Author Topic: Should I delay a career change for 3 years in order to vest in pension?  (Read 830 times)

MikeJones2001

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I have been a firefighter paramedic for 7 years. In order to vest in the state pension I need to stay 3 more years. I would be eligible to draw a pension at age 60 (I am currently 38 years old) and my monthly benefit would be around $1100 per month until my death.


My other option would be to leave the fire service and get a job in another field that pays more or similar to  my current position. I currently make around $60,000 per year.  I do not see myself being a firefighter for 18 more years in order to gain full retirement at 25 years of service.

I have an MBA and I have experience in sales and in underwriting.

My question is : should i go ahead a start a new career or wait 3 years in order to vest in my state pension ?

oldladystache

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Is the pension adjusted for inflation?

MikeJones2001

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thats great question. I just looked it up and yes there is cost of living raises but only when the legislator of alabama approves it. So it probably wont be every year.

Sandi_k

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I have been a firefighter paramedic for 7 years. In order to vest in the state pension I need to stay 3 more years. I would be eligible to draw a pension at age 60 (I am currently 38 years old) and my monthly benefit would be around $1100 per month until my death.

My question is : should i go ahead a start a new career or wait 3 years in order to vest in my state pension ?

That $1100 will be worth more when you claim it, since it's COLA'd. Also, if you delay your claim until the age factor maxes out (for my pension, that happens at age 60), you might make even more.

Assume 22 years, 1% COLA per year, then $1100 per month = $1369 per month in 2043.

$1369/month = $16,430 per year.

Assuming 4% SWR and a 30 year life expectancy, that means the pension would be worth $16,430 x 25 = $410,756.

Yes, I'd work another 3 years for $410,756 in retirement.

MikeJones2001

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Sandi_k , that was a great breakdown ! i really appreciate that. I was thinking that I probably needed to get vested and make the most of the last 10 years. 

shuffler

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Assume 22 years, 1% COLA per year, then $1100 per month = $1369 per month in 2043.

$1369/month = $16,430 per year.

Assuming 4% SWR and a 30 year life expectancy, that means the pension would be worth $16,430 x 25 = $410,756.

Yes, I'd work another 3 years for $410,756 in retirement.
That's $410k in 2043 dollars.  It's hard to think about 2043 dollars.

Also, a pension doesn't really behave like an investment-stash.  A pension may leave no benefit for a spouse, or heirs, or charity when you die.  An investment-stash is likely (but not guaranteed) to leave a significant chunk of cash.

A better comparison may be a SPIA.  You can get quotes on the internet to determine the value of a SPIA that pays out around that same amount at around that same time in the future (22 years).  That'd probably be a better comparison.

lhamo

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Would employment in another government entity keep you in the same pension system?  If so maybe you can prioritize searching for government jobs that would make use of your MBA to start to make the career shift while still accumulating pension hours.

MrThatsDifferent

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Maybe back up a bit and not necessarily make employment decisions based solely on the pension. Are you currently happy in your role? Would you be happy working 3 more years? If you weren’t doing this role, what specifically do you want to be doing? When would you want to start that?

If you’re currently happy, I’d stay for the 3 years. In the background I’d be getting ready for a career switch. You can get ready by trying to figure out what your next career will be now. Then used LinkedIn to start to build your networks and prime your profile for that role. Maybe you do volunteer work or a part time job that lets you do the work of your next career? Make it easy on yourself to make the switch. If you’re unhappy now, then get out and start that career switch as quickly as possible.

yachi

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I have been a firefighter paramedic for 7 years. In order to vest in the state pension I need to stay 3 more years. I would be eligible to draw a pension at age 60 (I am currently 38 years old) and my monthly benefit would be around $1100 per month until my death.

My question is : should i go ahead a start a new career or wait 3 years in order to vest in my state pension ?

That $1100 will be worth more when you claim it, since it's COLA'd.

Well, it won't be worth less than it does now because it's COLA'd.  But it's buying power won't be increasing beyond the cost of living, so most would say its worth is not increasing.  If it wasn't COLA'd, it would be worth less due to not keeping up with the cost of living.  The COLA/no COLA is an important distinction because we can't predict long-term inflation with much accuracy.

The worth of something is how many hours of labor or quantity of goods it can be traded for.  Today, $1100 buys 250 Big Macs, at the cost of $3.99 each.  It's gross to think of using this money to eat 250 Big Macs each month, but it's a good illustration (with useful carry over to economic studies*).  Using your assumptions for cost of living increases until 2043, each Big Mac will cost $4.97, and this same pension will buy 250 Bid Macs each month.

It's not useful for us to think of this as a $1369 per month pension because the majority of our experiences with pricing are set to today's prices.  With 2% inflation, this pension would be $1700 per month, with 3% inflation it's $2100 per month, and with 6% inflation (within the realm of possibilities) it's $3964 per month.  That sounds like a lot!  But in terms of buying power, it'll still buy 250 Big Macs each month.  The thought of a Big Mac selling for $15.86 just 22 years from now seems gross since that's what a nice steak dinner costs around here (in today's pricing), but OP won't have the choice between a steak meal for 2021 prices and a fast food burger for 2043 prices.

This is why the COLA/no COLA distinction is important.  Without the promise of a cost of living adjustment, we can't be sure how much buying power the pension is actually going to provide, and we'd be forced to discount it.  A non-cola pension that provides steak meals today would provide only Big Macs in 2043 if we experienced 6% inflation.


*There's a number of studies that look at the cost of this fast food item across time, and across different parts of the world.  It helps that it's a standard type of item that can't be hoarded like gold or stamps, and includes labor, and energy components, so it's tracked inflation and buying power fairly accurately.

bogart

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Also, a pension doesn't really behave like an investment-stash.  A pension may leave no benefit for a spouse, or heirs, or charity when you die.  An investment-stash is likely (but not guaranteed) to leave a significant chunk of cash.


True, but also it can have usefully similar features.  I have 100% survivorship in my DH's pension and the option we got would actually increase his payment if I keel over first (basically he took a cut in payment to pay for the survivorship option, but would be bumped back up if I don't need it).  Also both he & I have access to health insurance -- his absurdly affordable, mine nicely affordable through his retirement.  This too could be an important factor if relevant to the OP's case.

Morning Glory

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Also, a pension doesn't really behave like an investment-stash.  A pension may leave no benefit for a spouse, or heirs, or charity when you die.  An investment-stash is likely (but not guaranteed) to leave a significant chunk of cash.


True, but also it can have usefully similar features.  I have 100% survivorship in my DH's pension and the option we got would actually increase his payment if I keel over first (basically he took a cut in payment to pay for the survivorship option, but would be bumped back up if I don't need it).  Also both he & I have access to health insurance -- his absurdly affordable, mine nicely affordable through his retirement.  This too could be an important factor if relevant to the OP's case.

I took the lump sum IRA rollover with mine (non-government). I wasn't a "retiree" by their standards but the amount was prorated. There were several annuity options with varying survivor benefits but none of them had a cola

Proud Foot

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I have been a firefighter paramedic for 7 years. In order to vest in the state pension I need to stay 3 more years. I would be eligible to draw a pension at age 60 (I am currently 38 years old) and my monthly benefit would be around $1100 per month until my death.


My other option would be to leave the fire service and get a job in another field that pays more or similar to  my current position. I currently make around $60,000 per year.  I do not see myself being a firefighter for 18 more years in order to gain full retirement at 25 years of service.

I have an MBA and I have experience in sales and in underwriting.

My question is : should i go ahead a start a new career or wait 3 years in order to vest in my state pension ?

From the numbers others have shared, waiting 3 years to vest seems like a good idea.

When you do look to leave the fire service do you have an idea of what you would like to do? If so, what does your firefighter schedule look like? Is this something you could start doing part time when you are not scheduled to begin to build your experience in that area?

mistymoney

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I faced a similar issue and left for a higher paying job 11 months before vesting, initial vest amount would have been 400 to 450/month. Can't recall now. It was a really good pension and after 25-30 years you got 85% of you highest 5-year average.

I figured I could invest more money with the new job and be able to get ahead of the pension amount. New job benefits were not that great and I thought I had done a good analysis on what was best but who knows?

Now in my 50s with no pension, it seems like a great piece of security compared to everything invest. not sure what it would be now - I think it was adjusted with inflation and this was 20 years ago.

I did get a 4% match on 401k with the new job after 1 year, vs only 500 limit at this other one due to the nice pension.

Still - tough to walk away less than a year before vesting. 3 years is a lot longer.

MikeJones2001

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Thanks to everybody for the responses. I really appreciate it!