Author Topic: Change in 401k and Pension at work, decision to make  (Read 364 times)

ForestStache

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Change in 401k and Pension at work, decision to make
« on: August 08, 2019, 08:24:20 AM »
1st post, been lurking for a while so bear with me.

My employer has announced some changes to our retirement benefits coming at the end of the year. They previously offered a very generous pension plan, but it had been paired down to a nominal pension benefit by the time I was hired, and after this year new employees will no longer be eligible for a pension. My current pension amounts to 1% of yearly salary per year. As I have enough time in under the old pension plan they are offering my tier a decision to stay enrolled in the pension plan as is (1% per year) or to opt out, keeping the accrued amount and instead receiving a 3% lump sum 401k match to be paid each Feb or thereabouts.  They have advised that additional info will be forthcoming so I just have these basic facts to go by at this time.

My current pension benefit will be approx $500 per month if I opt out, payable once I reach normal retirement age of 62 (I'm almost 37 now). I estimate that if I remain opted in and work until age 62 I should have somewhere in the $25k per year range if I remain at somewhat normal salary trajectory, although I would say this is a lower end figure, potentially more if future earnings rise more than the normal yearly merit increase and promotion schedule.

The 401k plan currently offered is through Vanguard, and the company matches 6% for all employees now $ for $. I currently do not max out my 401k contributions but have been upping my withholdings. I know this is not a full case study so I will not get into too many details right now.

Initially i was leaning toward staying in the pension system figuring it is at no cost to me and will provide a steady income source that may allow me to hold off on collecting SS when that time comes. However, after that initial thought left my mind I remembered that 3% > 1% and in the next 25 years could amount to a significant amount of money if the markets were kind.

Just looking for opinions from people other than myself as to what you would do.
TIA

TheAnonOne

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Re: Change in 401k and Pension at work, decision to make
« Reply #1 on: August 08, 2019, 09:00:23 AM »
Do you plan on FIRE? You mention 62, so this might not be the best place for advice. I would say "25k" a year is pretty legit because that would take $625,000 in stocks, and pension dollars are probably a little bit MORE valuable due to a security / non-volatile nature.

Again this really is assuming A LOT. If you need to pour in $1,000,000 to the pension to get that 25k, it's a bad deal. I would see where you fall on the $625,000 number (higher or lower as far as cost-to-you)

Then I would see how those same dollars would do given 5-7% returns. My guess is that you will need to seed a considerable amount less in stocks to reach $625,000 due to growth.


my $.02

ForestStache

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Re: Change in 401k and Pension at work, decision to make
« Reply #2 on: August 08, 2019, 09:24:29 AM »
I knew I should have mentioned something re the FIRE aspect. While I would love to RE, I fear that this is a fairly new concept to me/family and while I think we are doing ok to maybe even better than ok compared to some, I fear we are behind when i look over some of the case studies in this forum. I could see myself retiring prior to age 62, maybe another 20 year or so to help my kids out with college expenses would be great. I intend on posting a case study sometime in the near future once I get a better idea of what our expenses are. I have some ballpark numbers but studies tend to require more specific figures.

So do I intend on FIRE in the near future....no, but in a way, if possible I would like to be able to not work until 62.

DeniseNJ

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Re: Change in 401k and Pension at work, decision to make
« Reply #3 on: August 08, 2019, 10:14:47 AM »
Don't plan 25 yrs out. Plan to FI 10-15 years out and if you still want to work then you can.

ForestStache

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Re: Change in 401k and Pension at work, decision to make
« Reply #4 on: August 08, 2019, 11:10:17 AM »
I suppose I just used the 62 number because that is when I am eligible to collect my pension. Even if I were to retire early, unless it was part of some sort of buyout package I could not cash out my pension. Obviously if I didn't stay until 62 my total value of the pension would likely be different than the example I provided.

I know a lot of this comes down to risk tolerance and I am curious as to what additional info we will be given about this distribution of the 3%.

I suppose it further comes down to whether I will finish out my career where I am, or if the company will remain by the time I am able to even collect. I'm not necessarily concerned about the company itself going under. It has been around for >100 years, and tends to be very conservative risk wise. The pension fund is fully funded, but I believe with how generous the pension used to be and a lot of people reaching retirement age they are making this change to ensure it stays fully funded.

Also, the pension is what it is, no cola so even if it did come out to $25k after inflation I fear that may amount to a pittance.