Author Topic: UCRS - California pension system  (Read 1510 times)

biocmp

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UCRS - California pension system
« on: January 20, 2016, 10:24:50 AM »
Do we have any people vested in the California pension system?  I wanted to find out what others thought a sound strategy would be regarding their additional 403(b) and 457(b) plans.  With my job, I'm automatically invested in the pension plan with 7% of my pre-tax dollars each year. I'm trying to decide if I should max out the 403(b) or 457(b) or both if the hit isn't too great.

I'm above 100K in earnings and I have a small amount of money stored away in various funds. I also have a Roth that was started over 5 years ago, but I've only maxed it out this year (it carries a paltry sum $7000ish.  We have zero debt outside of our mortgage. I expect my salary to continue climbing to the upper $100s but of course, all things carry some uncertainty.

Is there anyone else in a similar pension/retirement account situation? Any and all suggestions are appreciated.

BigRed

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Re: UCRS - California pension system
« Reply #1 on: January 20, 2016, 12:02:38 PM »
Yes, my wife worked for UC for 7 years, then quit shortly after we got married, and is now finishing her PhD at a UC school.  She's hoping to go back to work there in the Fall, when we would be in a similar position to yourself.

The UC pension is pretty spectacular.  2.5% of your highest salary (averaged over 3 years) per year of service.  If you've been there since before 2013, you can start taking it at 60.  COLA'd up to 2% after retirement.  The funds in the 403/457 plans have very low ERs.  The rules on 457s are amazing.

I realized none of this until after she quit to get the PhD.  If I had understood these facts, I'm not sure it would have made sense to go back to school.

I'd max out the 457 first, if you can.  You can draw on that whenever you leave UC, with no penalty, no matter what your age.

Once you've maxed out the 457 and have the pension, plus SS, it's hard to imagine needing any additional retirement funds, unless there's concern that pensions and SS might not materialize in full.  Any further tax-deferred amounts would likely be taxed at high marginal rates if withdrawn on top of the pensions.  If you plan to FIRE, though, and your expenses are low (questionable if you're in CA) then you could likely convert to a Roth pipeline in between separating from UC and taking the pension.

At least, that's my thinking on the UC retirement system.


biocmp

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Re: UCRS - California pension system
« Reply #2 on: January 20, 2016, 12:28:10 PM »
Thanks BR, that makes a lot of sense.  That's what I'm looking at. I hope to be a lifetime employee there (so roughly 25 years) and I'm in my early 30s.  I wouldn't meet the requirements for drawing the pension early but that gap should be bridge by a maxed out 457, Roth and other smaller market investments.

I also plan to enroll in their HSA assuming the fees aren't too bad, and max that out. I have another thread on that, as I just found the HSA plan that is offered.

Then we'll need to continue putting after tax money into the market to determine if FIRE is something we want.  I enjoy what I do so I have no interest in in right now.

BigRed

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Re: UCRS - California pension system
« Reply #3 on: January 22, 2016, 11:48:10 AM »
If you plan to stay in the job for 25-30 years then you're looking at, assuming wage growth that keeps pace with inflation, a $65k - $75k pension (in inflation adjusted dollars).  Add SS at $24k-$30k per year, and you have an effective annuity paying near $100k per year starting in your mid 60s.  That'll put any additional distributions from your 403b or 457 account in a high marginal tax bracket, especially if your spouse is eligible for either spousal SS, their own SS benefit and any other retirement benefits.

Given that, it may make sense to consider continuing your Roth contributions.  Being in CA, your current marginal tax bracket is quite high (probably 25% plus 9.3% if MFJ, depending on what your combined household income is).  If you have kids and sit in the Child Tax Credit phaseout, which you might, it's 5% higher.  So, there's a decent chance using a Roth would work out best in the end for you.

I don't think the UCRS 403b or 457 plans have a Roth option, so you'd have to continue making those contributions into your own Roth account that you mentioned initially.