The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: PXS1234 on February 07, 2016, 03:08:18 PM
-
For instance, say you want to save 20% of your income towards retirement, and your employer has you make a mandatory 5% contribution towards your pension plan. Should you count that contribution towards your retirement savings goal of 20%?
-
It depends. Often mandatory contributions are for DB pensions that may not be worth much to an early retiree because what you get depends upon how old you are when you leave, and how many years you have worked there, rather than directly on the contributions you have made. I'd put in how much it is actually worth to you rather than how much you put in.
-
Deborah is right - often pensions are of less importance to an early retiree because of restrictions on when you can withdraw the funds. If you can't withdraw them for 30 years (or if there is a heavy penalty to do so) then a pension can be a nice layer of security, but may not change your "FI number" at all. Then there's also the worry that a pension might not be reduced or eliminated should the company fail in the next several decades. It's a remote possibility but it does occasionally happen.
You can plug in pension income into fireCALC to see how it changes your FI/RE situation.
What are the limitations and restrictions for your particular pension?
-
I count it. If I save 40% of my take home and have 10% of my take home in a company retirement account the math works out the same as saving 50% and 0%. The government also counts it against my total allowed savings amount.
that's the simple answer.
-
I include it because, if it weren't for my pension, I'm not sure I'd be able to retire all that early. When I stop working, I plan on using most of my personal savings first so that I can delay starting pension payments as long as possible. The older I am when they start, the greater the benefit.
Besides, my mandatory contribution is almost 10%, and that's a lot of money.