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Stick with State Pension or move to Employer 401(a)?

marysmith 596 258 August 20, 2015 at 01:53 PM in Finance
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Hello all,

Related to my recent post on which 401(a) fund(s) I should invest in, a co-worker is causing me to pause and reassess if I should move to the 401(a) plan at all.

The story is, I have moved job classes with my promotion. My old position offered me the state pension plan-- I put in 5.5% of my salary (my employer puts in money as well, but only to support the pension system, it does not go into my "account"). This new job offers a 401(a) plan-- I put in 5.5% and my employer puts in another 10% in my account the total of which I get to invest in as I wish (from a good size list). The trick is, as I am moving from one job class to another I get a ONE TIME choice of which retirement system I want to be in. I can never change again, regardless of future position changes.

Currently, in addition to the 5.5% I am mandated to put into retirement, I do $5500 in a Roth IRA and 7% in a (not very diverse) mix of 403(b) funds. Which ever employer retirement system I am in, I would continue to contribute to these at these levels.

At this point I have 20 years in the state pension. Even if I switch to the 401(a), I will get a reduced pension when I retire (35% of my "high five" salary, which would stop computing at the time I switch). At my co-worker's urging, I ran the Vanguard retirement calculator and the results are in the screen shots below. I tried to be conservative when running them. As you can see, the "full pension" looks to give me quite a bit more over the reduced pension with 401(a) going forward.


Full Pension


Reduced Pension with 401(a) going forward

I have one week to make my choice! What do you all think? Does it make sense to stick with the state pension plan? I am in the upper mid-west, I don't think we're going to do the way of Detroit, but a lot can happen in the next 20 years.

Thanks, Mary

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Joined Nov 2005
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#2
I am very leery of counting on pension benefits especially in the long-term. DW has a state pension but we are 30+ years out - I'm investing as if that pension doesn't exist because honestly, there is a decent chance it won't exist or will be severely handicapped when we get there.
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#3
Will you have 40 qualifying quarters (10 years) of paying into social security? Usually those that pay into a government pension do not pay into SS
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#4
Quote from flatlight View Post :
Will you have 40 qualifying quarters (10 years) of paying into social security? Usually those that pay into a government pension do not pay into SS
That is a good question. I know my mom's SS got reduced because of her federal gov't pension. However, I pay FICA out of my check every pay period so, I assume our state pension does not fall into that situation. (Excluding my time here, I prob have around 6-8 years of "regular" work toward SS.)
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#5
I would stick with state pension


http://www.forbes.com/sites/mitch...heres-why/
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Quote from narnaie View Post :
I would stick with state pension


http://www.forbes.com/sites/mitch...heres-why/

That basically says pensions get better returns than 401k's because of scale... pension funds have tons of cash to negotiate lower fees. I don't know how this really impacts a single person though, as pensions are defined benefit, so regardless of how well the state does on an investment side, you get the same $$.

To what I said before:

http://www.nytimes.com/2015/02/26....html?_r=0

Cracks Starting to Appear in Public Pensions' Armor

Many public pensions are underfunded to top it off.
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#7
I am wondering if how much longer I stay at this job matters? Like what if I leave in 5 years-- will I be better off having $60k in mutual funds for 15 years or the extra $1040/ month (8.5% extra, 43.5% of high five) in my retirement reduced pension?
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Last edited by marysmith August 22, 2015 at 10:34 AM
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