To FIRE or wait until Pension kicks in

[teacherwithamustache]

Me and wife are both teachers.  How do you value pension plans and future pension plans when you calculate your Fire dates and savings rates?  In 14 years I can retire with a today's dollars pension of $3500 a month.  In 12 years wife can retire with a todays dollars pension of $5500 a month.  We will both be 52 at each of our pension dates.  If we accept our pension we can not get Social Security.  We can also buy insurance relatively cheap thru pension for life and we will receive the others pension benefit if either of us die first.

30K in each Roth
35K in 529 (2 kids 5 & 7)
30k in check/savings
8k in investment account

House value 250K
House Mortgage 88K 15 yr note 3%

Me 55k a year
Her 95K a year
Me side hustle 12k a year can upgrade to 20k a year without full time job

Expenses

We spend a lot of money.  Our commuting expense is way out there.  Our cable and phone expense is insane compared to a lot of you.  But I am good with our savings ratio.  I think we have a good balance between living life and saving.

The retirement plan for now is to retire the day our pensions kick in. 

53 until death   8500 a month
53 until 70 side hustle 2k a month
70 until death IRA distributions  (Should be around 1.8 million)

So back to the Original Question.  How do you or would you value a pension with regards to FIRE?  I always thought that 53 was a great retire early date, until I started snooping around here.  Please share ideas and ways of looking at problem.

[Retire-Canada]

So back to the Original Question.  How do you or would you value a pension with regards to FIRE?  I always thought that 53 was a great retire early date, until I started snooping around here.  Please share ideas and ways of looking at problem.

Plug your numbers into cfiresim including your pensions. You can wargame various investment scenarios and get a feel for how they'll play out.

-- Vik

[rpr]

I think you have a very nice setup if you continue to work till 53. That pension deal is very sweet. I assume that the pension amounts you mention are contingent on working for a certain minimum number of years.

My quick calculation of your net worth is $265K which is great. But, you have an income of $162K, and it seems to me your NW should be higher if you've been working 10+ years. Unless, I suppose you had significant debts that you were paying off. Or maybe your income only increased recently.

Regarding expenses and savings, you really need to write  it down.

[PencilThinMust]

My wife and I are both teachers and are in line for a Pension.  We certainly don't plan on working for the full benefit.  We are fully maxing both 403b's at 18k a year, both Roth IRA's at 5500K a year and are putting anything extra toward a taxable account all through Vanguard.  I will retire at age 49 and my wife 46.  When we FIRE, we will use my reduced pension along with the Roth and Taxable.  After 5 years we will make use of my wife's reduced but more than my pension.  At 59.5 we will be able to get to the 403b which at that time will have a nice amount in it.   

Did you read MMM's Pension article?

[teacherwithamustache]

I think you have a very nice setup if you continue to work till 53. That pension deal is very sweet. I assume that the pension amounts you mention are contingent on working for a certain minimum number of years.

My quick calculation of your net worth is $265K which is great. But, you have an income of $162K, and it seems to me your NW should be higher if you've been working 10+ years. Unless, I suppose you had significant debts that you were paying off. Or maybe your income only increased recently.

Regarding expenses and savings, you really need to write  it down.

Wife got the huge raise this past year and I just started the side hustle this past year so that was like a 40k extra income boost.

I have to work the next 15 years to get the Pension. ( 2.2% of highest 5 year average salary) times # of years worked.  It is very interesting to see how people "game" their pensions.  Work like a dog those last five years.  Basically for every $11,000 increase in salary those last 5 years your monthly pension goes up $500 for the rest of your days.  Teachers will

 teach summer school +$5500
teach Saturday school +$3500
Pick up a bus route +$17000
Team Leader +2500
Department Chair +4500
Debate Coach +5000

Then you have the teachers that dont have a clue about money.  There are some 70+ year olds that hate life, hate their students, hate their biological kids, The pension cap is 75% so they are not increasing their pension.  They just do no not know what else they are going to do with their life.


What MMM Pension Article???

[PencilThinMust]

http://www.mrmoneymustache.com/2013/01/29/pension-schmension-retire-on-your-own-terms/

[nirvines88]

Damnnn those are big pensions, congrats!  I must be teaching in the wrong state (if I worked 30 years I might be able to get a pension of 3,000 per month).

Following the responses...I too am curious about the value of future pensions.  It will be an interesting situation in the future once FI is reached and I have to decide whether or not to retire or keep working (and keep enjoying the health insurance, salary, and plugging in more credits for the pension/SS).  You probably gotta do like MMM recommends and just embrace the freedom, rather than continue to work for money you don't (?) need.

[PencilThinMust]

Damnnn those are big pensions, congrats!  I must be teaching in the wrong state (if I worked 30 years I might be able to get a pension of 3,000 per month).

Following the responses...I too am curious about the value of future pensions.  It will be an interesting situation in the future once FI is reached and I have to decide whether or not to retire or keep working (and keep enjoying the health insurance, salary, and plugging in more credits for the pension/SS).  You probably gotta do like MMM recommends and just embrace the freedom, rather than continue to work for money I don't (?) need.

Exactly, it's an easy decision for me.  Time with my family is the most important thing in my life, the earlier I can FIRE the better.  All the the things you mentioned above are fairly simple to get a rough estimate about.  I first figured roughly how much I would spend per month post retirement, then figure out how much your reduced pension would be.  There should be a pension retirement calculator that will give you those figures. You should be able to find it through your state pension facilitator website.

[rpr]

teacherwithamustache: Can you explain a bit more about your Social Security situation? Are you paying into it currently? In some states, those who make contributions to state pensions are exempt from making SS contributions and will thus not be eligible for SS income.

[mcneally]

So back to the Original Question.  How do you or would you value a pension with regards to FIRE?

It sounds like your expenses may be a little high compared to most around here, but you're happy and not too interested in making drastic changes in order to retire before being pension eligible (which is still fairly young). So if what you want to know is how to calculate the net present value of your pension, the answer is pretty clear: who cares?

OK, I take that back. I'd value your combined pensions at well over 2 million, and since you're nowhere near FI now, you'd be crazy to give them up unless you hate your job.

[SaintM]

I could FIRE today, or I could continue on until I qualify for a pension, which could be anywhere from 1 to 6 years from now.  My work is just too entertaining for me to quit.

[teacherwithamustache]

teacherwithamustache: Can you explain a bit more about your Social Security situation? Are you paying into it currently? In some states, those who make contributions to state pensions are exempt from making SS contributions and will thus not be eligible for SS income.

I do not pay in as a teacher.  I met my quarters minimum when I was not in teaching so I qualified I just dont get a benefit when I turn 60.  Technically I do get a benefit if I choose but then my pension goes down by the benefit amount.  So all of you please enjoy the money I put in.  My pension is bigger but whatever.  It really hurts with regards to the spousal benefit to a lot of teachers who are married to non teachers.  Stupid rule but whatever.

[Ricky]

No one's really given you specific advice yet so:

No, you absolutely can't FIRE now. I don't even need to see your expenses to know this. It would help to know how much you spend per year, but you're going to eat through all savings and then rely on your side income which is still working...

If you had found MMM earlier than 30, only then would a pension probably be worthless, because you'd have a much higher net worth by this point.

Having to wait until 53 for the great situation you speak of is nothing to feel bad about. You're late to the early retirement game but by all measures you're already doing extremely well, so just keep going.

Also, others may disagree, but I wouldn't hold teaching to the same degree as most other office work in terms of quality of life and work. I would think teaching would be one of the most desirable jobs since you're doing something you obviously want to do and feel as if you're making an immediate impact in people's lives. That's what it's about. Most here are drones to huge corporations spitting out projects and code at their employer's will. To boot, you're getting paid incredibly well for it.

[Another Reader]

You did not mention whether your district has a 403b and/or a 457 plan.  You are really short on savings to be thinking about early retirement.  If you have these plans available, I would take a careful look at them, as they defer taxes.  The 457 plan is very useful for early retirees, as it is not a qualified retirement plan.  You can withdraw from it at any age and pay only the taxes, no penalty.  Bulk up the IRA's as well. 

In your shoes, I would contribute to the retirement accounts, not the 529.  The kids may qualify for some financial aid, especially if you retire early. 

[rpr]

teacherwithamustache: Can you explain a bit more about your Social Security situation? Are you paying into it currently? In some states, those who make contributions to state pensions are exempt from making SS contributions and will thus not be eligible for SS income.

I do not pay in as a teacher.  I met my quarters minimum when I was not in teaching so I qualified I just dont get a benefit when I turn 60.  Technically I do get a benefit if I choose but then my pension goes down by the benefit amount.  So all of you please enjoy the money I put in.  My pension is bigger but whatever.  It really hurts with regards to the spousal benefit to a lot of teachers who are married to non teachers.  Stupid rule but whatever.

I do understand the frustration. But,

Would you have instead preferred that you would instead pay into SS and received a small amount and need to work till 67 to get the full measly SS benefit? You are really lucky. There is no way that SS will replace 75% of wages at retirement. 


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[CCCA]

I'm eligible for a pension from my employer (university).  I am already vested but have to wait until 50 to take any payments.  Unfortunately, the pension amount is based upon service years and age at which you take the pension.  If I continued working until 60, I could have over $100k/yr in pension, but that is 20 years away.  If I continued working until 50, I could get ~$25k/yr but even that will well after FI.  If I RE as expected in 3 years, I will only get about $13k/yr (starting when I'm 50). 


There's definitely the incentive to keep working to get the higher pension value but not enough to outweigh the benefits of RE!

[Another Reader]

You might be interested in what another teaching couple did.  Ed Mills has a blog - here's the link:  http://www.millionaireeducator.com/  They took various teaching jobs and maxed out the retirement accounts along the way.

[teacherwithamustache]

No one's really given you specific advice yet so:

No, you absolutely can't FIRE now. I don't even need to see your expenses to know this. It would help to know how much you spend per year, but you're going to eat through all savings and then rely on your side income which is still working...

If you had found MMM earlier than 30, only then would a pension probably be worthless, because you'd have a much higher net worth by this point.

Having to wait until 53 for the great situation you speak of is nothing to feel bad about. You're late to the early retirement game but by all measures you're already doing extremely well, so just keep going.

Also, others may disagree, but I wouldn't hold teaching to the same degree as most other office work in terms of quality of life and work. I would think teaching would be one of the most desirable jobs since you're doing something you obviously want to do and feel as if you're making an immediate impact in people's lives. That's what it's about. Most here are drones to huge corporations spitting out projects and code at their employer's will. To boot, you're getting paid incredibly well for it.

Thanks for advice.  This was pretty much my plan when I posted.  Teaching is fun.  I get 3.5 months off and make a good living.  7 out of my last 10 years I will have my kids with me at school so I will basically be hanging out at school with them the whole time.  Which is basically what I would do if I did FIRE.  The wife is a college administrator and she may need to RE before me.  She really hates her job.  Plus it is a good goal for her to cut back her spending =).

[fields]

Will your pension be adjusted for inflation?  Mine will not, so what looks like a livable pension income now may not be in the future.