nest egg you can be sure of, and which may be very valuable to both of you in the retirement years.

MrsPete

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Re: how safe is my husband's government pension?
« Reply #8 on: December 05, 2015, 03:15:56 PM »
we have no other retirement savings ... He said  ...
These are the two scariest things you've said.

No matter what your plans, you shouldn't be completely dependent upon any one source of income for your retirement income.  For example, I will have a pension ... AND both my husband and I will have Social Security, AND we each have 401Ks, AND we have significant savings in various locations AND we have a paid-for house.  If my pension were to disappear, it would hurt us, but we'd have other items upon which to fall back.  If you're counting on that pension and it disappears, you're left with nothing. 

Yes, typically with a pension the earner can choose from several options, and they'll vary from employer to employer.  I do have two options that allow me to take less ... but my husband can continue to collect if I die first ... however, it's not "a little less each month".  Rather, it's more like a 20% deduction.  Regardless, you shouldn't be relying upon "he said" -- by his own admission, he's not really thinking about retirement savings, so he's just repeating what he's heard here and there -- you two should go over it together, and you should know. A similar question:  You have years until retirement, what happens if he should die or become disabled before he reaches 54 and qualifies for that pension? 

I think you're putting yourself in a dangerous position.  I urge you to study your options and make some changes now.  I don't hear you 'specially desiring early retirement (though since you yourself aren't working, I guess you wouldn't), but I think you're absolutely right to be concerned about retirement in general.  Compared to Americans as a whole, you're still young to be concerned about retirement savings, so you're not really behind -- but you need to get serious about this topic today.  Your greatest asset is that you have years ahead of you for your savings to grow. 
« Last Edit: December 05, 2015, 03:22:31 PM by MrsPete »

Cassie

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Re: how safe is my husband's government pension?
« Reply #9 on: December 05, 2015, 03:59:38 PM »
My hubby & I each have a pension but we also have other things too as many people have mentioned. WE each took the reduction to leave the pension to each other.  However, when one of us dies the person still alive gets their full pension amount so the reduction is not for life plus the other person's pension.  You really need to check the options.  Don't want to be a downer but divorce or deaths do happen & you need to have some financial assets of your own. Once your kids are in school I would return to work even p.t. to build up retirement savings.  You are used to living on one income anyways so you can save the rest.  20 years will fly by so look out for  yourself now.

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Re: how safe is my husband's government pension?
« Reply #10 on: December 05, 2015, 04:45:00 PM »
Without 40 employment credits (used to be quarters of employment) you will not qualify for either Medicare or your own Social Security.  If your husband's employer does not participate in Social Security, you will not get Social Security if he dies before you.  If a divorce were to occur, you would get whatever the court orders from his pension, which would likely not be enough for you to get by.

In your shoes, I would buy a term life insurance policy on him that will cover all your expenses for raising the children and leave you some money for yourself.  This is absolutely critical if he does not pay into Social Security, because there will be nothing for your children from Social Security if he dies before they are 18.  The term should extend at least through the child rearing years, maybe until he is eligible for the full pension.  Any decision he makes about his pension is subject to your approval, so the two of you should discuss the various choices and determine what will work best for your situation. 

I would also look to fund both IRA's every year.  If you are eligible for traditional IRA's, those will reduce your taxes and soften the blow.  If your husband has a 457 plan, that's worth considering as well.  Kids can go to college on scholarships and loans, so I would prioritize retirement savings over college.  The same with the mortgage - no point in paying it down if you can't afford the payments if something were to happen to your husband before it is paid off.

At some point, I would go back to work, at least long enough to get the credits needed to qualify for Medicare and your own Social Security.

And yes, government pensions are not as secure as they used to be.  You and your husband would be smart to research how well funded his pension plan is and to evaluate the risk realistically if it is seriously underfunded.

simplertimes

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Re: how safe is my husband's government pension?
« Reply #11 on: December 05, 2015, 05:56:59 PM »
Thank you everyone for your suggestions.  I got more information about his particular pension program:

The earliest he can retire is age 55, with 25 years of service.  This will give him 75% of his income, though much less (he's confirming but it looks to be about 20% less) if we arrange things so I can take the benefit after he dies.

Every year beyond 25 years of service gives him another 2.5% of his income (based on the final average of five consecutive years of the last ten of employment), and many of his coworkers recommended working a few years beyond 25 for this reason.

To give you some more background on our overall, we had more than $50k in a 401K that we used to pay off our student loans (after a lot of math comparing the difference in interest savings on the loans vs. the penalties for early withdrawal, factoring the psychological toll of the student loan debt and improved quality of life without it...).  Thanks to very poor advice from my parents we both attended private college and graduated with $140K in student loan debt, so this burdened us significantly in our twenties as we worked to eliminate it.

We are currently renting with the intention of buying a home in less than 18 months.  We are currently able to save $10,000 per year with very little effort, and are striving for even more savings as we adopt a more "mustachian" lifestyle.

My husband makes nearly $90,000 per year.  I'm actually quite surprised to see so many people suggesting I re-enter the workforce.  I already live the mustachian dream of early retirement, haha!  I want to live life on my own terms, not at the beck and call of the corporate world I so eagerly left when I became a stay-at-home mom!

I do sell items on Etsy and make several hundred dollars a year, and could easily make more once the kids are in school. I want to pursue other artistic efforts including writing once they are in school as well.  I am an avid gardener and consider that a wholesome way of contributing to the family, and intend to raise chickens and learn more about preserving food to help our family as well.

Someone mentioned social security.  My husband does pay into social security through work and so will qualify for it, however I do not have enough hours in the working world to qualify.  I have thought about going to work part time at some point just to earn my "credits" or whatever, so maybe someday.

I am committed to saving at least something for my kids' college education as I will not do what was done to me (my parents earn more than $160k per year, I was their only child, and they did not offer a dime for college). 

So we will find a way to balance retirement savings, paying off the house once we buy it, and saving for kids' college.  Husband is actually content to not retire earlier than his fifties right now, but the points about death or disability are quite valid (we do have a significant life insurance policy for each of us to help a bit).  He is open to beginning Roth IRA contributions once we buy the house, so thank you for helping me start this dialogue with him.

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Re: how safe is my husband's government pension?
« Reply #12 on: December 06, 2015, 04:32:40 AM »
Congratulations on paying off your student loans.

  I'm actually quite surprised to see so many people suggesting I re-enter the workforce.  I already live the mustachian dream of early retirement, haha!  I want to live life on my own terms, not at the beck and call of the corporate world I so eagerly left when I became a stay-at-home mom!

The point here is that those of us who are living the mustachian dream worked to get our financial houses in order first and then freed ourselves of the corporate world.  You are not FIREd, you are a stay at home mom with a limited work record, dependent on your husband's income and with no personal entitlement to social security.  Which is a nice life for you and your family, and works just fine as long as everything in your world goes well: no long-term illnesses, no redundancy, no pension disappearing, no divorce aged 55 or 60.  I hope none of those bad things happen to you.  If they do happen to you, having your own money and a track record that enables you to earn more is better than the alternative.

lakemom

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Re: how safe is my husband's government pension?
« Reply #13 on: December 06, 2015, 05:41:09 AM »
Thank you everyone for your suggestions.  I got more information about his particular pension program:

The earliest he can retire is age 55, with 25 years of service.  This will give him 75% of his income, though much less (he's confirming but it looks to be about 20% less) if we arrange things so I can take the benefit after he dies.

Every year beyond 25 years of service gives him another 2.5% of his income (based on the final average of five consecutive years of the last ten of employment), and many of his coworkers recommended working a few years beyond 25 for this reason.

To give you some more background on our overall, we had more than $50k in a 401K that we used to pay off our student loans (after a lot of math comparing the difference in interest savings on the loans vs. the penalties for early withdrawal, factoring the psychological toll of the student loan debt and improved quality of life without it...).  Thanks to very poor advice from my parents we both attended private college and graduated with $140K in student loan debt, so this burdened us significantly in our twenties as we worked to eliminate it.

We are currently renting with the intention of buying a home in less than 18 months.  We are currently able to save $10,000 per year with very little effort, and are striving for even more savings as we adopt a more "mustachian" lifestyle.

My husband makes nearly $90,000 per year.  I'm actually quite surprised to see so many people suggesting I re-enter the workforce.  I already live the mustachian dream of early retirement, haha!  I want to live life on my own terms, not at the beck and call of the corporate world I so eagerly left when I became a stay-at-home mom!

I do sell items on Etsy and make several hundred dollars a year, and could easily make more once the kids are in school. I want to pursue other artistic efforts including writing once they are in school as well.  I am an avid gardener and consider that a wholesome way of contributing to the family, and intend to raise chickens and learn more about preserving food to help our family as well.

Someone mentioned social security.  My husband does pay into social security through work and so will qualify for it, however I do not have enough hours in the working world to qualify.  I have thought about going to work part time at some point just to earn my "credits" or whatever, so maybe someday.

I am committed to saving at least something for my kids' college education as I will not do what was done to me (my parents earn more than $160k per year, I was their only child, and they did not offer a dime for college). 

So we will find a way to balance retirement savings, paying off the house once we buy it, and saving for kids' college.  Husband is actually content to not retire earlier than his fifties right now, but the points about death or disability are quite valid (we do have a significant life insurance policy for each of us to help a bit).  He is open to beginning Roth IRA contributions once we buy the house, so thank you for helping me start this dialogue with him.

Make your Esty sales a "business" not a hobby......Don't necessarily increase time spent just professionalize it.
1.  Set up an IRA and put at least 50% of all esty money into it....now you at least have a start on retirement
2.  Set up a separate bank account for your Esty to track your income/outgo
3.  File a schedule C each year with your taxes paying the Self-Employment Tax earning credits towards SS
4.  You must show a profit after five years (double check that with an accountant or on the IRS website) or stop taking the deductions.
5.  As the kids grow up either grow the Etsy or find another type of work (part time, full time, different business, etc.) that you enjoy and grow your retirement saving with that.

MrsPete

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Re: how safe is my husband's government pension?
« Reply #14 on: December 06, 2015, 08:15:32 AM »
The point here is that those of us who are living the mustachian dream worked to get our financial houses in order first and then freed ourselves of the corporate world.  You are not FIREd, you are a stay at home mom with a limited work record, dependent on your husband's income and with no personal entitlement to social security.  Which is a nice life for you and your family, and works just fine as long as everything in your world goes well: no long-term illnesses, no redundancy, no pension disappearing, no divorce aged 55 or 60.  I hope none of those bad things happen to you.  If they do happen to you, having your own money and a track record that enables you to earn more is better than the alternative.
You've eloquently stated the point that I was going to make.  You're not financially independent -- you're dependent upon your husband's current paycheck both for today's needs and for retirement.  This is not the goal you'll find on this website.

OP, you say that your husband is interested /willing to work into his 50s.  As someone older than you, I can only tell you that this thought tends to shift.  Both my husband and I've seen it in our separate workplaces:  The younger workers are rewarded with pay increases, etc., while the older workers are subtly told that they're not as welcome as they once were.  The novelty of having a good job wears off too.  To genuinely be in a position of strength, you need to save while you're young ... so that IF you want to continue working, you're fine, but IF you choose to leave, it's a realistic possibiity. 

wenchsenior

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Re: how safe is my husband's government pension?
« Reply #15 on: December 06, 2015, 08:17:11 AM »
Security of pensions is highly variable. Some states, cities, etc., are highly rated and projected to remain solvent. Some were more or less built on empty promises :cough:Detroit:cough and are unlikely to remain solvent.  My husband will receive a Federal pension (one of the most secure around), but we are in no way relying only on that to support us, even if he works to 67! That would be far too large a gamble, IMO.  The reality of potential health issues, divorces, deaths, caring for or financial support for aging parents, etc., really became apparent to us as we and our friends began to deal with these things starting in our early 40s. We cannot know for sure how long we will be able to work, what unexpected life expenses might come up, etc. I have watched nest eggs of 2M+ get drawn down incredibly rapidly because of a few years of bad life events.

So, to sum up: in addition to any pension my husband receives, we are aiming to save a minimum of 800K in cash (hopefully more) so that we have SS, pension, and our own savings before entirely stopping work. I would not in good conscience advise anyone to ever rely on pension only.

ShoulderThingThatGoesUp

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Re: how safe is my husband's government pension?
« Reply #16 on: December 06, 2015, 08:55:20 AM »
My borough of 11,000 people has pension plans for its employees. They are underfunded by $2,000,000 and assume a 7-8% rate of return. Something's going to have to give at some point.

Retire-Canada

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Re: how safe is my husband's government pension?
« Reply #17 on: December 06, 2015, 08:56:26 AM »
The point here is that those of us who are living the mustachian dream worked to get our financial houses in order first and then freed ourselves of the corporate world.  You are not FIREd, you are a stay at home mom with a limited work record, dependent on your husband's income and with no personal entitlement to social security.  Which is a nice life for you and your family, and works just fine as long as everything in your world goes well: no long-term illnesses, no redundancy, no pension disappearing, no divorce aged 55 or 60.  I hope none of those bad things happen to you.  If they do happen to you, having your own money and a track record that enables you to earn more is better than the alternative.

My mother found herself divorced and broke at 50 with no work experience, advanced education and no savings since my dad managed to hide his $$ overseas. She ended up doing okay by sheer force of will and working like a fiend.

If she had a do-over I can guarantee you she'd get a university degree and have worked instead of being a SAHM so she would have had her own money and been able to earn more $$ without a struggle.

Of course when she got married she assumed the vision in her head for her life would work out as planned, but it didn't.

OP you don't have to go back to work. It's just one option. What you do have to do is come up with a robust plan that looks after your basic needs if any of the reasonably possible risks were to manifest.

Personally staying at home while my SO worked would not be my idea of the mustachian dream, but that's a personal thing. I'm saving my own FIRE $$ independent from my SO. If we are together forever we'll have a sweet FIRE with lots of risk protection. If we are not together forever we will each be totally fine financially.

simplertimes

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Re: how safe is my husband's government pension?
« Reply #18 on: December 06, 2015, 09:26:23 AM »
I hear what you are all saying, and I agree that I'm not truly financially independent as I rely on my husband's income.  I think, though, that he and I can accomplish as a team the concept of becoming more financially independent without me sending my kids to daycare or returning to work (which frankly even with kids in school is not easy to do considering summer/winter breaks and sick days etc.).  After all, he makes $90,000 per year, far above the median household income including families with two workers!  Surely that is enough money to expand our savings goals without me returning to work :)

We are going to seriously re-evaluate our situation and work to contribute to Roth IRAs for the both of us, build up a significant savings nestegg and set reasonable savings goals for our kids' college education.  We also intend to work out a plan to make extra mortgage payments early on to gain the most interest savings.

Our true goal would be to have a significant savings by the time he retires, along with having paid a big portion (but not all, our current goal is to save $40,000 per child) of our children's college educations, and have the house fully paid off before he retires.  Supplementing all of this with additional IRA contributions will protect both him and me in the event of divorce or disability.

While I may not be able to say I'm officially FIRE'd, I do really and truly relate to Mr. MM when he speaks of his earning potential as a result of being FIRE'd.  I believe I have a lot of earning potential thanks to the freedom from having to work a 9-5 full time job.

I sell things on Etsy, I save the family money with my gardening endeavors, I intend to pursue writing when my youngest enters college, and am open to part-time work for the sake of gaining social security and a little extra towards our savings goals.  I'm in my early 30s and FREE from the burden of HAVING to work.  As all of you have admitted, me returning to work would be entirely optional and for preventative purposes, to protect myself in case something happened later on.

Well much of being a SAHM is philosophical, and I would rather be here for my kids now and pursue true passions and interests in the hopes of someday bringing in money (i.e. writing) than go work at a coffee shop on the weekends to protect myself from issues should I end up divorced at 50.  Maybe it's short sighted, maybe not.  I know there's some saying out there about how you have the rest of your life to work, but not the rest of the life to raise your babies.

I think the best solution for my family would be to pursue more of a Mustachian lifestyle thereby increasing our savings potential, using this extra money in the best possible way to ensure a secure financial future for myself, my husband, and my littles, all while continuing to enjoy the benefits of being removed from the typical workplace and pursuing passions and interests that have the potential to bring in earnings over the next couple of decades.
« Last Edit: December 06, 2015, 09:53:48 AM by simplertimes »

2ndTimer

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Re: how safe is my husband's government pension?
« Reply #19 on: December 06, 2015, 09:58:44 AM »
I am a stay-at-home-spouse too due to health issues.   The way I help to make up for my lack of earning is to mustache the heck out of our money.  You are making a good beginning looking into the pension.  While you are at it check into other programs that may be available through you spouse's job.  For example, I recently dug out that we could put $3,000 a year in a tax free account for medical and dental co-pays, thus depriving Uncle Sam of $450 of our hard earned money.

« Last Edit: December 06, 2015, 10:01:28 AM by 2ndTimer »

iris lily

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Re: how safe is my husband's government pension?
« Reply #20 on: December 06, 2015, 10:05:44 AM »
Of COURSE you should have a savings vehicle for retirement. Take the old view that retirement if funded on three prongs: Social Security, pension, and private funds. Otherwise is foolish.

MrsPete

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Re: how safe is my husband's government pension?
« Reply #21 on: December 06, 2015, 11:51:38 AM »
My mother found herself divorced and broke at 50 with no work experience, advanced education and no savings since my dad managed to hide his $$ overseas. She ended up doing okay by sheer force of will and working like a fiend.

If she had a do-over I can guarantee you she'd get a university degree and have worked instead of being a SAHM so she would have had her own money and been able to earn more $$ without a struggle.
My mom's story is similar, though she was more like 35 when my dad abandoned us.  She had five children, only a high school diploma, and a few rusty job skills that had been made obsolete by the onset of computers.  My dad left the state, which in those days was a convenient way to avoid paying child support. 

She says today that the enjoyment she had in being at home with us as small children in no way made up for the bad years when we had nothing and were no welfare, and all of us bear scars from those years.  Speaking only for myself, though I have a rock-solid marriage, I have a strong need to have my own money.   

cawiau

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Re: how safe is my husband's government pension?
« Reply #22 on: December 06, 2015, 12:19:12 PM »
OP, staying at home is not the issue, to each their own. If staying at home is what is right for your family, so be it!

But you need other saving/investments vehicle. While no one can predict the future, I would be careful relying on only a pension.

Maybe the pension, Roth IRA for both of you and taxable investments/savings...

Just make sure to have options for when you get to retirement.


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maizeman

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Re: how safe is my husband's government pension?
« Reply #23 on: December 06, 2015, 12:55:23 PM »
Getting back to the original question...

If you dig around you may be able to track down some information on the funding situation for your husband's pension. Good news isn't necessarily a license to never worry as you still have decades between now and retirement (or after retirement) for the pension plan to run short, but you can feel a lot more relaxed about having that income in retirement than if the plan he is paying into already has a major funding shortfall.

The first question to figure out is who maintains the actual pension plan. Is is a separate one run by the city itself, or is the city paying into a bigger pool run by a larger organization like the county or state? Almost all public plans are going to report information like their total current obligations and what percentage of the money they need to pay out their employee's pensions they currently have and how much need money they're going to need in order to stay out of the red going forward. If it is a city-specific pension plan my advice for finding out information about the funding rate is reduced to googling terms like name-of-city + "pension shortfall"/"pension funding ratio" but if he's paying into a state pool, then you can look up the state pension plan on this handy-spreadsheet put out by Pew:

http://www.pewtrusts.org/~/media/assets/2014/03/31/pewstateswideninggapfactsheet2.pdf

What you want to see is a small number in the "Unfunded" column relative to the number in the "Liability" column. Or you can just look at the "Funded Ratio" which is just the percent of liability which is not unfunded. So if, for example your husband's pension was going to be payed out of the state of Illinois pension fund where the state has currently put in less than half the money it needs to meet its existing obligations, it would be a good idea to plan for retirement with the assumption that the pension benefit might be "renegotiated" at some point. On the other hand, if his pension was coming from a state fund in North Carolina or Washington where the state has been doing a pretty good job of saving the money it needs for pension obligations as its workers earn them it is much less likely the benefit will be unexpectedly cut (although early 30s to 54 is a long time, and 54 to the rest of your life will hopefully be an even much longer time than that). I wish I could track down numbers more likely to apply directly to your husband's plan, but how they are handled varies so much from city to city so you'll likely have much better luck trying to track down the specific numbers for his plan yourself.

OP, staying at home is not the issue, to each their own. If staying at home is what is right for your family, so be it!
+1,000,000, had really bothered me about the tone of the discussion prior to this post.

But you need other saving/investments vehicle. While no one can predict the future, I would be careful relying on only a pension.
also +1,000,000

Cassie

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Re: how safe is my husband's government pension?
« Reply #24 on: December 06, 2015, 01:13:13 PM »
Once your kids go to school f.t. you have plenty of time for at least a p.t. job. Yes there are school breaks but there are resources to work that out. Or find a job on the school schedule like school bus driver or teacher aide, etc. I stayed home & loved it but once my kids were in 1st grade went to college & then to work f.t.  I now have my own pension, etc for which I am very grateful.  You could want out of your marriage at some point but have to stay for the $. Your hubby could have a mid life crisis & run off with his secretary, etc.   You are putting yourself in a very vulnerable position.

Argyle

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Re: how safe is my husband's government pension?
« Reply #25 on: December 06, 2015, 01:20:53 PM »
I think there are several issues here.

1. Is the pension safe and reliable?  (Answer: Maybe, but even if so, it's unlikely to be enough.)
2. Are your plans for retirement, as a couple, sufficient?  (Answer: They're better than nothing but additional savings would be highly advisble.)
3. Are you, the OP, protected against a destitute retirement?

The answer to that last is "In some circumstances yes, at this point, but in some circumstances no."  The IRA contribution limit for under-50s is $5500.  After 50 it is $6500.  So let's say you contribute $6000 every year to an IRA for 30 years and don't touch it, and the IRA makes an average of 5%.  At the end of 30 years you would have $442,435.78, which sounds like a hefty amount, but is not factoring in inflation, because $442,000 thirty years from now is not going to have the buying power it does not.  Anyway, withdrawing at the advised rate of 4% gives you an income of $17,697 per year, which is not much now and will be pennies in thirty years. 

I understand that saving, gardening, etc. helps give a boost to the joint bank accounts, but for your safety, it would be highly advantageous to have some money that is actually your own, which will either mean that your husband gives you some money to put away in accounts in your own name, or that you generate money for your own accounts.  I think even in any marriage, it's good if the spouse stays because she's happy in the marriage, not because she'd be destitute if she left.

reader2580

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Re: how safe is my husband's government pension?
« Reply #26 on: December 06, 2015, 01:30:05 PM »
My borough of 11,000 people has pension plans for its employees. They are underfunded by $2,000,000 and assume a 7-8% rate of return. Something's going to have to give at some point.

Only $2 million short for a population of 11,000 seems pretty good to me.  Assuming perhaps 3,000 parcels paying city property tax that means only about $700 per property.

MMM says that you should be able to average 7% in the stock market so why is the pension fund so wrong to assume a 7% return?

simplertimes

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Re: how safe is my husband's government pension?
« Reply #27 on: December 06, 2015, 02:20:29 PM »
Thank you everyone for the financial insights.  It has been food for thought, and both my husband and I are on the same page regarding enhancing our retirement savings thanks to you!  I personally have never been comfortable with the idea of relying exclusively on the pension, however I did not know enough about them to really validate my concerns.

Now I understand the importance of saving beyond a single pension plan through additional IRA contributions, particularly in my name considering I do not have any retirement savings specifically in my name.  So I guess we will explore the option of maxing out a Roth IRA for each of us vs. just a Roth IRA and additional IRA both in my name, or if we somehow have even more to save we can consider a Roth IRA for each of us and an extra regular IRA for me.

I'm a very passionate person who is prone to restlessness, so I have always imagined myself doing SOMETHING once the kids are in school beyond cooking, cleaning, shopping and gardening (totally simplifying my role as a SAHM here...).  Etsy is a start though I'd like to make a bigger impact, creating children's books, writing fiction, painting or something of the sort.  I am feeling more inspired to take some art classes and learn more about writing in general, so thank you!  I already have a marketing degree from a prestigious university, graduating in the top 3% of my class.  It was a huge mistake to major in business however, as the corporate marketing world is NOT for me! 

Still my business knowledge and skills have enabled me to be pretty significantly successful on Etsy with over 400 sales of nearly 1,000 hand sewn, higher-end items at a decent profit.  I've had problems with my hands of late, however, and do not want to rely on Etsy as a regular source of income.

Thanks again for the nudge in the right direction!  We will look into the particulars of his pension plan and how "in the red" they are right now, thanks for the tip!

Argyle

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Re: how safe is my husband's government pension?
« Reply #28 on: December 06, 2015, 03:41:51 PM »
Simplertimes, I applaud you for getting all the information and deciding to ensure your well-being.

One thing to know is that $5500 is the maximum for one individual's IRA accounts(s) per year ($6500 if you're over 50).  So both you and your husband can have $5500 in your individual IRA accounts ($11,000 total), but neither of you can have more than $5500 per year in one person's IRA account, or in one person's combined accounts if that one person has both a Roth IRA and a traditional IRA.  I hope I'm explaining clearly enough here!

Writing is a great creative endeavor.  I am a writer myself and have many friends who are full-time writers.  Some of them have trust funds to support them.  :)  The rest worked their way up while being supported by working at paying jobs or by a working spouse.  I don't think any of them makes more than $25,000 per year, and those are the lucky ones.  The state of publishing these days is making everyone panic; no one knows how it's going to shake out, and self-publishing promises a lot more than it delivers.  I don't know anyone making their living from self-publishing.  I'm sure it's easy to find a few examples, just as some people do win the lottery, but my point is that it isn't a sure thing in the way that a job is a sure thing.  It's more a great hobby you do while you support yourself otherwise.  It sounds as if your Etsy business has possibilities too.  Just some things to think about as you mull over your options.


astvilla

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Re: how safe is my husband's government pension?
« Reply #29 on: December 06, 2015, 04:43:19 PM »
http://forum.mrmoneymustache.com/ask-a-mustachian/risks-of-relying-on-a-pension-for-retirement/msg520239/#msg520239

A good link for more info on risks of pensions since I previously had a similar question.

I echo the others.  Don't put all your eggs in one basket. 

I read in these forums the engineering idea on "margin of safety" or at least how I interpreted it as being going the extra mile just in case the pension doesn't turn to be reliable as you thought it'd be.

Argyle, MrsPete, Cassie and pretty much everyone all made excellent points I agree with.

I also worry about your over reliance on a spouse though.  Maybe cause Mustachians are a different bunch from the norm but some (as stated) wouldn't feel comfortable being completely reliant on another in case something doesn't turn out as planned (margin of safety).  It's possible and I hope you run into no big obstacles or disaster events but you never really know.  That's why saving beyond the pension plan is important. 

Staying at home is probably an issue for some because we really value independence (financial independence retire early).  Some have stated past experiences or stories where they'd go back and change things.  It's food for thought.  Life is not as secure as many think. I saw my dad laid off and a majority of my colleagues (50-60 years old) laid off who hadn't planned at all for retirement.  They now can't find work because of job saturation and poor employment outlook.  I'm glad I saw this as a young person compared to my classmates who don't have a clue on what they're doing.  Those personal experiences made me appreciate MMM and realizing I need to take charge in my finances and not just rely on SS or 401k.  If you're comfortable w/your situation that's great, but I was shaped by seeing insecurity and events not going to plan. 

Another story I remember was a family friend who had 3,000,000 worth of company stock in retirement.  Thought fine and dandy, I'm going to have 5 kids cause of so much money and I can retire!  Economy tanked, then sold 30,000.  Couldn't let go because couldn't accept loss.  Now still working and not doing so well.  So plan, plan, plan!
« Last Edit: December 06, 2015, 04:45:11 PM by astvilla »