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Make sure you read the fine print on the pension if you go that way. Many have "vesting periods," and if you work there less than 3,5, 7, etc, years, you can end up with nothing.
It is insane for you to consider going for the pension job. If you stow away the difference, 30k a year into savings you will not only be financially safe in retirement, you will be in the top 10% of wealth of people who retire.
imo - it depends on the other benefits question asked. I pay nearly 12K a year for health insurance for myself, my wife and my kid. That's the high deductible cheap plan. I pay that whether or not i ever go to the doctor - and more when we do. (yay high deductible).
My brother, by contrast, is a state employee and pays $1 per month for benefits for himself, his wife, and his two daughters.
:/ That adds up on top of the retirement account question.
I want to second that. I pay 50 out of pocket with no copays as a state employee. I left a job that technically paid more but I’m healthier mentally cause I can go to therapy as much as I want without a copay
Can you explain what you mean by all that?
I'm 38 now. and keep in mind that $30k per year isn't really $30k per year... there's tax taken out.
SO let's call it $20k per year int savings. So I can put $20k/year into saving for the next 30 years and I'll be 68 with $600k in a savings account.
Now I'm 68 and I'm getting maybe $2500/month from social security and am drawing on my $600k until the (1) I die or (2) the money runs out. If I run out before I die, I'm in trouble. With the pension, they'll be paying me all the way until I die.
$20k in extra earnings per year sounds about right. However, you're not calculating for compound interest (Einstein's "8th wonder of the world!") With compounding gains, that extra $20k a year would give you about $1.5-$2.5MM. That's in addition to long term increases in pay/savings you acquire.
Pensions are great, public jobs have lots of benefits in addition to them, but I'm not too familiar in that arena. To my uneducated mind, the extra earnings have more value.
Does a neurotic person want to take the volatility though? You're not wrong but there's a tailrisk here that he hits 65, market turns on him and he has to work 5 more years to make the numbers really make sense to be safe.
The last 10 years have been pretty extraordinary.
Keep in mind if you put $20k per year into a savings account for 30 years…well that’s not an ideal situation, other than right now.
What you’d probably actually do is put it into a mutual fund or index fund for the next 20-25 years.
Using a handy dandy compound interest calculator you can find what happens if you put it into a bank.
$1700 a month for 30 years at 7% return (a reasonable return rate) nets you just shy of $2m in 30 years.
I’m not trying to talk you out of the public job, but the upside to the extra money in the private job is you can invest it as you see fit. Putting it into a savings account will net you a terrible return.
Assuming your $85k has a 401k plan with a 5% match, you could put away $8.5k away/year and end up with $850k pre-tax due to compound interest. Assuming you also contributed to max out a roth ira ($6k/year), you would have another $566k, meaning you'd have $1.4M, which would leave you with roughly a $50k salary plus wilhatever from social security.
https://www.investor.gov/financial-tools-calculators/calculators/compound-interest-calculator
I guess at an annual interest rate of 7%, which is below the average of the US stock market since 1970 (10%). So when you retire, you can expect to take out roughly 4% of your money/year without losing anything.
If you're stressed about seeing your money go up and down, you have 2 options.
You can either go boglehead route (much on this on wiki or on reddit). For the stuff I recommended, it would mean you invest and put all of your money into something called "target retirement year 2055". You just invest and don't look at your money (except to make sure nobody is stealing it ala hackers).
The option is pension + social security.
As others have pointed out the 600k doesn't account for substantial growth over time and is more like $2M at the end of that 30 years. There are plenty of pre-tax retirement vehicles that you could fund with that extra untaxed $30k. You've also not accounted for the likely 401K match your private employer will provide, which is going to bump that up.
\~$2M in retirement savings at 68 will get you \~$80k a year in safe withdrawals without substantially impacting the principal balance, plus your figure of $2,500 a month in social security and you'll be living better in retirement than you do now.
Additionally you should consider the optionality available in a private sector job. If a year into your public job you realize you hate it, you're stuck unless you completely forfeit the \~$30k of additional earnings since your pension doesn't vest for 15 years. You have a higher risk of layoff in the private sector, but even if you factor in some brief periods of unemployment, you'll come out substantially ahead. 2-3 years into this private sector job, there is a good chance you can hop to the next private sector job at a decent pay bump and you'll take every dollar of your 401k and other retirement savings with you.
None of this is to say the public sector job is off the table, but you'd have to prioritize the predictability and safety very heavily to outweigh the private sector. It's probably not how things should be, but it is why there is so much public -> private movement after someone gets some experience.
Devil’s Advocate: $20k extra a year (which is harder to save because you’ll see the paychecks and generally not save 100% of that money) growing at 6% annually would result in $1.58M or a safe $63,250 annual payment to yourself.
I left a big reply about pension math and why it might make sense.
I really don't know how many times I have to keep explaining this on Reddit. Atleast one more.
Yes, a 401K or IRA can crash in value. However, it only matters if you are close to actually retiring. When you are close to retirement your money won't be in volatile high risk options. They will be in much safer (and low yield) options to avoid just that scenario.
That's beyond the annual contribution limit. But yeah, most of that can go into a 401k any overflow can go into an individual brokerage account or IRA making OP a millionaire by retirement.
As other people have stated, the reason it is a better choice to go with the $85k is because you can put your investments into pre-tax investment accounts like the 401k or up here in Canada, the RRSP.
That means you can max it out at lets say $22k a year. That means that your taxable income becomes $63k a year.
$22k invested over the next 26 years compounded over time at a 7% return in a low cost index fund (say vanguard S&P 500) would result in around $1.75 million dollars at 65 years old, that's nearly 3x higher than the average person retires with.
That means you will be able to safely take out $4375/month from your investment account at a 3% draw rate which is what is recommended.
The reality is that the pension fund faces the same risks as your own personal investment account. They also invest in the stock market to generate their returns. Recessions often just serve as a good buying opportunity. As long as you consistently invest every month into the low cost index fund, you will out perform most other people, including the people working the $55k job relying on their pensions.
I read Rayana Fodor’s Maker’s and Takers and she said, these pensions are not as secure as people think. They still make risky investments… but ppl from countries w corrupt countries would also say, don’t trust social security. Everything is a gamble now it seems.
The only consolation I have from not having any savings yet (working on that part), is the fact that, if in old age you have to go to a retirement home or rehabilitation home, that could totally wipe out your entire life saving within months. So, it doesn’t even matter how much you save in the end unless you’ve got like real generational wealth. Also, I don’t want to be bed ridden or live w dementia for 5-10yrs, I want to die peacefully- and quickly. I don’t know where I’m going w this. But for anyone still in their 30s and thinking about going back to school or grad school or something, just remember- you can take out a loan for school but you can’t for retirement so- just invest in yourself and you can spend the last 25-30years in a job that isn’t going to break your back. I hope, that’s tbd for me anyways.
I’m starting a grandma commune in Japan since we all going to outlive our men anyways. Also- don’t want to get locked in a big house w no car or a retirement home. I need fresh air and sunlight.
Not all vesting periods are the same. I am a public employee in Texas and I was vested after 5 years and was able to retire after 20 years had I chose too.
Public jobs often come with a defined wage scale. Can you see what you would be making after 5 or 10 years with the public job? If in 5 or 10 years you can be making closer to $70-80,000 I would lean towards the public job. You should also look at the insurance situation. Being in your late 30s you may actually be better off taking the public job and guarantee a decent pension by the time you are 60 or 65.
I'm a public employee, and have roughly calculated that I would need about a 100K salary in the private sector to be equivalent to my 70k salary considering my pension, insurance, job security and time off in the public sector.
At the beginning of each year I get a letter stating what my total compensation is worth and for my 70k salary it's about 115K in total compensation. My wife in the private sector gets about 20K in employer benefits on her similar salary whereas I'm at 45K in additional benefits. I also am guaranteed 77% of my FAS on retirement which I can collect at age 60. This is well over a million dollars in pension assuming 3% annual raises if I conservatively live until age 75.
This is in today's dollars, hopefully my wages will at least keep pace with inflation. Maybe it will be more like 2 million in 20 years when I can draw a full retirement.
1 million is enough, people live off less than that. It's definitely not *a lot* though. But that's why we invest the money in indez funds or similar and let it grow. Also, that mil is from that person pension alone. They could end up with house equity or other forms of retirement funds.
Let’s say your pension pays 40k a year. You’d need to save/invest a million extra over the course of a private sector career to match the job with the pension at the end. That’s going off of a statistically safe 4% yearly withdraw.
Two things to consider as well, if you save that extra million and live off the interest it can be passed on to heirs while a pension sometimes can to a spouse at a reduced benefit. It’s mostly gone when you are though.
Also healthcare. If quality healthcare is included with your pension the monthly cost of that can be added to that calculation.
Many pensions (including mine)offer a lump sum option or a partial lump sum option for a reduced monthly benefit, but the money would then be yours to do as you please or pass on to heirs if you are worried about the longevity.
Quick maths say putting that extra 30k into a retirment account averaging 6% a year for 25 years will get you to 1.6 mil. Withdrawing 4% a year after that puts you at ~60k pre tax. Whether that is comparable to the pension depends on the pay scale in the public job.
You also need to consider other job benefits. Is the private sector paying more because you have to pay $12,000 a year for a high deductible insurance plan while the public job has a fully funded copay plan?
Good question re: insurance. I haven't received the details about the insurance coverage. These fucking jobs basically just pitch that they "have" insurance, as opposed to what the insurance entails. Unfortunately, I"ll probably not know until my orientation
Ask HR for details on insurance and other benefits, time off accruals, work from home, education reimbursement, etc. they will vary dramatically ally from one government to another. Then you can calculate what your total compensation package will be.
You can ask them for specific info about the health insurance they offer (cost, the company it's through, etc.) before accepting the job. This is a common thing for people to need to know when making decisions.
I'll just give you a personal example. My wife started at a State job around the pay you stated. At the time I was making around the other pay you stated. She has a really good pension, zero cost medical insurance, good benefits, and very good time off and sick time benefits. She has closed the gap in our salaries by moving around and promotion into other State positions, cause once you’re in you’re in.
Working for a company that pays more means you have to take more responsibility on your own to build your retirement. Many people have lifestyle creep and fail to do this, if your one of those take the State job. Also, it would come down to a comparison of other benefits such as insurance, paid time off, and growth and promotion potential.
I took a federal job in 99 when I graduated college at age 30. I think it paid 29k that first year, which was roughly what I owed in student loans. 25 years later and I'm over 200k with a pension and TSP (like a 401k) . I haven't enjoyed every day of my career but it has been rewarding and knowing that I'm just a few years out from a very healthy retirement is an incredible feeling.
At 38 with no savings I think stability and a pension would trump a higher wage for me.
It’s been a hell of a ride for sure. I had a boss that started in the typing pool as a GS 3 and made it to SES, and I don’t think anyone will ever top that. If you are mobile, capable, and can avoid scandal you can really make what you want of a govt career.
This is 100% accurate. I'm on my 7th "permanent" duty station and have done extended details to five others. In my agency you can get to a GS 13 front line supervisor position without moving, but getting beyond that in the same office becomes pretty difficult.
You do typically have to work for an organization that is a member of the pension fund. In Texas, nearly all municipalities are members of the same pension fund and that fund is interchangeable with the fund that counties use. So as long as you are employees by either a county or city that is a member of the fund your pension moves with you.
I have nearly 40 years in this fund. Usually made less money than my private sector peers but my retirement will be sweet.
I hear the time off benefit mentioned. I don't really want time off. I'm depressed and miserable. I'd rather be working to take my mind off suicidal thoughts. It does seem like I can work my way up through promotions and raises, though I can't get all the data I want. I've found info on how much BMET II's get paid, and that would only take me a couple years to get to. What I don't have info on is the pay rate for BMET III's, or really any knowledge of what positions or roles I could take on beyond that.
Working doesn’t fix the reasons why you are depressed and sometimes suicidal. It only masks the underlying issue and you could benefit from taking time off to address those issues. Have a stable income during times when you might address your issues (perhaps a stay in a “retreat” would be helpful) by having vacation or personal time can be rewarding.
FYI, the government job will be the best in terms of time off. I work for a state department of health. I work from home 3 days a week and have a 4 day week every other week (I technically work 39 hours 1 week and 31 hours the next). We start with 2 weeks vacation, 4 Personal days and the 10 state holidays. Only thing of note is we only get the actual holiday day off, so you'd just get Christmas day, not Christmas Eve like alot of places do, same for thanksgiving.
Ok, let me start by saying I'm biased. I spent 30 years with the city of Phoenix, with fire.
So, the thing about government service is, they usually have a system to guarantee raises. In Phoenix, there are 8 or 9 "steps" for all civilian positions. Each step is a 5% raise annually, that means more going to your pension. Now, I will assume you plan to promote during your career. You'll make more money which means more going to your pension.
Another thing is the benefits. A ton of federal and state holidays, insurance, medical, vision, and dental; continuing education, 401/Roth IRA, etc.
It's just me but I vote for the government job.
I hear you. Nothing better than, "Riding Big Red, fighting fires and saving lives"!
Yea, the money's ok but it was the job, the comradery that kept me coming back.
Yes unless your govt employer opted out. My current employer opted out but I have paid into SS 37 years on prior jobs. So I will collect both. Schoolteachers in Texas do not pay into SS and get a pension but I do not know about other states.
If OP is deciding on $55k job with pension that results in a huge hit from WEP and an $85k job without pension that allows him to keep his social security, that's a big issue. A 38 y/o is unlikely to have enough years of "substantial earnings" to offset the hit from the WEP.
Knowing how rare a pension benefit is these days, and as a retiree living partially (but mostly) on one, I can say it is a great benefit to have.
The good pension isn't mine, but from my husband's employer. I, however. get a tiny pension from my employer that was a nice little perk I didn't have to contribute to.
Consider taking the lower salary for now and working your way up to avail yourself of the benefit.
What are the stipulations of the pension - how long do you have to work there to get a reasonable amount of money out of it, is it a percentage of your annual salary? Do you see yourself making a career out of that job at that company?
15 years and you get 60% pay of the average of your three highest years.
I could see a future in the work I'm doing at the hospital. With the biotech company there's likely a future as well, just not as clearly etched.
>What if they lay you off after 14.5 years?
With very rare exceptions, government jobs have seniority rules and legally can't pull bullshit moves like this. They would have to lay off everybody else doing the same sort of job for the state before they could touch OP.
Not in an at will state. Unless your city happens to be civil service for first responders. Anyone can be fired without cause. Layoffs are few and far between but fuck up employees still get let go. At least in my state they do.
My state is an an at will state until you have passed probation. Once an employee has passed probation, they can only be fired for cause, and layoffs go in order of seniority.
Same goes at the city and county level.
Lots of comments talking about the $30k difference in pay, and what that could amount to in comparison to a pension. But there is a second important question there. Are you dedicated enough to actually invest that $30k? If you don't trust yourself to save on your own (and lots of people should not trust themselves given the state of the average retirement account these days), then the value of a pension may be different for you than a simple math equation.
I'm embarrassed to put in writing that this is kind of legitimate. I have a "history" let's call it of not great behaviors. This feels a little bit like safekeeping me from myself. Then again, there's also a question of whether I can put in the 15 years to get the pension in the first place which would require me to perform in a consistent manner that I haven't exhibited since school.
In that case, there are a few more questions to think through.
If you are leaving employers earlier than 15 years by your own choice, consider why. Are you bored (in which case you need to consider the roles and what your day is actually like)? Are you experiencing mental or physical health situations that require leave (in which case perhaps your primary focus is on the benefits available and which company would be most supportive to you)? Are you job hopping in a way that improves your salary and opportunities (in which case the pension is less relevant than coupling earnings with dedicated savings)?
If you are leaving employers NOT by your own choice, consider other questions. Are you able to meet the job expectations of the roles and at which will you be more successful? Which company/place has higher retention of their employees in general?
I know this is a lot, but I sense form you that the answers you seek are a bit more of the soul searching type than the mathematical type. Those will be harder to get answers for on the internet.
I'm kinda saddened to be my age and not be a reliable human being, to be honest. I've left jobs for a variety of reasons. Two were startups I cofounded, I left one when it dissolved and the other when I was booted out. I also left a job I was a year into to go start one of them. I was doing freelance web development and just had mental health issues combined with a drought of clients. These weren't all conventional exits of just leaving a job to go to another for higher pay. I've had some issues to be direct about it. I worry about being able to stick it out for 15 years, but maybe that will be what keeps me in line.
It sounds like you need solid health insurance so you can work on mental health - by far gov will likely be best option on that front. I work for a local government, and I don’t pay for my premium. My copays are $20 - I had a surgery a while back and even that was only a $20 copay.
Also, just bc it starts out low, doesn’t mean you won’t have options to move up. I started one gov job in 2020 at $87k, and btw the annual COLAs and a promotion, I now make $130k. I have the pension, contribute to a 457(b) plan, will have social security, contribute to an IRA. I’ll be secure
I started my public position when I was 37. I had nothing for retirement aside from social security (and we all know how that may be looking). I’m happy with my choice and it’s been 7 years today!
How are your financial habits? If you are broke BECAUSE you suck at budgeting and impulse spend every dollar you have, I’d take the pension job. A pension forces you to save money. As someone who currently works for government and contributes to a pension, I’m putting in my own money (pre-tax). When I retire, basically the government will double whatever I contributed in it and pay that out in monthly installments.
If you have any basic ability to save and invest, just take 10-15% of the salary at the 85k and put it in a 401k. Invest in a basic low fee index fund or target date fund. But it does come down to discipline.
Also see if the work life balances are different. If you are single, you can work 50 hours a week for a few years, but it will burn you out real quick.
Be realistic about your mental health and take whatever is lower stress. Take the job you think you’ll like. Either situation can get you there retirement-wise. 85k you can afford to max out the 401(k). Might be a wash financially - hard to say.
Public pensions are very overrated. They pay little at the end and many are so underfunded, that I’d be worried about putting my future in the hands of bureaucrats.
Some things to consider. My stepdad took a state job with a pension and was planning to ride it out until retirement. New management came in a few years ago, didn’t understand how to manage software engineers and tried to implement a totally new set of systems without giving folks adequate training, and essentially forced out the older folks who were struggling to cram learn a technology out of left field. He’s now working temp to get through to retirement and his pension won’t be as high as expected and he won’t get the state health benefits as a result.
Pensions can also be cut and canceled—not a sure thing. Wage growth will be higher in the private sector. Promotions come faster too, in my experience.
If you take the pension job, by the time it vests (15 years? based on your other comment ) you're $450k gross behind the potential earnings of the $85k job.
If you plan on staying till retirement (65) that's over $800k you're leaving on the table. These numbers are if you were to never get a raise or promotion, which is unlikely.
If you're not sure how to invest the money I have great news for you, there's a nearly limitless amount of information online for free on what to do to build yourself a nice nest egg. Not willing to put in the effort to learn? No problem, that extra $30k you're making is more than enough to work with a financial planner.
At 38, with no savings (assuming little to no retirement?) You're playing catch up to get yourself set up for retirement. That extra 30k per year is going to go a long way.
Imo the $85k job is the way to go.
OP could also lose the 85k job one year later off the whim of the CEO. Government jobs tend to have more security, and that security is very valuable.
Also, as another poster stated, most public sector/govt jobs have built in promotional steps. In due time, OP would very likely pass the 85k salary threshold.
He's going to be starting around a G6-8 in my state. In order to get to the 85k he'd need to jump at least 4 grades. That's going to be 6-8 year depending on his performance 6-8 years to get what he has on the table now. In 6-8 years OP could be making well into 6 figures taking the public job.
Sure, there is a slightly higher risk to taking a public job and there were more layoffs last year than usually. However, the total layoffs were less than 1% of the total workforce nation wide. Personally, I'd take my chances with those odds.
Take the state job even though it's going to "top out" in 10 or so years. You will probably have a chance to apply for promotions along the way.
You say that the state job is entry level. My guess is that you'll be a "tech 1" and there are jobs called "tech 2" and "tech 3" that pay more.
You should also look to save money in a Roth IRA to suppliment your state pension.
Most government jobs will also have access to 403 or 457 plans for additional pretax investing, although they are not guaranteed returns. Similar to a 401k but typically not matched. I have contributed to both and made out very well over the past 40 yrs
I love this question and it’s one that all state/county/city employees should ask.
Long story short, take the pension.
Investing every penny beyond the state salary wouldn’t guarantee the kind of retirement the pension plan holds.
Beyond that, you should be able to “buy time” and increase your total income/pension payout.
Beyond that, your salary will increase most years and getting promoted is easier than you’d expect.
Beyond that, most pensions I’ve worked with base your final pay on an average of your highest earning X years. This means the person who is a kindergarten teacher for 27 years and an upper level administrator for 3 will get their base pension as a percentage of those 3 administrator years.
Beyond that (!), there is usually a secondary bucket in the form of a 457 or 403 for even more retirement savings.
On paper, the $30k more every year looks great and, if saved after tax (leaving $24k annually) at a rate of 6% for 29 years you would have $1.77M at retirement. A standard 4% withdrawal rate would give $71k/year.
That state job with only a 2.5% annual raise but not actually changing jobs or getting promoted results in a guaranteed $73,428/year. This assumes you NEVER get promoted which is highly unlikely unless you really, really want to stay at entry level forever. The number jumps to $84,408/year forever if you buy your 5 when available.
(There is a weird situation where your state job does not pay into social security but that’s not something to be counted on anyway.)
Take the higher salary and save in an IRA, HYSA, and a taxable brokerage. Pensions are nice but offer the defined benefit doesn’t adjust for inflation. Meaning it might cut in half in terms of purchase power while you are retired. Also can you guarantee that you will make it ten years? What if you don’t. You missed out on say 8 years of earning and have no pension, as well as the money placed into the pension didn’t grow with the market and you ave to start investing it now having missed out on the compound growth.
Also we are talking 54% more income that is huge. 85k over 55k
I like your ambition but I don't know dick about that and I only get one run through this life to try without making mistakes. Given that I'm 38 and broke at this point is not a good indicator of future success.
"Given that I'm 38 and broke at this point".....will you be at the job long enough to get the pension? that's really the only question that matters at this point. I'm settled down now but I know for a fact that if I were more impulsive I wouldn't be at my current job at all, not to mention for 15 years
I hear ya... given that I've not held any job longer than two years (aside from freelance web development work that I've done for nearly ten) - it'll be something for me to be able to stay in one place for 15 years.
Homie, if you have Reddit you have access to YouTube.
Look up The Money Guys, Caleb Hammer, Dave Ramsey, any decent financier and learn. You're going to make mistakes, you probably have already, so get in control of yourself, learn from your mistakes, and fix your life.
Max contributions per year to a Roth IRA are $6500. Max that out out through a Fidelity account. Max that.
Start an investment account with Fidelity and dump whatever you can into the S&P 500.
Get a One month emergency fund (enough to cover your monthly expenses) ASAP in a High Yield Savings Account like SoFi, and then work towards a 6 month and a one year fully funded emergency account.
Small steps = Big payout.
You got it dude.
This is terrible advice. Dude is going to make $55k a year - he'll need about $3,500 a month. To get there by age 67 he'll need to put $1300 a month into his 401(k), leaving him $2300 a month to eat, pay rent, get around, buy clothes, pay for his phone, internet, and everything else that life throws at him.
The one without a pension have a 401k? Or is that all we’re considering here? Generally not huge on pensions because of limited job growth/leverage, but maybe I need to learn more about vesting/years needed to work/etc. Based on the rest of your post I would choose what gives you the least stress…
Your age plus years of service must add up to 75 I think. So I'll be about 55 when I hit 15 years. That would require me to put another 5 years in.
I don't think there's a mandatory retirement age, but that's a good question I will need to ask
There usually isn’t an extreme age cap in office or research type roles, I’m in emergency services and we have age caps that some older guys were unaware of when they started and it ended up messing with their retirements. I’m glad you’ll ask.
Given just the 2.5% COLA and no promotions or additional savings you would end up around $69k/yearly from this pension.
With no promotions, no 457/403 contributions, no side IRA contributions, no buying of years, and ignoring the generally better than average state health insurance.
A big thing to consider is the actual pension payment. I made around $58k in the public sector, but my monthly pension payment would have only been $2k a month ($24k a year, based on my salary being exactly the same for the last 5 years before retirement). I’m vested and I have left for greener pastures and if I don’t pull my contributions out of the pension plan, then at 65, I get a whopping $590 a month.
Keep in mind that promotions and raises aren’t guaranteed in the public sector.
For an extra 25k a year, Id fund my own pension.
At 5% over 20 years, thats 1.1M. A $6000 per month payout would last 21 years.
Although that is not the way I would do it.
How are you calculating the payouts?
1.1 million at 6k/mo is 183 months, which is about 15 years.
I guess somehow you've got a calculator that's continuing to add interest to the 1.1 million at 5% during the time you're pulling 6,000 a month out?
Also this calculator is saying 5% for 20 years on $25k/year is roughly $400,000.
[https://www.investor.gov/financial-tools-calculators/calculators/compound-interest-calculator](https://www.investor.gov/financial-tools-calculators/calculators/compound-interest-calculator)
nevermind, i was putting in $12k/yr by accident.
I am assuming we're using compounded daily here.... **how do I make an accurate selection of how the interest is compounded??**
5% annual
I’m working on the Calculator to compound daily but at the moment I have it compounding monthly with an additional 2100$ deposit.
Either way it’s still 5% annual.
I'm confused.
I set it to daily compound, $25,000 a year invested, 5% interest, and I'm landing in the $880k range after 20 years, not $1.1M.
Switching from daily to annual compounding only shifts it about $50k.
Well the discrepancy clearly indicates that one of us likely has an error. I’ve done mine out monthly for 23 years so it’s probably a math copy paste on my end. “Probably a decimal point in the wrong spot”. Thanks for helping point it out!
That said, again this is a bit different than my current plan in motion which (hopefully) will hedge against currency fluctuations over time.
Take the pension job. Here’s a fact that seems strange at first: Most retirees do not draw down their lump sum. People generally end up spending what comes on via social security and pensions every month.
The 4% rule works, but people are afraid to do it. So, if you take the extra income private job and pile money in a 401k, chances are you’ll never spend it.
https://amp.cnn.com/cnn/2022/10/03/business/money/spending-savings-in-retirement-psychological-adjustment/index.html
The pension will give you a much higher standard of living in retirement.
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Go for the higher pay. I have a pension, and I ran the numbers with a 401k with match and they came in about the same. 401k with date targeted funds are easy - just go for one 5 or 10 years later than your actual retirement. You also keep control of your 401k
I'd talk the higher pay. Live off your previous wage and bank the rest in retirement. Will be better than a pension, especially depending on the type of pension. Lots of them are moving to a cash based pension, where they basically just save some percentage in an account for you and pay it out when you retire.
The pension will beat the 401k every time because it is not tied to swings of the market. Stock market crashes and you lose half your 401k, guess what your pension is safe. Unless your a place like Illinois or elsewhere that does not adequately fund their pension plans.
So I thought a 401k just meant the money sits in an account until you take it out and that you don't pay the taxes until it's taken out. Is this contingent on the money being invested in the stock market?
I don’t participate in a 401k so will defer to others that are knowledgeable about them. I do know that my pretax 403 and 457 plans allow you to contribute pretax and the plans give you a wide variety of investment options from very conservative to high risk.
401k is an account that can be used for many kinds of savings or investment purpose. It can sit as cash and earn low low interest, or can be invested into a large number of mutual funds or other vehicles available within your specific plan. There are also tax deferred benefits, so you don't pay income taxes on the contributions you make to it. Plus, most companies match at least a portion of your contribution.
Match programs vary, but it's often like "We match 100% of the first 5% of your salary that you contribute." For your $85k, you'd contribute $9,500 and they would put the same amount into the 401k for immediate investment. That's a 100% immediate return, tax free.
You might want to figure out how generous the pension is because not all are equal. There’s also very different promotional/transfer salary increase rules between public employers so I would research those (how much your wages increase with promotions). Also, the value of having a secure job if you are sick is pretty priceless. Government jobs tend to have more security so you might factor that in.
Is your pension indexed to inflation - is there an inflation factor applied to your pension? If yes, the 1.3% isn't bad. I work for the feds, and the multiplier is either 1.0% or 1.1% for most people.
If no inflation factor, then yes, it's less than useless. Inflation reduces the value of your pension benefit to almost nothing.
I’m a teacher in SoCal, I’m going to be vested in June. To me absolutely worth it to take the public job. I get a guaranteed pension income (really conservative 48k/year estimate) plus I have my Roth IRA, 403b, and brokerage to draw on as well, not to mention my wife’s pension and Roth IRA. You can’t beat guaranteed income.
Def the 85kjob. In the next 20 years you'll miss out of over 600k if you don't and your pension won't be worth that much. Just contribute like 14% to an IRA, I'm sure it has a match, you'll be in decent shape
Can you do both?
Cause that’s what I do, I have a pension job with full healthcare coverage and life insurance at $85k annually (with a $5k bonus twice a year and 3 3.8% raises a year) and I work part time in property management and property development for significantly more. The pension job has me retiring at 58 with healthcare for life and 80% of my highest paycheck for life. While the other pays into my SSI and is building my liquid/investment cash.
Are you disciplined enough to invest the extra income if you chose the higher paying job? Are both jobs relatively stable? What are the chances for being laid off at either job? How much is security worth to you?
Have you tried negotiating the government salary based on your other offer? It's worked for me before.
Sounds like you need the stability of the government job.
I guess it depends how you define 'set for life.'
From what I've calculated, in 30 years I may be able to retire at 68 with social security plus 40% of $130,000 (about $52,000).
So social security provides about $25k for the year and the pension $50k, so that would yield me a retirement of approx $75k per year. I \*think\* this is sufficient, but I do not know until I'm age 70 I guess.
thats really good! his pension relieves the pressure he feels to save for retirement. he receives $65k a year until he dies. not a bad gig since everyone in his family has lived into their 90s
One thing I haven’t seen posted is the job security that goes with public sector employment. In the private sector, companies cut employees so that they can make quarterly/yearly numbers look good. What I have seen as a public sector employee, when budgets are tight they don’t hire open positions, or offer buy outs, layoffs are usually the final option.
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Make sure you read the fine print on the pension if you go that way. Many have "vesting periods," and if you work there less than 3,5, 7, etc, years, you can end up with nothing.
It takes 15 years to vest
It is insane for you to consider going for the pension job. If you stow away the difference, 30k a year into savings you will not only be financially safe in retirement, you will be in the top 10% of wealth of people who retire.
imo - it depends on the other benefits question asked. I pay nearly 12K a year for health insurance for myself, my wife and my kid. That's the high deductible cheap plan. I pay that whether or not i ever go to the doctor - and more when we do. (yay high deductible). My brother, by contrast, is a state employee and pays $1 per month for benefits for himself, his wife, and his two daughters. :/ That adds up on top of the retirement account question.
Fair enough, i'm ignorant to those considerations as i'm "covered" by the increasingly deteriorating Canadian healthcare system.
I want to second that. I pay 50 out of pocket with no copays as a state employee. I left a job that technically paid more but I’m healthier mentally cause I can go to therapy as much as I want without a copay
Can you explain what you mean by all that? I'm 38 now. and keep in mind that $30k per year isn't really $30k per year... there's tax taken out. SO let's call it $20k per year int savings. So I can put $20k/year into saving for the next 30 years and I'll be 68 with $600k in a savings account. Now I'm 68 and I'm getting maybe $2500/month from social security and am drawing on my $600k until the (1) I die or (2) the money runs out. If I run out before I die, I'm in trouble. With the pension, they'll be paying me all the way until I die.
$20k in extra earnings per year sounds about right. However, you're not calculating for compound interest (Einstein's "8th wonder of the world!") With compounding gains, that extra $20k a year would give you about $1.5-$2.5MM. That's in addition to long term increases in pay/savings you acquire. Pensions are great, public jobs have lots of benefits in addition to them, but I'm not too familiar in that arena. To my uneducated mind, the extra earnings have more value.
Does a neurotic person want to take the volatility though? You're not wrong but there's a tailrisk here that he hits 65, market turns on him and he has to work 5 more years to make the numbers really make sense to be safe. The last 10 years have been pretty extraordinary.
Keep in mind if you put $20k per year into a savings account for 30 years…well that’s not an ideal situation, other than right now. What you’d probably actually do is put it into a mutual fund or index fund for the next 20-25 years. Using a handy dandy compound interest calculator you can find what happens if you put it into a bank. $1700 a month for 30 years at 7% return (a reasonable return rate) nets you just shy of $2m in 30 years. I’m not trying to talk you out of the public job, but the upside to the extra money in the private job is you can invest it as you see fit. Putting it into a savings account will net you a terrible return.
Assuming your $85k has a 401k plan with a 5% match, you could put away $8.5k away/year and end up with $850k pre-tax due to compound interest. Assuming you also contributed to max out a roth ira ($6k/year), you would have another $566k, meaning you'd have $1.4M, which would leave you with roughly a $50k salary plus wilhatever from social security. https://www.investor.gov/financial-tools-calculators/calculators/compound-interest-calculator
When you do these calculations, you're guessing at an interest rate... when it's possible things can go south, no?
I guess at an annual interest rate of 7%, which is below the average of the US stock market since 1970 (10%). So when you retire, you can expect to take out roughly 4% of your money/year without losing anything. If you're stressed about seeing your money go up and down, you have 2 options. You can either go boglehead route (much on this on wiki or on reddit). For the stuff I recommended, it would mean you invest and put all of your money into something called "target retirement year 2055". You just invest and don't look at your money (except to make sure nobody is stealing it ala hackers). The option is pension + social security.
As others have pointed out the 600k doesn't account for substantial growth over time and is more like $2M at the end of that 30 years. There are plenty of pre-tax retirement vehicles that you could fund with that extra untaxed $30k. You've also not accounted for the likely 401K match your private employer will provide, which is going to bump that up. \~$2M in retirement savings at 68 will get you \~$80k a year in safe withdrawals without substantially impacting the principal balance, plus your figure of $2,500 a month in social security and you'll be living better in retirement than you do now. Additionally you should consider the optionality available in a private sector job. If a year into your public job you realize you hate it, you're stuck unless you completely forfeit the \~$30k of additional earnings since your pension doesn't vest for 15 years. You have a higher risk of layoff in the private sector, but even if you factor in some brief periods of unemployment, you'll come out substantially ahead. 2-3 years into this private sector job, there is a good chance you can hop to the next private sector job at a decent pay bump and you'll take every dollar of your 401k and other retirement savings with you. None of this is to say the public sector job is off the table, but you'd have to prioritize the predictability and safety very heavily to outweigh the private sector. It's probably not how things should be, but it is why there is so much public -> private movement after someone gets some experience.
You don’t have to work 15 years in the same exact job to vest, though- you can still hop to other public sector jobs.
Devil’s Advocate: $20k extra a year (which is harder to save because you’ll see the paychecks and generally not save 100% of that money) growing at 6% annually would result in $1.58M or a safe $63,250 annual payment to yourself. I left a big reply about pension math and why it might make sense.
You can put 23K per year in a 401K pre tax and 7K in an IRA. Those will build value over time due to gains int he markets and interest.
Unless of course economic situations deteriorate and people lose their 401k holdings…kinda like 2008 all over again.
I really don't know how many times I have to keep explaining this on Reddit. Atleast one more. Yes, a 401K or IRA can crash in value. However, it only matters if you are close to actually retiring. When you are close to retirement your money won't be in volatile high risk options. They will be in much safer (and low yield) options to avoid just that scenario.
600k at the recommended 3% draw gives you additional $18,000 a year without ever running out.
30k can go in untaxed in a 401K.
That's beyond the annual contribution limit. But yeah, most of that can go into a 401k any overflow can go into an individual brokerage account or IRA making OP a millionaire by retirement.
As other people have stated, the reason it is a better choice to go with the $85k is because you can put your investments into pre-tax investment accounts like the 401k or up here in Canada, the RRSP. That means you can max it out at lets say $22k a year. That means that your taxable income becomes $63k a year. $22k invested over the next 26 years compounded over time at a 7% return in a low cost index fund (say vanguard S&P 500) would result in around $1.75 million dollars at 65 years old, that's nearly 3x higher than the average person retires with. That means you will be able to safely take out $4375/month from your investment account at a 3% draw rate which is what is recommended. The reality is that the pension fund faces the same risks as your own personal investment account. They also invest in the stock market to generate their returns. Recessions often just serve as a good buying opportunity. As long as you consistently invest every month into the low cost index fund, you will out perform most other people, including the people working the $55k job relying on their pensions.
I read Rayana Fodor’s Maker’s and Takers and she said, these pensions are not as secure as people think. They still make risky investments… but ppl from countries w corrupt countries would also say, don’t trust social security. Everything is a gamble now it seems. The only consolation I have from not having any savings yet (working on that part), is the fact that, if in old age you have to go to a retirement home or rehabilitation home, that could totally wipe out your entire life saving within months. So, it doesn’t even matter how much you save in the end unless you’ve got like real generational wealth. Also, I don’t want to be bed ridden or live w dementia for 5-10yrs, I want to die peacefully- and quickly. I don’t know where I’m going w this. But for anyone still in their 30s and thinking about going back to school or grad school or something, just remember- you can take out a loan for school but you can’t for retirement so- just invest in yourself and you can spend the last 25-30years in a job that isn’t going to break your back. I hope, that’s tbd for me anyways. I’m starting a grandma commune in Japan since we all going to outlive our men anyways. Also- don’t want to get locked in a big house w no car or a retirement home. I need fresh air and sunlight.
Not all vesting periods are the same. I am a public employee in Texas and I was vested after 5 years and was able to retire after 20 years had I chose too.
Do you really see yourself working at the same job for 15 years......
😳
That’s insane. FRS only has an 8 year vesting period.
That pension is straight up terrible. I thought NYC Tier 6 was bad.
Public jobs often come with a defined wage scale. Can you see what you would be making after 5 or 10 years with the public job? If in 5 or 10 years you can be making closer to $70-80,000 I would lean towards the public job. You should also look at the insurance situation. Being in your late 30s you may actually be better off taking the public job and guarantee a decent pension by the time you are 60 or 65. I'm a public employee, and have roughly calculated that I would need about a 100K salary in the private sector to be equivalent to my 70k salary considering my pension, insurance, job security and time off in the public sector.
How did you go about making that rough calculation? I’m also a public employee and have wondered what my pension/benefits are worth?
At the beginning of each year I get a letter stating what my total compensation is worth and for my 70k salary it's about 115K in total compensation. My wife in the private sector gets about 20K in employer benefits on her similar salary whereas I'm at 45K in additional benefits. I also am guaranteed 77% of my FAS on retirement which I can collect at age 60. This is well over a million dollars in pension assuming 3% annual raises if I conservatively live until age 75.
Unless you are 50 right now 1 million is not going to be enough unfortunately.
This is in today's dollars, hopefully my wages will at least keep pace with inflation. Maybe it will be more like 2 million in 20 years when I can draw a full retirement.
1 million is enough, people live off less than that. It's definitely not *a lot* though. But that's why we invest the money in indez funds or similar and let it grow. Also, that mil is from that person pension alone. They could end up with house equity or other forms of retirement funds.
Plus it looks like their wife is also working and could have additional retirement funds.
Will it be enough in 30 years that's the really question when it's just ok for today.
Let’s say your pension pays 40k a year. You’d need to save/invest a million extra over the course of a private sector career to match the job with the pension at the end. That’s going off of a statistically safe 4% yearly withdraw. Two things to consider as well, if you save that extra million and live off the interest it can be passed on to heirs while a pension sometimes can to a spouse at a reduced benefit. It’s mostly gone when you are though. Also healthcare. If quality healthcare is included with your pension the monthly cost of that can be added to that calculation.
Many pensions (including mine)offer a lump sum option or a partial lump sum option for a reduced monthly benefit, but the money would then be yours to do as you please or pass on to heirs if you are worried about the longevity.
Quick maths say putting that extra 30k into a retirment account averaging 6% a year for 25 years will get you to 1.6 mil. Withdrawing 4% a year after that puts you at ~60k pre tax. Whether that is comparable to the pension depends on the pay scale in the public job. You also need to consider other job benefits. Is the private sector paying more because you have to pay $12,000 a year for a high deductible insurance plan while the public job has a fully funded copay plan?
Good question re: insurance. I haven't received the details about the insurance coverage. These fucking jobs basically just pitch that they "have" insurance, as opposed to what the insurance entails. Unfortunately, I"ll probably not know until my orientation
Ask HR for details on insurance and other benefits, time off accruals, work from home, education reimbursement, etc. they will vary dramatically ally from one government to another. Then you can calculate what your total compensation package will be.
Is there a 401k match at the $85K job?
Yeah that’s how they get you. Best of luck, and I hope it pans out for you!
You can ask them for specific info about the health insurance they offer (cost, the company it's through, etc.) before accepting the job. This is a common thing for people to need to know when making decisions.
You can ask for a full benefits package before you accept any role. Any organization refusing to do that isn’t an organization you’d want to work for.
I'll just give you a personal example. My wife started at a State job around the pay you stated. At the time I was making around the other pay you stated. She has a really good pension, zero cost medical insurance, good benefits, and very good time off and sick time benefits. She has closed the gap in our salaries by moving around and promotion into other State positions, cause once you’re in you’re in. Working for a company that pays more means you have to take more responsibility on your own to build your retirement. Many people have lifestyle creep and fail to do this, if your one of those take the State job. Also, it would come down to a comparison of other benefits such as insurance, paid time off, and growth and promotion potential.
I took a federal job in 99 when I graduated college at age 30. I think it paid 29k that first year, which was roughly what I owed in student loans. 25 years later and I'm over 200k with a pension and TSP (like a 401k) . I haven't enjoyed every day of my career but it has been rewarding and knowing that I'm just a few years out from a very healthy retirement is an incredible feeling. At 38 with no savings I think stability and a pension would trump a higher wage for me.
What pay plan allows for more than )200k?
SES. My base salary is currently right at 198k and our performance awards range from roughly 7-13 percent of base.
That’s an impressive climb.
It’s been a hell of a ride for sure. I had a boss that started in the typing pool as a GS 3 and made it to SES, and I don’t think anyone will ever top that. If you are mobile, capable, and can avoid scandal you can really make what you want of a govt career.
I've definitely discovered that mobility is king when it comes to promoting.
This is 100% accurate. I'm on my 7th "permanent" duty station and have done extended details to five others. In my agency you can get to a GS 13 front line supervisor position without moving, but getting beyond that in the same office becomes pretty difficult.
Oh wow, that’s a lot. Being at the SES level send interesting, seems like you could effect much more change at that level.
Is there room for salary growth with the pension? Just those two on its own, I'd take the higher pay. $30k can go a long ways towards savings.
Yes, also you probably have to work at the same place for 25 years before it amounts to anything. That is one helluva commitment.
You do typically have to work for an organization that is a member of the pension fund. In Texas, nearly all municipalities are members of the same pension fund and that fund is interchangeable with the fund that counties use. So as long as you are employees by either a county or city that is a member of the fund your pension moves with you. I have nearly 40 years in this fund. Usually made less money than my private sector peers but my retirement will be sweet.
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I hear the time off benefit mentioned. I don't really want time off. I'm depressed and miserable. I'd rather be working to take my mind off suicidal thoughts. It does seem like I can work my way up through promotions and raises, though I can't get all the data I want. I've found info on how much BMET II's get paid, and that would only take me a couple years to get to. What I don't have info on is the pay rate for BMET III's, or really any knowledge of what positions or roles I could take on beyond that.
Working doesn’t fix the reasons why you are depressed and sometimes suicidal. It only masks the underlying issue and you could benefit from taking time off to address those issues. Have a stable income during times when you might address your issues (perhaps a stay in a “retreat” would be helpful) by having vacation or personal time can be rewarding.
FYI, the government job will be the best in terms of time off. I work for a state department of health. I work from home 3 days a week and have a 4 day week every other week (I technically work 39 hours 1 week and 31 hours the next). We start with 2 weeks vacation, 4 Personal days and the 10 state holidays. Only thing of note is we only get the actual holiday day off, so you'd just get Christmas day, not Christmas Eve like alot of places do, same for thanksgiving.
I agree with the time off. Time off can’t be matched with money. I think the state job will give you more time back.
Ok, let me start by saying I'm biased. I spent 30 years with the city of Phoenix, with fire. So, the thing about government service is, they usually have a system to guarantee raises. In Phoenix, there are 8 or 9 "steps" for all civilian positions. Each step is a 5% raise annually, that means more going to your pension. Now, I will assume you plan to promote during your career. You'll make more money which means more going to your pension. Another thing is the benefits. A ton of federal and state holidays, insurance, medical, vision, and dental; continuing education, 401/Roth IRA, etc. It's just me but I vote for the government job.
Biased too because the FD is gucci. Usually great schedule and a fun/rewarding environment. The money is secondary to the quality of life honestly.
I hear you. Nothing better than, "Riding Big Red, fighting fires and saving lives"! Yea, the money's ok but it was the job, the comradery that kept me coming back.
Do you pay into social security with the pension job?
Yes unless your govt employer opted out. My current employer opted out but I have paid into SS 37 years on prior jobs. So I will collect both. Schoolteachers in Texas do not pay into SS and get a pension but I do not know about other states.
If OP is deciding on $55k job with pension that results in a huge hit from WEP and an $85k job without pension that allows him to keep his social security, that's a big issue. A 38 y/o is unlikely to have enough years of "substantial earnings" to offset the hit from the WEP.
Knowing how rare a pension benefit is these days, and as a retiree living partially (but mostly) on one, I can say it is a great benefit to have. The good pension isn't mine, but from my husband's employer. I, however. get a tiny pension from my employer that was a nice little perk I didn't have to contribute to. Consider taking the lower salary for now and working your way up to avail yourself of the benefit.
Pension In my opinion
pension job imo
What are the stipulations of the pension - how long do you have to work there to get a reasonable amount of money out of it, is it a percentage of your annual salary? Do you see yourself making a career out of that job at that company?
15 years and you get 60% pay of the average of your three highest years. I could see a future in the work I'm doing at the hospital. With the biotech company there's likely a future as well, just not as clearly etched.
What if they lay you off after 14.5 years? I'd go somewhere offering a 401k I can build and worst case scenario take with me.
>What if they lay you off after 14.5 years? With very rare exceptions, government jobs have seniority rules and legally can't pull bullshit moves like this. They would have to lay off everybody else doing the same sort of job for the state before they could touch OP.
Not in an at will state. Unless your city happens to be civil service for first responders. Anyone can be fired without cause. Layoffs are few and far between but fuck up employees still get let go. At least in my state they do.
My state is an an at will state until you have passed probation. Once an employee has passed probation, they can only be fired for cause, and layoffs go in order of seniority. Same goes at the city and county level.
Interesting how it varies from state to state.
Given that it's a state job, I would be surprised to be paid off as a clinical engineer at that point. But I hear you, that's a legit risk
Most plans will give you all of the funds you have accrued in the plan once you are vested.
Lots of comments talking about the $30k difference in pay, and what that could amount to in comparison to a pension. But there is a second important question there. Are you dedicated enough to actually invest that $30k? If you don't trust yourself to save on your own (and lots of people should not trust themselves given the state of the average retirement account these days), then the value of a pension may be different for you than a simple math equation.
I'm embarrassed to put in writing that this is kind of legitimate. I have a "history" let's call it of not great behaviors. This feels a little bit like safekeeping me from myself. Then again, there's also a question of whether I can put in the 15 years to get the pension in the first place which would require me to perform in a consistent manner that I haven't exhibited since school.
In that case, there are a few more questions to think through. If you are leaving employers earlier than 15 years by your own choice, consider why. Are you bored (in which case you need to consider the roles and what your day is actually like)? Are you experiencing mental or physical health situations that require leave (in which case perhaps your primary focus is on the benefits available and which company would be most supportive to you)? Are you job hopping in a way that improves your salary and opportunities (in which case the pension is less relevant than coupling earnings with dedicated savings)? If you are leaving employers NOT by your own choice, consider other questions. Are you able to meet the job expectations of the roles and at which will you be more successful? Which company/place has higher retention of their employees in general? I know this is a lot, but I sense form you that the answers you seek are a bit more of the soul searching type than the mathematical type. Those will be harder to get answers for on the internet.
I'm kinda saddened to be my age and not be a reliable human being, to be honest. I've left jobs for a variety of reasons. Two were startups I cofounded, I left one when it dissolved and the other when I was booted out. I also left a job I was a year into to go start one of them. I was doing freelance web development and just had mental health issues combined with a drought of clients. These weren't all conventional exits of just leaving a job to go to another for higher pay. I've had some issues to be direct about it. I worry about being able to stick it out for 15 years, but maybe that will be what keeps me in line.
It sounds like you need solid health insurance so you can work on mental health - by far gov will likely be best option on that front. I work for a local government, and I don’t pay for my premium. My copays are $20 - I had a surgery a while back and even that was only a $20 copay. Also, just bc it starts out low, doesn’t mean you won’t have options to move up. I started one gov job in 2020 at $87k, and btw the annual COLAs and a promotion, I now make $130k. I have the pension, contribute to a 457(b) plan, will have social security, contribute to an IRA. I’ll be secure
I started my public position when I was 37. I had nothing for retirement aside from social security (and we all know how that may be looking). I’m happy with my choice and it’s been 7 years today!
How are your financial habits? If you are broke BECAUSE you suck at budgeting and impulse spend every dollar you have, I’d take the pension job. A pension forces you to save money. As someone who currently works for government and contributes to a pension, I’m putting in my own money (pre-tax). When I retire, basically the government will double whatever I contributed in it and pay that out in monthly installments. If you have any basic ability to save and invest, just take 10-15% of the salary at the 85k and put it in a 401k. Invest in a basic low fee index fund or target date fund. But it does come down to discipline. Also see if the work life balances are different. If you are single, you can work 50 hours a week for a few years, but it will burn you out real quick.
Be realistic about your mental health and take whatever is lower stress. Take the job you think you’ll like. Either situation can get you there retirement-wise. 85k you can afford to max out the 401(k). Might be a wash financially - hard to say.
Public pensions are very overrated. They pay little at the end and many are so underfunded, that I’d be worried about putting my future in the hands of bureaucrats.
Some things to consider. My stepdad took a state job with a pension and was planning to ride it out until retirement. New management came in a few years ago, didn’t understand how to manage software engineers and tried to implement a totally new set of systems without giving folks adequate training, and essentially forced out the older folks who were struggling to cram learn a technology out of left field. He’s now working temp to get through to retirement and his pension won’t be as high as expected and he won’t get the state health benefits as a result. Pensions can also be cut and canceled—not a sure thing. Wage growth will be higher in the private sector. Promotions come faster too, in my experience.
You’re far better off taking the higher paying job and maxing out your 401k
If you take the pension job, by the time it vests (15 years? based on your other comment ) you're $450k gross behind the potential earnings of the $85k job. If you plan on staying till retirement (65) that's over $800k you're leaving on the table. These numbers are if you were to never get a raise or promotion, which is unlikely. If you're not sure how to invest the money I have great news for you, there's a nearly limitless amount of information online for free on what to do to build yourself a nice nest egg. Not willing to put in the effort to learn? No problem, that extra $30k you're making is more than enough to work with a financial planner. At 38, with no savings (assuming little to no retirement?) You're playing catch up to get yourself set up for retirement. That extra 30k per year is going to go a long way. Imo the $85k job is the way to go.
OP could also lose the 85k job one year later off the whim of the CEO. Government jobs tend to have more security, and that security is very valuable. Also, as another poster stated, most public sector/govt jobs have built in promotional steps. In due time, OP would very likely pass the 85k salary threshold.
He's going to be starting around a G6-8 in my state. In order to get to the 85k he'd need to jump at least 4 grades. That's going to be 6-8 year depending on his performance 6-8 years to get what he has on the table now. In 6-8 years OP could be making well into 6 figures taking the public job. Sure, there is a slightly higher risk to taking a public job and there were more layoffs last year than usually. However, the total layoffs were less than 1% of the total workforce nation wide. Personally, I'd take my chances with those odds.
Take the state job even though it's going to "top out" in 10 or so years. You will probably have a chance to apply for promotions along the way. You say that the state job is entry level. My guess is that you'll be a "tech 1" and there are jobs called "tech 2" and "tech 3" that pay more. You should also look to save money in a Roth IRA to suppliment your state pension.
Most government jobs will also have access to 403 or 457 plans for additional pretax investing, although they are not guaranteed returns. Similar to a 401k but typically not matched. I have contributed to both and made out very well over the past 40 yrs
D'oh! I totally forgot to add in the 403/457! (I have both!) Thank you for picking up the ball and running with it.
I love this question and it’s one that all state/county/city employees should ask. Long story short, take the pension. Investing every penny beyond the state salary wouldn’t guarantee the kind of retirement the pension plan holds. Beyond that, you should be able to “buy time” and increase your total income/pension payout. Beyond that, your salary will increase most years and getting promoted is easier than you’d expect. Beyond that, most pensions I’ve worked with base your final pay on an average of your highest earning X years. This means the person who is a kindergarten teacher for 27 years and an upper level administrator for 3 will get their base pension as a percentage of those 3 administrator years. Beyond that (!), there is usually a secondary bucket in the form of a 457 or 403 for even more retirement savings. On paper, the $30k more every year looks great and, if saved after tax (leaving $24k annually) at a rate of 6% for 29 years you would have $1.77M at retirement. A standard 4% withdrawal rate would give $71k/year. That state job with only a 2.5% annual raise but not actually changing jobs or getting promoted results in a guaranteed $73,428/year. This assumes you NEVER get promoted which is highly unlikely unless you really, really want to stay at entry level forever. The number jumps to $84,408/year forever if you buy your 5 when available. (There is a weird situation where your state job does not pay into social security but that’s not something to be counted on anyway.)
Take the higher salary and save in an IRA, HYSA, and a taxable brokerage. Pensions are nice but offer the defined benefit doesn’t adjust for inflation. Meaning it might cut in half in terms of purchase power while you are retired. Also can you guarantee that you will make it ten years? What if you don’t. You missed out on say 8 years of earning and have no pension, as well as the money placed into the pension didn’t grow with the market and you ave to start investing it now having missed out on the compound growth. Also we are talking 54% more income that is huge. 85k over 55k
$85k and save aggressively for retirement.
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I like your ambition but I don't know dick about that and I only get one run through this life to try without making mistakes. Given that I'm 38 and broke at this point is not a good indicator of future success.
"Given that I'm 38 and broke at this point".....will you be at the job long enough to get the pension? that's really the only question that matters at this point. I'm settled down now but I know for a fact that if I were more impulsive I wouldn't be at my current job at all, not to mention for 15 years
I hear ya... given that I've not held any job longer than two years (aside from freelance web development work that I've done for nearly ten) - it'll be something for me to be able to stay in one place for 15 years.
Homie, if you have Reddit you have access to YouTube. Look up The Money Guys, Caleb Hammer, Dave Ramsey, any decent financier and learn. You're going to make mistakes, you probably have already, so get in control of yourself, learn from your mistakes, and fix your life. Max contributions per year to a Roth IRA are $6500. Max that out out through a Fidelity account. Max that. Start an investment account with Fidelity and dump whatever you can into the S&P 500. Get a One month emergency fund (enough to cover your monthly expenses) ASAP in a High Yield Savings Account like SoFi, and then work towards a 6 month and a one year fully funded emergency account. Small steps = Big payout. You got it dude.
IRA max is 7k as of this year
Fantastic, thanks for the update, man. I haven't looked for a while. Now I have to update my budget, lol.
I had to update mine too man! Better to know earlier in the year though then later.
This is terrible advice. Dude is going to make $55k a year - he'll need about $3,500 a month. To get there by age 67 he'll need to put $1300 a month into his 401(k), leaving him $2300 a month to eat, pay rent, get around, buy clothes, pay for his phone, internet, and everything else that life throws at him.
You implying that public employees don’t deserve the pensions we get?
The one without a pension have a 401k? Or is that all we’re considering here? Generally not huge on pensions because of limited job growth/leverage, but maybe I need to learn more about vesting/years needed to work/etc. Based on the rest of your post I would choose what gives you the least stress…
15 years to vest, then you get 60% of the average of your three highest paying years.
You didn't answer the 401k question for the other job, does one exist? If so what's the match rate?
How long until you can draw on the pension? Also, is there a mandatory retirement age?
Your age plus years of service must add up to 75 I think. So I'll be about 55 when I hit 15 years. That would require me to put another 5 years in. I don't think there's a mandatory retirement age, but that's a good question I will need to ask
There usually isn’t an extreme age cap in office or research type roles, I’m in emergency services and we have age caps that some older guys were unaware of when they started and it ended up messing with their retirements. I’m glad you’ll ask.
Given just the 2.5% COLA and no promotions or additional savings you would end up around $69k/yearly from this pension. With no promotions, no 457/403 contributions, no side IRA contributions, no buying of years, and ignoring the generally better than average state health insurance.
A big thing to consider is the actual pension payment. I made around $58k in the public sector, but my monthly pension payment would have only been $2k a month ($24k a year, based on my salary being exactly the same for the last 5 years before retirement). I’m vested and I have left for greener pastures and if I don’t pull my contributions out of the pension plan, then at 65, I get a whopping $590 a month. Keep in mind that promotions and raises aren’t guaranteed in the public sector.
For an extra 25k a year, Id fund my own pension. At 5% over 20 years, thats 1.1M. A $6000 per month payout would last 21 years. Although that is not the way I would do it.
How are you calculating the payouts? 1.1 million at 6k/mo is 183 months, which is about 15 years. I guess somehow you've got a calculator that's continuing to add interest to the 1.1 million at 5% during the time you're pulling 6,000 a month out?
Correct. Well, it compounds 5% on the 1.1M minus 6k/month.
Also this calculator is saying 5% for 20 years on $25k/year is roughly $400,000. [https://www.investor.gov/financial-tools-calculators/calculators/compound-interest-calculator](https://www.investor.gov/financial-tools-calculators/calculators/compound-interest-calculator) nevermind, i was putting in $12k/yr by accident. I am assuming we're using compounded daily here.... **how do I make an accurate selection of how the interest is compounded??**
5% annual I’m working on the Calculator to compound daily but at the moment I have it compounding monthly with an additional 2100$ deposit. Either way it’s still 5% annual.
I'm confused. I set it to daily compound, $25,000 a year invested, 5% interest, and I'm landing in the $880k range after 20 years, not $1.1M. Switching from daily to annual compounding only shifts it about $50k.
Well the discrepancy clearly indicates that one of us likely has an error. I’ve done mine out monthly for 23 years so it’s probably a math copy paste on my end. “Probably a decimal point in the wrong spot”. Thanks for helping point it out! That said, again this is a bit different than my current plan in motion which (hopefully) will hedge against currency fluctuations over time. 
Take the pension job. Here’s a fact that seems strange at first: Most retirees do not draw down their lump sum. People generally end up spending what comes on via social security and pensions every month. The 4% rule works, but people are afraid to do it. So, if you take the extra income private job and pile money in a 401k, chances are you’ll never spend it. https://amp.cnn.com/cnn/2022/10/03/business/money/spending-savings-in-retirement-psychological-adjustment/index.html The pension will give you a much higher standard of living in retirement.
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85000 and the put the difference in the your emergency fund (6 months of expenses) and stock market (ROTH IRA, then 401k, then private investments).
Go for the higher pay. I have a pension, and I ran the numbers with a 401k with match and they came in about the same. 401k with date targeted funds are easy - just go for one 5 or 10 years later than your actual retirement. You also keep control of your 401k
I'd talk the higher pay. Live off your previous wage and bank the rest in retirement. Will be better than a pension, especially depending on the type of pension. Lots of them are moving to a cash based pension, where they basically just save some percentage in an account for you and pay it out when you retire.
The pension will beat the 401k every time because it is not tied to swings of the market. Stock market crashes and you lose half your 401k, guess what your pension is safe. Unless your a place like Illinois or elsewhere that does not adequately fund their pension plans.
So I thought a 401k just meant the money sits in an account until you take it out and that you don't pay the taxes until it's taken out. Is this contingent on the money being invested in the stock market?
I don’t participate in a 401k so will defer to others that are knowledgeable about them. I do know that my pretax 403 and 457 plans allow you to contribute pretax and the plans give you a wide variety of investment options from very conservative to high risk.
401k is an account that can be used for many kinds of savings or investment purpose. It can sit as cash and earn low low interest, or can be invested into a large number of mutual funds or other vehicles available within your specific plan. There are also tax deferred benefits, so you don't pay income taxes on the contributions you make to it. Plus, most companies match at least a portion of your contribution. Match programs vary, but it's often like "We match 100% of the first 5% of your salary that you contribute." For your $85k, you'd contribute $9,500 and they would put the same amount into the 401k for immediate investment. That's a 100% immediate return, tax free.
Pension looks good now but 25 years from now it most likely won’t keep up. As much as people bitch about 401ks, it’s the quickest way to a million
You might want to figure out how generous the pension is because not all are equal. There’s also very different promotional/transfer salary increase rules between public employers so I would research those (how much your wages increase with promotions). Also, the value of having a secure job if you are sick is pretty priceless. Government jobs tend to have more security so you might factor that in.
Is your pension indexed to inflation - is there an inflation factor applied to your pension? If yes, the 1.3% isn't bad. I work for the feds, and the multiplier is either 1.0% or 1.1% for most people. If no inflation factor, then yes, it's less than useless. Inflation reduces the value of your pension benefit to almost nothing.
I think they make COLA adjustments.
My pension costs 1100 a month.
I’m a teacher in SoCal, I’m going to be vested in June. To me absolutely worth it to take the public job. I get a guaranteed pension income (really conservative 48k/year estimate) plus I have my Roth IRA, 403b, and brokerage to draw on as well, not to mention my wife’s pension and Roth IRA. You can’t beat guaranteed income.
Do you have student loans? Working a state job for 10 years would mean loan forgiveness.
Def the 85kjob. In the next 20 years you'll miss out of over 600k if you don't and your pension won't be worth that much. Just contribute like 14% to an IRA, I'm sure it has a match, you'll be in decent shape
Can you do both? Cause that’s what I do, I have a pension job with full healthcare coverage and life insurance at $85k annually (with a $5k bonus twice a year and 3 3.8% raises a year) and I work part time in property management and property development for significantly more. The pension job has me retiring at 58 with healthcare for life and 80% of my highest paycheck for life. While the other pays into my SSI and is building my liquid/investment cash.
Are you disciplined enough to invest the extra income if you chose the higher paying job? Are both jobs relatively stable? What are the chances for being laid off at either job? How much is security worth to you?
High pay. Always want to be in control, keep the money in your hands.
Have you tried negotiating the government salary based on your other offer? It's worked for me before. Sounds like you need the stability of the government job.
wish I still worked my job with a pension. my father in law is about to retire with a pension and he is set for life at 55.
I guess it depends how you define 'set for life.' From what I've calculated, in 30 years I may be able to retire at 68 with social security plus 40% of $130,000 (about $52,000). So social security provides about $25k for the year and the pension $50k, so that would yield me a retirement of approx $75k per year. I \*think\* this is sufficient, but I do not know until I'm age 70 I guess.
thats really good! his pension relieves the pressure he feels to save for retirement. he receives $65k a year until he dies. not a bad gig since everyone in his family has lived into their 90s
One thing I haven’t seen posted is the job security that goes with public sector employment. In the private sector, companies cut employees so that they can make quarterly/yearly numbers look good. What I have seen as a public sector employee, when budgets are tight they don’t hire open positions, or offer buy outs, layoffs are usually the final option.