Public or private sector for long term retirement

[Lakewood90712]

I worked for a very large city from 2001 to 2015. Was over 40 when hired. The city has thier own retirement system, not connected with the state. I draw a modest cola pension and medical subsidy. Formula is 2.16% at 30 yrs of service and 62 yrs age. Early retirement has signifigant reductions. Do 30 years , at age 62 draw about 2/3 of base pay.

A good 457 plan is optional.

During that 15 years, the employee contribution went from 6 % of base annual salary to 9.5 % . an increase of over 50% on the employee end. Largely due to truly crazy investments the pension system got into in the 2003-2007 era, and the 3rd actuary telling the truth that 7% return is a fantasy.

There is no spiking allowed in this system.

Those hired after 2009 have a lower benefit, but same contrubution, it is a 2 tier system.

I would absolutly do it again, but it's no free lunch. Realize that the original terms can inded change prior to retirement.

 

[Lakewood90712]

" In my current job, I love what I do, it's not as stressful and the coworkers are great. But in the back of my mind I always think about my future and my family's future "

One thing to consider, in a public sector job, you will be with other " Lifers " ,wearing the golden handcuffs. Staying in a location or with others, or management you despise, because you don't want to change jobs , just for the pension. Some have only fond memories of public employers , others no so much. I really liked the place the first 5 years out of 15. Your mileage may vary.

 

[Freedom56]

Hello,

I am considering going into the public sector for the long term benefits. I would like a pension an annuity and continued employer health benefits for my wife and myself until death. I know that pensions are slowly fading away but I simply do not trust my 401K and forget about social security. The pay for the public sector is much less than what I would be making now but long term I feel I would be more secure.

Anyone in a similar situation and if so what did you do?

Thanks so much!

When I was 21 and just graduated from University and started my career in the technology sector, my first boss always told me that the worse thing someone with ambition can do is work for the public sector. That comment applies even more today.

 

[Scrapr]

Another thing that worries me is if my 401k tanks the day before I retire. I'll be in a really bad situation. I also have to do research on how medicare works, I heard a lot of horror stories with it..

This is where your asset allocation comes in. Start out mostly stock and move gradually to more cash/CDs/Bonds. Enough to live on for a year or 3.

Then I would suggest making investments outside the 401k. Rental property, taxable funds, side business. This way you aren't as tied to just your 401k

And Medicare will change before you get there. Frankly I can't wait to get there in a year. Maybe we will all have medicare and it will be an easy transition!

 

[Montecfo]

I think the golden age of government pensions is a thing of the past. A look at government budgets should make that clear.

I think understanding the fiscal position and prospects of your prospective employer would be key. They vary widely with material implications for future benefits.

Good luck with your decision. I agree with other posters that you will want to begin to educate yourself on investing, regardless of your employer.

 

[Paulz]

@Datsun72 I was in the same boat as you many years ago. All I can offer is my perspective. I currently work for the Federal Government and have found that there are certain niches that make the pay very competitive, so do some research on the agency you want to work in and the job you want to do. As others have mentioned, the pension isn't as great as it once was, to me it's the health care that is most valuable.

I would never consider working for a state. Their situation and pension are fragile at best.

If you do work for the Fed, save and invest as if the pension is non-existent. I'm 5 years away from retirement and know if they yanked the pension and social security from me today it would have no impact on my future lifestyle.

 

[Redbugdave]

I am also a retired Fed. When I got on with the Govt I missed out on the old annuity system by one year, (CSRS), and was under the new system...FERS, TSP, etc. For me the new system turned out to be a better deal than if I were in the old CSRS system. I budgeted all those years and maxed out the 401 plan the govt has. The job was not too bad, (except having to work rotating shifts, and going through a reorganization where I had to move), and I am glad now that I stuck it out. I retired at 56 and my retirement investments, annuity, and SS, add up to more than I ever made working. Health care is good. I came out much better under the new system since I did well with managing my money. I see my friends in the private sector making a ton of money...but I was the turtle in the race against the hare. I think I won.

 

[dixonge]

Texas has an excellent set of government worker pensions. Ours (TCDRS) funded our retirement. I worked 8 years, the wife 12 or so. This is the power of heavy employer matching. That plus SS is plenty for us. Most people would not like our income levels, but we're throwing money into our investment accounts as fast as we can. Income maxes out in 3 years, but projections show us continuing to grow our savings exponentially, mainly for the purpose of self-COLA.

 

[Hermit]

I left a Federal job the same month my vacation earning went from 4 weeks to 6 weeks/yr. It was the best move I ever made. I was so sure I never wanted to work a public sector job I cashed out my Civil Service retirement. That was a major exercise in burning a bridge I never wanted to even consider recrossing. I really enjoyed the private sector engineering jobs I had over the remainder of my working career. This was just my experience. To each his own.

 

[HI Bill]

While the public sectors are dwindling the benefits away, if I can get in early I might be able to be "lock in" to the current contract before it really gets bad...Another thing that worries me is if my 401k tanks the day before I retire. I'll be in a really bad situation....I'm new to this, and trying to gain as much financial knowledge as possible. I would love my money to "work for me". Investing would be great, have more risk now and less risk as I get older. Maybe I can look into real estate as a form of retirement income.

If you go to work for an employer who provides a pension, you are locking yourself into a single, likely lower-paying job (than the public sector) for the remainder of your career. You will have to work a minimum number of years before the pension kicks in, so ER is likely not a possibility. Moving locations or changing jobs is likely difficult or impossible. There is no guarantee that pension benefits, including inflation adjustments, health care, etc., will remain solvent in 20 years. You worry that SS won't be here, yet you are sure that a pension will be (logical disconnect). You'll be stuck in that one job, no matter how bad things get, and no matter how bad you want to RE or quit or relocate. If you get sick and can't work until the time when you qualify for the pension (20 or 25 years or age 55?), you'll have nothing but SS to retire on, and will have foregone a higher salary for essentially nothing.

For me, owning a diversified portfolio of stocks and bonds, and owning my own real estate, provides a measure of control and safety that pensions do not. I can shift investments as I see fit. If SS tanks, or pensions default, I still have my investments. If I want to retire after 15 years, rather than 20 or 25, I can. Are you a total return worker? If so, then total compensation, including potential future pension benefits, total salary, and company contributions to 401(k), etc. are part of your total package. You seem to want someone else to pay for and take care of you in retirement, and don't want any risk. But it doesn't work that way. I know a bunch of Federal employees who would like to retire early, but can't. If you maximize your earning potential, and take control of your own retirement savings, you'll be the one in control.

1/3 of my portfolio is real estate, cash and bonds. These are unlikely to lose all value; the remainder is in the markets, and this keeps inflation risk at bay. I don't have the leverage risk involved in purchasing and renting real estate. To be a landlord today, you need to have sufficient cash to weather economic downturns as we are experiencing now.

Just some things to think about.

Best wishes.

 

[BoodaGazelle]

As others have doubtless pointed out, search DuckDuckGo for ´unfunded state pension liabilities´.

 

[Dash man]

Whichever path you choose, live below your means (LBYM) and save and invest. Learn to invest yourself so you don’t pay fees to someone else to do the job you can do yourself. Pensions and health benefits will change before you retire. Your best preparation is to control your own finances and not rely on the government. I spent half my working life working for the government and half in the private sector. My private sector job allowed me to save eventually half my pay for retirement. My government job mindset was the pension would eventually be there, so why save? Well, I’d be in hot water today if I had stayed that route.

 

[Redbugdave]

Whichever path you choose, live below your means (LBYM) and save and invest. Learn to invest yourself so you don’t pay fees to someone else to do the job you can do yourself. Pensions and health benefits will change before you retire. Your best preparation is to control your own finances and not rely on the government. I spent half my working life working for the government and half in the private sector. My private sector job allowed me to save eventually half my pay for retirement. My government job mindset was the pension would eventually be there, so why save? Well, I’d be in hot water today if I had stayed that route.

You hit the nail on the head with your post.

 

[Helen]

@Datsun72 I was in the same boat as you many years ago. All I can offer is my perspective. I currently work for the Federal Government and have found that there are certain niches that make the pay very competitive, so do some research on the agency you want to work in and the job you want to do. As others have mentioned, the pension isn't as great as it once was, to me it's the health care that is most valuable.

I would never consider working for a state. Their situation and pension are fragile at best.

If you do work for the Fed, save and invest as if the pension is non-existent. I'm 5 years away from retirement and know if they yanked the pension and social security from me today it would have no impact on my future lifestyle.

I have to agree with all of the above. I worked in a Federal job that paid competitive wages, plus we had job security, good health insurance, the TSP which is like a very low cost 401k with 5% matching and a small COLA'd pension. And, I didn't have to travel for work.

I retired at age 56 after 20 years as a GS-13 making either $113k or $117k (I can't remember), my pension is only $1,340 per month after health care but before taxes. Having health care is more important to me than the pension. I don't worry about my benefits going away, I think the Federal benefits are quite secure.

I really liked the Federal agency I worked for, but not all agencies are the same - they vary a lot.

What ever you decide to do, live below your means and read up on investing so you are comfortable with it. The Boglehead approach is very simple to understand and implement. If you haven't checked it out do yourself a big favor and spend some time there: https://www.bogleheads.org/forum/index.php

Good luck with what ever you decide to do.

 

[OldShooter]

As an engineer, OP will appreciate that he started this thread with two alternatives and we have now boiled it down to at least five or six.

 

[oldphd]

My experience...

Spent 20ish years in industry, LBYM and saving heavily. Laid off twice. After second, went back to school for a PhD and worked at a University in a state covered pension plan. Based on the rules in place when I took this job in 2011, I had a plan. Well, about halfway between when I started and when planned to get out, they changed the rules. Significant raise to time to qualify for healthcare, which effectively eliminated that option. Changes to years of qualifying for pension and what you get when were changed such that it was no longer the desirable deal when I started.

For me, ironically, it got me out sooner since there was no longer an incentive to go a few more years. Basically a cut in overall compensation. But I had a stash. For many, it meant working a few to 5 more years to retire, and most of them would have less pension than they originally had. But with 25 years in those "lower paying jobs with great pension" they hadn't saved enough to go without.

Bottom line, don't count on what is offered today, it can change. Even if you go that route, save, save, save. Nobody cares more about you (and your money) than you do.

 

[Teacher Terry]

We both went from private to working for the state. In our state once we were vested nothing changed except for the penalty if we left before 60. Things changed for new hires. I had 15 years and my husband 11. Our SS was gutted because of WEP. We can live comfortably on it. We use our savings for travel. We had good supervisors and bad. We are so happy we stayed. We also saved in our Deferred Compensation.

 

[yclipse]

There is no certainty

I happened to be reading an audit report for the pension covering teachers in Michigan, and noted (a point I always check) that the pension obligations are 60% funded. That is about right for many municipalities and public agencies. And I do not expect that figure will improve in the next couple of decades.

There will be many retirees in the future whose plans and projections will be disappointed.

 

[imnontrad]

I don't think there is any answer for this.

The people in Rhode Island who chose to work for the state/municipalities found their pensions slashed when there was a huge budget deficit. So working for a state does not guarantee a retirement income.

People who worked for companies lost their pension (or saw it reduced) when the company went bankrupt, got sold, or declined in value.

The people who work for the federal government (including military) may not have these problems but their pay per hour is less through their working life, which may reduce the amount of Social Security.

Plus, if married, you also have to consider the possibility that your pension goes away entirely when you die and plan accordingly (ditto if your spouse has a pension also).

You have to find the career that gives you enough satisfaction, growth, and income to meet your needs. This may even be a lower paying job that gives you the flexibility for a side hustle. And then start saving so any pension (including Social Security) provides for extras for your budget but not your only source of resources.

 

[Lakewood90712]

I happened to be reading an audit report for the pension covering teachers in Michigan, and noted (a point I always check) that the pension obligations are 60% funded. That is about right for many municipalities and public agencies. And I do not expect that figure will improve in the next couple of decades.

There will be many retirees in the future whose plans and projections will be disappointed.

Does that plan currently have 60% of the all benefits owed to current retirees and employees , and dependent upon investment returns plus future contributions ? 60 % is too low in my uninformed view. or is it worse , like a projected 40 % shortfall ?

The only public sector plan I know of that is 100% funded for all future benefits owed ( if I understand it correctly ) is the US postal service pension plan. If I understand correctly, if the postal service ceased to exist, all benefits owed are funded.

 

[OldShooter]

Does that plan currently have 60% of the all benefits owed to current retirees and employees , and dependent upon investment returns plus future contributions ? 60 % is too low in my uninformed view. or is it worse , like a projected 40 % shortfall ?

Actually you also have to know the future rate of return they are expecting. If they are projecting 8% that is a problem. I believe that using 8% is considered to be unrealistic by the people who regulate these things. Revise it to 7% and the shortfall balloons.

The only public sector plan I know of that is 100% funded for all future benefits owed ( if I understand it correctly ) is the US postal service pension plan. If I understand correctly, if the postal service ceased to exist, all benefits owed are funded.

IIRC Congress told USPS that they are required to do this but due to running a huge deficit they have not actually been able to transfer the required funds. Trump has just appointed a crony who is supposed to fix all this. We'll see.

 

[lucky penny]

... NY like IL has several tiers of pension benefits, so don't rely on what your relatives had in the past. I would not recommend public service in IL to my children.

NY (assuming that's your zip code) has one of the best-funded state pensions in the US; Illinois has one of the worst.

 

[WyomingLife]

It does sound as if you have made up your mind. So I say go for it. I just wanted to add my two cents. As background, I am a little older than 55. Early in my career I served my country working in an interesting federal gov’t job. Then I worked 25 years as an attorney in private practice. And now I am working for a state. So I have seen it all.

First, no job is secure. More job losses from AI are coming, even for white collar professionals (more about that below). Gov’t employees lose their jobs all the time.

Second, I wouldn’t take any job based on a belief about what retirement benefits may be decades down the road. Laws change (ERISA, etc.).

Third, government pensions are not secure. They weren’t secure pre-pandemic. Post pandemic, many governments likely will be massively underfunded for a very long time.

Fourth, I basically got to FI via my 25 years of LBYM-private sector earnings. I love my 401k. It’s mine. I can see it. Taste it even. Sure, a politician can change the taxation rules, but barring enactment of a confiscatory wealth tax, no politician can touch it, not in the same way they can a pension, particularly for young and mid career folks who are slaving away thinking it will be there untouched decades from now.

Fifth, the path to FI/RE is fiscal discipline no matter the employer. Maximize income and save it. I made my money in the private sector.

Sixth, I would expect that many of those government jobs to which you aspire are in HCOL areas. There are exceptions of course (e.g., park rangers). HCOL living will work against your plans for FIRE, if you have them, particularly on a gov’t salary.

And seventh— and here I will speculate a little: I thought US society was moving towards single payer/non-employer-based HC pre-pandemic. Why? The coming impact of AI on the labor force. I now think this trend will accelerate because of the pandemic. Do I think we will have universal HC in 2030? Likely not. But by 2035 or 2040? I would expect so, or something like it. Again though, I wouldn’t take a job today based on the HC you think you may get in the year 2040 or later. I think pre-65 HC concerns are primarily a concern for the 40 and later crowd.

 

[akrono]

Public Sector Career

I spent 35 years in the public sector, specifically municipal Law Enforcement in the State of Ohio. When I started my career we had outstanding benefits. Although we knew we would never be highly paid there was the security of having a job for life and excellent benefits and retirement at the end.

Those benefits have steadily eroded over the years. Healthcare, pensions and benefits are constantly being chipped away. Some state pension systems are underwater and it's just a matter of time before they implode. Just last year our State pension system dropped the healthcare coverage and we are now own our own. I think the defined benefit pension system that public employees enjoy will soon become a thing of the past. If you decide to go into public service, just have both eyes open and realize things are not what they once were and will probably deteriorate further.

 

[akrono]

Sage advice!!