Author Topic: How much is my pension worth?  (Read 3708 times)

Nieveen05

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How much is my pension worth?
« on: April 08, 2018, 12:59:04 PM »
How much is my pension worth?
- My wife and I are teachers in Austin, TX where we receive a pension called Teacher Retirement System (TRS)
-We make contributions to our pension each month.  The pension pays out 2.2% for every year worked and averages your five highest paid years.  E.g. if I work for 30 years and the average of my 5 highest paid years is $60,000, then I would receive an annual pension of: $39,600 (.022 x 30 years x $60,000).

Life Situation: Married, one child, likely to have at least one more at some point.  Live in Austin, TX but next year will be moving to teach in Beijing China.

Gross Salary/Wages: $48,000 (mine) here in Austin.  In Beijing, my salary will be $71,000, I will not have to pay income taxes on this salary and our housing will be provided.  Thus, when we are abroad, we will have the ability to save a much larger chunk of our income.  However, we will also not be contributing to our pension or Social Security...

Other Ordinary Income: We currently own two properties (one where we live, and one we use as a rental).  Both will be rented out while we are abroad.  We plan to use a good chunk of our savings while abroad to invest in more rentals.

Qualified Dividends & Long Term Capital Gains: We each have Roth IRA's.

Specific Question(s): As mentioned previously, my wife and I are both teachers and are moving abroad this next school year.  Trying to decide as far as retirement goes as to whether or not staying abroad for a significant amount of time where we will have higher savings potential is a better retirement choice than working in Texas where we contribute to our pension.

Pension details:  The pension pays out 2.2% for every year worked and averages your five highest paid years.  E.g. if I work for 30 years and the average of my 5 highest paid years is $60,000, then I would receive an annual pension of: $39,600 (.022 x 30 years x $60,000).
-Pension cannot be collected until I am 62 (people older than me have different rules like the rule of 85, but I am grandfathered into this rule, where even if I retire before age 62, I cannot receive any pension money until the age of 62)
-As member of TRS, I do not contribute to Social Security
-I am 31-years-old and am in my 7th year of teaching - thus, if I never work another year as a teacher in the state of Texas my current pension's value is 7 x .022 x $46,000 = $6,930 annually
-This value could obviously change if I come back and work more years, would become an administrator and have a higher salary, etc.

Living Abroad Financial details:
-My salary next year will be $71,000 (I do not have to pay income tax on this salary)
-Our family housing will be provided by the school
-Since we will be living in Beijing, we will not own a car
-Healthcare is provided by the school

When living abroad, we will be able to save a much higher percentage of our income.  While I know nothing in life is guaranteed, a pension is pretty nice in that it will be an almost 100% guaranteed source of retirement income.  Whereas, any investments we put in our Roth IRAs, index funds, or even rental properties are not guaranteed sources of income.

Retirement goals:  We both really love teaching and are people that don't like a ton of down-time.  So, would love to save towards financial independence, but envision ourselves working part-time as either lecturers at a college, tutors, or substitute teachers.

An obvious negative of the pension is that we can't start collecting it before we are 62....whereas our rental income and portfolio investments could be accessed whenever we need them.

Again, any insight or advice is much appreciated.

Livethedream

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Re: How much is my pension worth?
« Reply #1 on: April 08, 2018, 03:28:48 PM »
Most state pensions are ran and paid out assuming 6-7% returns, well below market. I also have a state pension, some things you might want to look into: lump sum payout, early withdrawal at a lower rate.

If you set aside the same amount of money you would be putting in your pension, it is almost guaranteed you will do better, will be in control of it, and have the possibility to pass it to the next generation.

My example, I plan to retire from state service with around 17 years of service. My pension is 2% x years of service x 3 highest salary years. It’s 2% @ 60, goes higher later, starts at 1% @50.

I plan on taking it @50 I will receive 17% of $84k ($1190 a month). I will invest that $1190 a month day for 10 years. This would give me $250k @10%. So at 60 I would have $1190 a month from pension and $250k in retirement. $250k @ 4% is $833 a month. I would now have $2,023 a month plus $250k.

If I took my pension @60 it would be $2,380 a month but no lump sum of cash. It would take about 20 years if you invested the difference ca from pension @60 ($300) a month to accumulate the same $250k.

Hope that gives some insight.

Peachtea

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Re: How much is my pension worth?
« Reply #2 on: April 08, 2018, 05:15:09 PM »
This is how I’ve been calculating my pension’s worth.

1) The annual payment x25 to determine a lump sum value. (How much you would need invested in stocks to give you that annual payment at a 4% withdraw rate.)

So for you right now: 6930 x 25 = $173,250

2) I compare that with the lump sum payout rate with 7% interest for the number of years until I could take the pension. (To see if I invest the lump sum payout and leave it alone until the pension retirement age, how much would it be worth.) I use this compound interest calculator to determine the amount: https://www.bankrate.com/calculators/savings/compound-savings-calculator-tool.aspx

For you: [lump sum payment] @ 7% for 31 years = ???

Other considerations are whether you can buy back into the pension later. So if you take the lump sum and invest it and 3 years later you work as a teacher in Texas again, can you pay back your lump sum to get the 7 years credit towards the pension?

How much do you trust that your pension will still be there 30 years from now and that there won’t be cuts due to state budget issues? (I have no clue what the situation is like in Texas.) Does Texas “borrow” from the pension fund, putting its solvency at risk? Usually, if there are changes those already in the system get grandfathered, but its not a guarantee.

Is your pension inflation proof? After you take the pension do you get Cost of Living Allowances that make your annual benefit with inflation or is it flat and is going to be eroded by inflation over time? Is your COLA tied to actual inflation rates or is it determined by whoever happens to be in charge at the time and their opinions of the current COL?

TheExplorer

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Re: How much is my pension worth?
« Reply #3 on: April 09, 2018, 01:48:11 AM »
I plan on taking it @50 I will receive 17% of $84k ($1190 a month). I will invest that $1190 a month day for 10 years. This would give me $250k @10%.
No one should plan on getting on average 10% per annum for ten years. Incredibly unrealistic. Also, inflation is important. 

ditheca

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Re: How much is my pension worth?
« Reply #4 on: April 09, 2018, 04:02:33 PM »
Business owners can easily make 10%.  Sweat equity makes up part of it, of course.

The S&P Index averaging 10% over inflation for 10 years, not so much.

jlcnuke

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Re: How much is my pension worth?
« Reply #5 on: April 10, 2018, 07:42:50 AM »
Business owners can easily make 10%.  Sweat equity makes up part of it, of course.

The S&P Index averaging 10% over inflation for 10 years, not so much.

Lots of business owners have had no problem making -100% too.... ;)

 

Wow, a phone plan for fifteen bucks!