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Hope for those who likely will have no pension?
Old 03-03-2004, 09:01 AM   #1
 
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Hope for those who likely will have no pension?

Hi there.. I am a not so super young dreamer.. 33.. I have a good job (but am at significant risk of being laid off this month). I work in IT and have never qualified for the pension. If I am laid off, it will be 3 months prior to qualifying for a pension. I have been laid off 4 times prior to qualifying for a pension. History and the experience of my friends is making me think that I likely will never qualify for a pension.

Facts

I make $90k
401k $44000
Regular IRA $28000
Taxable investments $14000
Roth $4,200
Savings $15,000
Equity in house. approx $45,000
I am thinking of investing in real estate but still researching that..

I attempt to save or pay down debt (my mortgage. I have no other debt) to the tune of 30% of my gross.

Questions

1. How do I know how much I need to retire on? Most calculators say $2.1 million. Should I go by that?
2. Do you think it makes sense to pursue a civil service job for the pension benefits?
3. And what other things can I do? I am not married. I own a house

Is there anyone else out there who is dealing with the probable no pension issue?? Should I look into annuities as I get closer to retirement to have a monthly income??
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Re: Hope for those who likely will have no pension
Old 03-03-2004, 09:58 AM   #2
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Re: Hope for those who likely will have no pension

Hi Susan!

Questions

1. How do I know how much I need to retire on? Most calculators say $2.1 million. Should I go by that?
2. Do you think it makes sense to pursue a civil service job for the pension benefits?
3. And what other things can I do? I am not married. I own a house

(4) Is there anyone else out there who is dealing with the probable no pension issue?? (5) Should I look into annuities as I get closer to retirement to have a monthly income??


Answers

1. http://www.retireearlyhomepage.com/software.html
2. http://www.retireearlyhomepage.com/pension.html
3. Assuming you mean to help retire early: http://www.retireearlyhomepage.com
4. Well, I currently have a pension that I am vested in, but it's miniscule, so I guess you could say me. Lots of people aren't going to get a pension; I think they use 401(k)'s and IRA's etc.
5. http://www.retireearlyhomepage.com/inflannu.html

Regards,

malakito
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Re: Hope for those who likely will have no pension
Old 03-03-2004, 10:17 AM   #3
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Re: Hope for those who likely will have no pension

Quote:
2. Do you think it makes sense to pursue a civil service job for the pension benefits?
Thanks for giving such a clear profile of your situation. It makes it much easier to give a meaningful comment.

If you wouldn't mind the work I think it is definitely worthwhile to pursue a government job for the pension benefits. Many of the early retirees who spend a lot of time on various boards do in fact have government pensions. In fact, lots of the early retirees I meet in real life are retired from government service. They are secure, and they have the money to spend to get out a lot. Government pensions are sure the cream of the crop that are available to rank and file employees.

I wish I had thought of this approach when I was younger. But unfortunately I figured the future was long way off, and maybe I would be dead anyway, so why bother?

If you consider all the money you will have to save to fund a retirement income probably smaller and definitely less secure than a federal pension, you realize that even if you make a bit more in a corporate job, you actually have less available to spend because of the need for greater retirement saving. The chance for a big hit is greater in corporate life, but you can always buy lottery tickets to synthesize that outlier.

Good luck to you!

Mikey
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Re: Hope for those who likely will have no pension
Old 03-03-2004, 10:39 AM   #4
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Re: Hope for those who likely will have no pension

Hello Susan,

1. Have you run FIRE calc? If not, I think it can give you a real idea of what your retirement will look like.

2. You will probably make less in the civil sector. The rule of thumb is between 10-15% less than in a decent industry job. The federal pension will give you 1% of your average high 3 salary years per year of employment. If you work another 30 years in federal service, you'll get 30% of (typically) your last three years of salary divided by three. Oh, and the pension costs you .8% out of each of your paychecks. The 30 year pension has a cash value of about half a mil in today's dollars. If you invest in stocks, you'll need to save about $420/mo (in today's dollars) to equal the federal pension's lump value. If you believe that your pay will be 10% less, you loose out on 750/mo in earnings powers before tax, which means that the earnings lost will about equal the deferred benefit of the promised pension after taxes. If you believe that your pay will be 15% less, you loose out on 1125/mo in earnings powers before tax and the federal pension is a real looser for you depending on how long your layoffs usually last. The real benefit of the civil sector is the layoffs are typically fewer and farther between.

Just a general comment. People see the good things about pensions and tend to forget the bad things. You need to reach and pass that tenure point, have a significant number of years in service, and you need to retire and start collecting those pension benefits right away to get the full value of the pension. Otherwise, cash in hand that is properly managed will give you better control of when you can retire and how well off you will be. Not having a pension is not a problem - Not having a pension AND not having a stash of cash can be the problem...

Kind Regards,

Chris
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Re: Hope for those who likely will have no pension
Old 03-03-2004, 10:45 AM   #5
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Re: Hope for those who likely will have no pension

I hate to disappoint anyone considering Federal Employment but the USGov doesn't offer the "CSRS" pension program any more- a defined benifts program. Now it is SS and "FERS", which is similar to a 401(k).
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Re: Hope for those who likely will have no pension
Old 03-03-2004, 12:04 PM   #6
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Re: Hope for those who likely will have no pension

Quote:
I am not married.
Do you want to get married? I'm 33, too.

More seriously, I second the recommendations on the Retire Early Home Page links above.

I'm your age and lag you in investments and salary. From my readings I figure I need $1 million to retire "safely" withdrawing $40,000 per year. I'm still working on paying off debt (3 1/2 months to go!) so I haven't really gotten into the calculations yet, but $1mil/$40k hopefully sounds more promising to you that $2.1mil.


As far as pensions, I'm becomming more cynical and figure that any assets not under my direct control may not be counted on for retirement.

The big secret as far as I can tell is to control your expenses now and in retirement. If you're driving a new Lexus or Hummer and spend $50 on dinner every night and plan to continue through retirement you'll need a lot more than $2.1 mil. If you drive a 5-year old Chevy to Taco Bell and sock the difference into investments you'll retire sooner and richer. But if you eat rice and beans and walk to work and get hit by a truck...I guess there's a balance to everything, and that's the hardest part for me: gratification now or security later?

I don't think I could stand civil service, and I get the impression that most early-retirement minded people would have trouble toelrating that environment. Then again the private sector can really grind into your skull, too.

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Re: Hope for those who likely will have no pension
Old 03-03-2004, 12:19 PM   #7
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Re: Hope for those who likely will have no pension

For an authoratative look at Federal Benefits, you might look at:

http://www.opm.gov/index.asp
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Re: Hope for those who likely will have no pension
Old 03-03-2004, 02:11 PM   #8
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Re: Hope for those who likely will have no pension

Hi,
I am a 23 and just got 5 years into a State Retirement system. But I have very little faith that my pension will be there when I am 65. Like social security I am acting like it won't happen for me. But even if it did pull through, right now it would only mean $300 a month. With 3% inflation that is $91.45 per month in today's dollars. That won't pay my gas bill. I think I would advise you to keep socking money away at a rate like a pension won't happen and Keep your destiny in your own hands. One question, If you need $2.1 million and you are saving 30% of your income($27,000) how long until you reach your goal. If that is not soon enough for you, you must save more, spend less, or get a higher rate of return. One solution I would not add to that list is hope and pray that a corporate officers or government polaticians will hold up to there promise 30-40 year down the road. I personally think pensions for young dreamers liek us are in the same arena as santa cluas or the tooth fairy. Nice Stories but not very likely.
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Re: Hope for those who likely will have no pension
Old 03-03-2004, 03:56 PM   #9
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Re: Hope for those who likely will have no pension

Susan,

You are a little younger than my daughter so forgive
me if I sound like a Dad.

I think the most important thing you can do career
wise is to find something you love to do .... something
that makes you want to get up in the morning and
come to work! If you save as much as you can, live
simply and stay out of debt you will be just fine.

Read some good books on investing even if the subject
makes your eyes glaze over (like my wife and daughter}. Bernstein's "4 Pillars of Investing" is a
good start. Make a plan and stick to it. You are young
enough that you will be in fine shape by the time you arereally ready to hang it up.

Have a good life!

Charlie
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Re: Hope for those who likely will have no pension
Old 03-03-2004, 05:43 PM   #10
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Re: Hope for those who likely will have no pension

Yep, some mornings I lay in bed and try to think up a good excuse for calling in sick to work. Then I have a good laugh and go make a pot of coffee and fish the paper off the driveway.
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Re: Hope for those who likely will have no pension
Old 03-03-2004, 06:08 PM   #11
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Re: Hope for those who likely will have no pension

Cut & TH

I was an integrated circuit dexigner and a damn good
one .... loved every minute of it until I made the
mistake of taking a management position and
ultimately arriving at my max level of incompetence.

There is nothing (in the business world) like doing
something you love. It makes all the difference.

BTW, in college I majored in all night poker games
and cutting classes. It was a wonder I graduated.

Charlie
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Re:  Inspiration & reality
Old 03-03-2004, 06:19 PM   #12
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Re:  Inspiration & reality

For inspiration let's try a classic-- "The Millionaire Next Door" by Tom Stanley & Bill Danko. You're well on your way in retirement savings. They talk about "prodigious accumulators of wealth", mainly through owning their own businesses, but also through not confusing consumption with value. They also talk about figuring out what you love and which way to go chase it.

For reality realty, if you're planning to invest in real estate then the best reference I've ever read is "Investing in Real Estate", 3rd edition or later, by Andrew McLean & Gary W. Eldred (Eldred's taken over the new editions). If that's not what you have in mind then the next best bet is a REIT.
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Re: Hope for those who likely will have no pension
Old 03-04-2004, 09:59 AM   #13
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Re: Hope for those who likely will have no pension

Just from talking to my friends (we're all mid-late 20's) who work in IT, they change companies every few years. If this is how you foresee you career going, you may want to shun defined benefit pensions in favor of defined contribution plans. Defined benefit plans are heavily back-loaded - most of the benefit is accumulated late in career with one employer.

Defined Contribution plans, on the other hand, accumulate benefits in a more steady (or straight line) manner. So, in lieu of a DB plan, a company will have a DC retirement plan like a Profit Sharing Plan or a SEP-IRA plan. Vanguard, TIAA-CREF both have these in which only the employer contributes. And then they have a 401(k) plan that they and/or you can contribute to.

Also, some companies may have a faster vesting schedule than the 5 year cliff vesting (all or nothing) of most defined benefit plans. For example, a 5 year graded vesting schedule, or a 3 year cliff vesting schedule.

On the annuitization issue, there is a whole group of retirees out there that have dealt with this issue for the better part of this century - college professors. A whole lot of them have most of their retirement through defined contribution plan w/ TIAA-CREF, although some do have pensions. My dad does, and some other family members will. So you can certainly annuitize a portion of your assets when you retire. Actually, this may be a better route b/c you can decide how much and when to annuitize.

Having worked on corporate defined benefit plans, as an actuarial analyst, my view on corporations and benefits to employees is rather jaded. I can't tell you how many times our consultants had to tell the companies, "you can't do that, it's illegal". Not to mention things like raising full retirement ages and slashing future benefits.

Defined contribution retirement plans may also be better b/c the benefits are not subject at all to the health of the company. For example, if a company has fallen on hard times, and it can't make the necessary contributions to its defined benefit plans, the PBGC may step in and take over, slashing a whole lot of benefits that the employer promised its employees. In a defined contribution plan, a person may be able to tilt his/her portfolio away from the industry/asset class that his/her employer is in, and he/she has his/her job with.

Also, if the company you work for changes management and you don't want to work there anymore, if you've got a DB pension you may be caught b/w a better job and bigger pension benefits. My father-in-law is caught in this now. If he had nothing but defined contribution plans, he could [to be blunt] "give them the finger and leave".

- Alec
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Re: Hope for those who likely will have no pension
Old 03-04-2004, 10:21 AM   #14
 
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Re: Hope for those who likely will have no pension

Here is another area (pensions) where I got lucky.
Over the 30+ years I worked, I held 9 full time jobs.
A couple of times I was covered by retirement plans
but never had enough time in to build a significant
balance. Whenever I left a job I would just roll the
monies into an IRA. When I think back now it seems stupid not to have given any of this serious thought,
but at the time I was truly oblivious to retirement
planning. Makes my successful ER all the more
remarkable, although once I did get serious about it
I was pretty obsessive.

John Galt
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Re: Hope for those who likely will have no pension
Old 03-04-2004, 12:31 PM   #15
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Re: Hope for those who likely will have no pension

Hey and welcome !

What's this I'm not a young dreamer stuff ? I'm 33 too, I still consider myself a young dreamer ! You're really breaking my heart with that comment ! Well, on the other side of things, you may or may not retire early, but you will probably end up with a lot of marriage proposals on this board, because, as has been discussed before, single people with common viewpoints on this subject are hard to come by. So on that note, I'm John, 33, I like motorcycles, long walks on the beach, travel, uh, just kidding .... Sort of !

Anyway, I hate to oversimplify, but re-read the first response to your post and check out www.retireearlyhomepage.com. Read everything on this website and then read all the links. This will almost certainly open your eyes and make you realize that the $2.1M number is misleading. Add up your expenses for a year, multiply that number by 25 and you will have a good idea of the real number you need to retire with. For the explanation of this, you guessed it, check out the web page mentioned above. Malakito has been around, he didn't oversimplify, he just gave you about all you need to know about early retirement.

Good luck, and oh yeah, my ideal mate is, oh damn, wrong board again... !!

cheers !

panhead
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Re: Hope for those who likely will have no pension
Old 03-05-2004, 02:58 AM   #16
 
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Re: Hope for those who likely will have no pension

Just a comment about "finding work you love". That is
a fine goal. Alas, few actually do it. I loved what I did
for quite a few years, but it never sustained itself
(fickle??). I always burned out, or got fired, or got wanderlust. I know I could find something that
I would be very interested in, but time has passed me by. I have the dream but not the drive, and I don't need the money which helps keep me happily unemployed.

John Galt
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Re: Hope for those who likely will have no pension
Old 03-05-2004, 05:05 AM   #17
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Re: Hope for those who likely will have no pension

GDER

Even worst, I know at least two guy's who started 'helping out' their son/daughter's small business. Guess what happened to 'their' ER.
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Re: Hope for those who likely will have no pension
Old 03-06-2004, 11:17 AM   #18
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Re: Hope for those who likely will have no pension

Quote:
GDER

Even worst, I know at least two guy's who started 'helping out' their son/daughter's small business. Guess what happened to 'their' ER.
I wish my parents had taught me to never loan money to relatives because you'll probably not see 20 cents on the dollar back, and the relationship will suffer for it. In the end, you're the one short changed, but you're still the jerk.
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Re: Hope for those who likely will have no pension
Old 03-06-2004, 01:02 PM   #19
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Re: Hope for those who likely will have no pension

GDER

Even worst - they ended up 'WORKING' often for little or no pay. One guy came back from Mexico to his old house/business in Florida which he had 'gifted' to his son to get him started. Another ended up helping (as in work) both his son AND daughter in their respective businesses. Both were 55 and out early retiree's whom I had worked with at the plant for many years.
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Re: Hope for those who likely will have no pension
Old 03-06-2004, 05:06 PM   #20
 
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Re: Hope for those who likely will have no pension

When I was working and had my own business,
I wanted my kids to follow in my footsteps. No one
ever seemed interested, although I can see why working 24/7 had little appeal. Still, when they opted
for summer jobs in my plant, I thought it might lead to
something. I can see now it would most likely have led to me getting tied into something unpleasant. Just one
more area where I barely missed a potential
anchor around my neck. Yep, I'm a lucky guy. I kept
trying to screw up my ER, but it worked out anyway.
It's a little like Jesus causing the blind to see and the lame to walk if you really think about it, which reminds me; I have to see that movie.

John Galt
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