Pension question

[Lan Mandragoran]

Hello,

This may be something that can't be answered without more details but I was wondering if anyone had insight on this. My company doesn't give out much information on this because its legacy info. I'll get more info in a few months when I get my first statement.

I get a pension that's contributed at a rate of 20%~ of my total income per year. For a fairly young mustachian like myself that isn't incredibly valuable unless I can get it out somehow. It looks like when I leave if its pre 30 years of employment or pre 62 your subject to penalties on the lump sum thats distributed.  However you can roll that into a retirement account or 401k to avoid/defer taxes.

My question is, once this is rolled into my retirement accounts does this become more like the rest of my money and I can draw down using a roth conversion --> ladder or similar strategy. Or am I somehow going to have penalties, and how would they assess that as its part of my retirement funds now (and mixed in presumably)?

[MDM]

If the lump sum goes into a tIRA (and that is a common option), then it becomes the same as other pre-tax money in an IRA.

[hadabeardonce]

20% is a crazy high amount to put toward a pension, I would double check that figure. Right now I contribute 7% to mine.

[FI4good]

Looking at the shockingly simple math from MMM post it seems a 20% saving rate will give you a well funded retirement in about 40 years.

Sounds like a prudent firm looking out for the long term interests of it's employees.

I always maxed out my pension savings within the limits i was allowed as a form of living a long life insurance / back up plan .

Sat here at 44 with access to those accounts available in 13 years time i thank the younger me for paying that "insurance" forwards to myself.

Life is sometimes messy and it can happen at you unexpectedly, I always think it worthwhile having at least a couple of plans in action to pay it forwards to yourself.

[Lan Mandragoran]

Yeah it’s 20% they contribute. It’s nutso. Don’t have a crazy high salary tho (65ish in Kansas)

Unfortunately they don’t invest any of it to my knowledge :/.

Hmm so hopefully I can move it all to a tira

[hadabeardonce]

How the pension pays out is good to know. Mine is like this:

(service credit) * (benefit factor) * (final compensation) = (unmodified allowance)
23 years * 2.00% * 7709.57 = $3456.40/mo.

^ that's at age 55, which is the earliest I'd really want to take it. If I hung around until age 63, I'd have a 2.5% benefit factor and 38 years of service, which would get me pretty much 100% of my current salary(without deductions like union dues, current pension contribution, etc.)

I'm looking at seperating from my employer early and leaving the pension balance there instead of taking a lump sum rollover. Then I would collect from the pension once I reach 55 years old.

[Lan Mandragoran]

yeah that is stuff I should figure out.  This is just a tricky one for me, because it totally changes how my compensation looks to me. If its not as useful I might as well start prepping for something different that doesn't throw so much of my salary into a pension.

[Bicycle_B]

Lan, I'm in a position similar to hadabeardonce.  I worked for a government employer, vested in a small pension, left the job long before draw date, kept the pension instead of rolling my contributions into an IRA.

I calculate that I still get a larger benefit from the pension than I would from investing the contributions.  You should explore the details of different options because the details can change the outcome of which option is best.

The high 20% contribution makes me think of one of those government pensions that have high matching.  In my case, the employee put in about 6% and the employer put in about 7%.  But if the employee withdraws the funds, he/she only gets to keep the 6%, plus a small percentage representing bond-like investment returns over time.  In other words, I wouldn't get to withdraw the employer's part of the contribution.  Would you get to withdraw the employer's 20%?  Or would you lose it by abandoning the pension?

Once you know the answer to questions like these, you can make reasonable calculations to compare the financial value of different options.

[Lan Mandragoran]

Hey Bicycle_B,

Well I do know some things about it. It's somewhat hard to piece together as it's kind of hush hush as I'm on a legacy plan that is wayy better than what anyone hired after me got.

Hmm thats interesting, yours is different than mine. I don't contribute to it all, they just contribute 20%. I just view it as part of my salary... a part that's vague and undefined lol.

I'll be getting a statement in april that should shed a good amount of light on it, and I'll follow up with the company that handles the pension after that point if I still have questions.  I do know I'm 100% vested after 5 years, at which point I would keep anything put in by the company if I left (or was old enough to retire/been there long enough).

What I'm not sure of is what kind of fees are attached to that lump sum distribution though, and I'm not sure how the rolling it over to a retirement bucket goes.

I'll post when I get my statement if nothing else to see if there is any more intrigue ^^.

Thanks for the responses!