I have a potential job offer that would trade off a lower salary in exchange for a Defined Benefit plan. Specifics:
Current salary – approx $135,000 + 8% into retirement account + bonus that is typically $10,000 per year = approx 156k total compensation
Potential salary – approx $130,000, no bonus, 13% added into a DC plan
I need to consider what the DB plan will be upon my future retirement. Assuming 10 years of work there + 3 year buyback of $60,000 that would be possible (transfer from my employer locked in retirement account), I would receive approximately $21,000 per year at age 55 until my death or if defer to 65 would be $27,000. I am 42 and plan to retire at 52.
So the way I see it, each year at this new employer I would be pocketing approximately $15,000 less after tax. Over 10 years I could invest that and it would probably turn into $200,000 + the $60,000 buyback (although that would be locked until age 65 if I do not transfer it out). So the question becomes would you rather have the $200,000 at the end of ten years or the future income stream?
For me the $21,000 per year at age 55 works out to about a 10 year payback. If I collect for about 10 years I would be in about the same position. So I think financially despite the lower income it may make sense. Also there is alot to be said about the security from a DB plan. This is a well funded government plan that I would have zero concern about future stability.
In addition there would be more time off and likely less stress. What would you guys do?
Under either scenario my planned retirement age of 50-55 will not change.
