The best advice you've received here is that you need to know and fully understand the details of YOUR potential pension plan. Only then can you know whether it's a good deal for you personally.
At a glance, if you're sure you're going to want to retire at a young age, it's probably a bad idea for you.
To help you make up your mind, I'll tell you some details and thoughts about my own pension plan. These things may or may not be truthful for YOUR situation, but hopefully they'll help you form questions and ideas about what you want:
- Typically a pension is offered in a job that is relatively low-paying. The option seems to be, "We'll never pay you much, but if you stick with us, you'll retire comfortably." It's unusual to find a high paying job AND a pension plan.
- I became fully vested in the pension plan after having worked 5 years; newer employees just coming in are not vested until 10 years. Why this matters: A person who leaves before being vested takes away the money he's deposited, which probably isn't particularly worthwhile. A person who leaves the company and is vested has two options: 1) take the money out. 2) leave the money and collect a pension at X age. If you leave after only a few years, of course, the pension will be smaller, but it may still be worthwhile. For example, my grandmother was a school teacher for only a handful of years in her youth, but when she turned 65 (65?) she began collecting a SMALL pension . . . and she lived to be 100. Yeah, she totally won the pension game.
- Most companies have a formula for determining the pension payment, and these are usually something like Average of the Four Years of Highest Salary x Years Worked divided by some number. The formula should be available to you, and you can play with numbers to see what it might be worth.
- In general, pensions are valuable only if you put in X number of years with the same company, and that's something that workers aren't necessarily doing these days. Part of this is that people are more mobile, less attached to "home", and more likely to be part of a two-career family, which means a greater likelihood of moving. Also companies are less loyal to their employees and don't seem to be so concerned with retaining experienced employees. My school system is working hard to try to kick out all the teachers at the top of the salary scale -- they'd be thrilled if I'd leave, and a part of it is that I'm relatively close to the pension . . . I digress, but it's something that my similar-aged friends are seeing too. In short, don't assume that a job at Company X will be available to you for 30 years, even if that's what you want.
- Being part of a pension plan may tie you to a geographic area, and this may both hold you back AND may hold your spouse back. This may become less of an issue as telecommuting becomes a more and more popular choice, but it has been an issue in our lives.
- And then there's the fear about the company going out of business and/or backing out on its promises. I do personally know someone who was screwed over by a pension promise, and I won't say that I don't occasionally think about how that could happen to me. How do you judge decades ahead of time whether your employer won't alter the pension plan? I don't know.
- When can you begin collecting the pension you're contemplating? For me, the answer is after 30 years of service at any age (and one year of sick leave can be used to take this down to 29 years), OR age 65 for anyone who's vested in the program. A person who puts in the 30 years gets basic medical for himself at no charge and can buy basic medical for his or her spouse at group rates.
- What options will you have for how your pension will be distributed? For me, I have four options. #1 is what I'll almost certainly take: I will be receiving 100% of my benefit and upon my death, benefits will end. #2 has to do with Social Security leveling, which is just a bad deal all around. #3 and #4 have to do with me accepting a smaller amount each month, but if I die first, my spouse would still receive a monthly check (for varying amounts, depending upon the option chosen) -- but I don't get as much money. In my own situation, I am younger and healthier than my husband, but this could be an attractive option for the right person. The real point: When you're just starting out, it's hard to know where you'll be in a couple decades. Will you have options available to you, or is it "Here's the pension?"
- Of course, the lure of the pension is that your paychecks don't end -- you cannot outlive your money. The downside of that is that if you die only a few years into retirement, you may be leaving money on the table, money you probably would've preferred to leave to your heirs. I do personally know a couple teachers who've died only a couple years shy of retirement or who have died only a few years into retirement; unlike my grandmother, whom I mentioned earlier, they lost the pension game. Without knowing the date of your death, you cannot approach this like a simple math problem -- you have to make some guesses, and that's why it's a tough question.
Good luck to you in making this decision. It really is a choice that you have to sift through your sieve of personal circumstances, and no one answer fits everyone. All investments are risks, and choosing to take a job IS an investment -- it's an investment of your time.
