Author Topic: New Job: Advice on Choosing a Retirement Plan  (Read 1219 times)

hoyahoyasaxa

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New Job: Advice on Choosing a Retirement Plan
« on: April 13, 2014, 09:47:41 AM »
    I recently started a new job working at a community college in the state system.  Lots of great perks to the job, not the least of which is that it's only going to be a 15-minute commute for me from our new home compared to what would have been an hour and a half commute via public transportation (which would have also cost $495 a month) if I had stayed at the old job.  The new job has a few different retirement plan options:

State Retirement System (Summary of Plan):

This is essentially a pension plan as I'm technically a state employee- amount of the benefit depends on the length of service, earnings and age at retirement, benefits are guaranteed by the state constitution.

  • Vesting at 10 years of full-time service
  • Requirement to contribute 4.5% of salary from each paycheck
  • Full benefit begins at age 63 assuming 10 years of service.  May retire at age 55 with a 6.5% reduction for each year under age 63.
  • A loan feature on up to 75% of employee contribution balance.
  • Retirement benefit calculation: 1.66% of final average salary (average of wages earned during five highest consecutive years of service) times the number of years of service if less than 20 years of service worked.  Or, 35% of final average salary for 20 years of service plus 2% of final average salary for number of years worked over 20 years.  So, if my final average salary was $60,000 and I worked 18 years, my annual payout would be $17,928 ($60k x .0166 x 18).  If my final average salary was $60,000 and I worked 25 years, my annual payout would be $27,000 ($60k x .35 plus $60k x .02 x 5).

Optional Retirement Plan (Summary of Plan):

This is a TIAA/CREF defined contribution plan.  Benefits are not guaranteed.

  • Vesting: After 366 calendar days of service (school match for the first year is paid all at once upon vested date)
  • Contribution of 4.5% of salary is required.
  • School contributes 8% of salary for the first seven years of service, 10% thereafter
  • No minimum requirement age, but tax penalties generally apply for withdrawals prior to age 59 1/2
  • IRS restricts loans to 50% of the accumulated value of your contracts to a max of $50k

Based on the above, which is the more attractive plan?  It should be noted that the job I have is not my ideal work; I'm a secretary.  But I'm interested in trying to pick up additional responsibilities in grant writing and development and would love to be able to stay at this school for a very long time as the location is ideal, the work environment is amazing (very calm and people leave nearly every day right at 4 or 5pm) and the people are great.

It just seems like if I'm not willing to commit to working here for 10 years right now, then the state retirement plan wouldn't be worth it.  The HR person said that I can switch from the optional retirement plan to the state plan at any time, but the clock for vesting won't begin until I start on the state plan (i.e. if I work for 3 years and then switch to the state plan, I wouldn't be vested until 13 years of service).[/list]
« Last Edit: April 13, 2014, 09:49:39 AM by hoyahoyasaxa »

MDM

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Re: New Job: Advice on Choosing a Retirement Plan
« Reply #1 on: April 13, 2014, 11:37:41 AM »
Nice work getting into the details and understanding your options.  A few questions/thoughts from reading:

  - What return on the TIAA/CREF would provide results equal to the pension?  How does that compare with "typical" market returns?

  - Are you allowed to do both?

  - Ignore the loan features: usually you would not want to take loans from these investments.