New Job with 401A, uncertain on selection of 2 options - 4% vs. %5.33%

[Texas Proud]

Quote:

Originally Posted by RetireAge50 I was not trying to do a “Red Herring”. My main point is to calculate the payouts before deciding!! There is no way to know which is likely to be better until we know the terms of the annuity. Currently we know the inputs but not the payouts. As an example, the payout for my wife’s 401A will be 6% of the initial lump sum and then increased 3% each year with at least the principal guaranteed to beneficiaries. In our case this was a good deal unique to being a teacher, the more in this plan the better. I would also encourage her to open a Roth IRA anyway regardless of any of this.

I agree that the point is the payout.... but I cannot see how they would have a payout that was not based on standard annuity calculations... therefore, the main component to what you get out is what you have on the day that amount is calculated...


Also, remember taxes.... there will be no tax savings today for what you put in a ROTH, but huge tax savings when you start to spend that money...

[prototype]

Quote:

Originally Posted by Texas Proud Also check out what happens when she starts an annuity.... there is a beneficiprobablyary in case she dies before starting the annuity, but I would doubt there is anything afterwards.... but I have been proven wrong many times before....

Quote:

Originally Posted by RetireAge50 .... There is no way to know which is likely to be better until we know the terms of the annuity. Currently we know the inputs but not the payouts..........

The retirement plan handbook is about 50 pages long, plus it references some other documents. I just took a quick look at it this morning. Based on the examples in the handbook (I’ll keep the post short and not screen shot them in), it does look like Plan D is the way to go unless you are at least 98+%? Certain you will be leaving before 5 years. There is some sort of calculator, but I am not sure DD has access to it yet (county computer accounts being set up). Here are some of the items that I hope answer some questions.


1. Yes there are spousal (and SO?) survivor beneficiary options (100%, 75%, 66.7%, 50%). Before and after death payouts are adjusted based on what is selected. (Looks like standard pension plan approach/schedule).

2. For Plans C & D full retirement eligibility is when you are age 55 or older and your age plus years of eligibility service total 85 or more, there is also an early retirement options, disability…., but benefits are reduced (except for disability I think) accordingly by some formula.

3. If you make it to the point you are collecting the pension/annuity it is COLA’ed, the standard annual COLA is the lesser of 4% or the percentage increase in the Consumer Price Index.

4. One is vested after 5 years if they don’t pull their money out (they do have that option). You do have to wait until 65 to receive benefits if you leave before early or normal retirement age and have left you leave your contributions in.

5. She will still be paying into social security and building that up. Both Plans C/D, do adjust monthly payouts down at FRA.

6. They had a C vs. D example, for the same scenario (retiring at 61, 30 years of service, average final compensation of $84K (high 5 year average?),FRA of 66, (DD FRA is 67). If I read it all correctly, this is the summary.
Plan C – 47K/yr for life
Plan D – 76K/yr until FRA, 52K/yr after FRA

Bottom line -- 1) From what little I understand of the current Federal Government retirement system, this seems similar. 2) Need to get DD to do some calculator runs for various scenarios (I think I,…. , I mean DD will be able to access it from home by next week..

PS - IMHO looks like a great place to work until 55, gain FI and RE!!!!!

[Texas Proud]

Prototype....


Keep in mind that if you only look at C vs D.... of course D is 'better'... you put more money into it...


But, add to that $47K for life whatever is earned by the ROTH... also you need to take taxes into consideration...



I wills say that a COLAed annuity is better than one that is not... but we would have to figure out the payment amount.... IOW, your example says ending salary of $85K.... so, is payout based on ending salary OR how much money you put into the account That is what RetireAge50 was pointing out that I dismissed... I was thinking the annuity would be based on cash in the account and NOT final salary...


So much more to think about... and so much more info needed to make a good decision....

[prototype]

Quote:

Originally Posted by Texas Proud .... So much more to think about... and so much more info needed to make a good decision....

Agreed, need some calculator runs, and I/she need to read through the plan. Appreciate all your input to date. 26 or so days left for her to make a decision (otherwise I believe they just enroll you in the 4%/Plan C). I'm just swamped trying to get my home ready for sale (by June?). DD is swamped with new job and prepping to leave the nest so to speak.

[leftbucket]

proto,

PM'ed you with link to county retirement webpage. DD is in the "Employee's" plan. All the documents, summaries, and calculators are there.

For the rest of you wondering the payout difference: the multiplier for the C plan is 1.8x yrs service x avg final salary. The multiplier for the D plan is 2.0x yrs service. She's fortunate someone's looking out for her. I remember being overwhelmed with benefit paperwork when I started out too.
Good old dad came through for me, too.

All the best,

R/
LB

[Texas Proud]

Quote:

Originally Posted by leftbucket proto, PM'ed you with link to county retirement webpage. DD is in the "Employee's" plan. All the documents, summaries, and calculators are there. For the rest of you wondering the payout difference: the multiplier for the C plan is 1.8x yrs service x avg final salary. The multiplier for the D plan is 2.0x yrs service. She's fortunate someone's looking out for her. I remember being overwhelmed with benefit paperwork when I started out too. Good old dad came through for me, too. All the best, R/ LB

OK.... int this is true, this changes everything IMO... if this is a defined benefit plan... then you have to ask if she is planning to stay around.... and also planning to move up the ladder....


IOW, she can work many years as a low level employee and maybe move up her last few years.... benefit is based on last few years and not what was put into the system...


Since the payout is based on something that you cannot calculate (final avg salary).... kinda hard to determine which is better...

[Animorph]

5.333/4 = 33% more into the plan. 2.0/1.8 = 11% higher benefit, if I've put the right numbers in. Looks like diminishing returns, though that doesn't mean it's a bad deal.

[clifp]

Quote:

Originally Posted by leftbucket proto, PM'ed you with link to county retirement webpage. DD is in the "Employee's" plan. All the documents, summaries, and calculators are there. For the rest of you wondering the payout difference: the multiplier for the C plan is 1.8x yrs service x avg final salary. The multiplier for the D plan is 2.0x yrs service. She's fortunate someone's looking out for her. I remember being overwhelmed with benefit paperwork when I started out too. Good old dad came through for me, too. All the best, R/ LB

Ah this is like hard Sudoku puzzle with hints that we keep getting new tidbits of info, how fun. Prototype if you ever want a new career you have a future as a mystery writer or stripper you are a great at teasing.

All kidding aside, this is defined benefit as I suspected which makes the calculations much easier.

As general rule of thumb, replicating a normal state/city pension plan which allows you to retire with 2% * years of service pension after 30 years, with some type of COLA, requires a combined contribution the employee and employer of ~25%/year. (Now many state/city governements don't make the necessary contribution but that is another thread...)

In your DD case last years contribution of 19.3%+ 5.33% is 24.6% exactly what I think is prudent.

The pension increase 1.8%/year to 2.0%/year is 11%. So using my 25% rule of thumb your daughter should be willing to pay 25% * 11%= 2.75% more for an 11% increase in her pension.

But they are only charging her an additional 1.33% so even if my calculations are off by 100% this is still a good deal (Which is possible because there are so many variable in figuring out how much to fund a pension...)

Anyhow tell DD to suck it up and fork over the extra 1.33%.

[prototype]

Just wanted to thank everyone for taking the time and interest to respond to my OP with great info (which I passed to DD, most of which baffled her, LOL) and provide a wrap-up post. DD went with Plan D.