Public or private sector for long term retirement

[ugeauxgirl]

I'm an FA ( l know, boo, hiss, I'm evil and all that) and over the last 20+ years I've seen lots of retirees from both public and private companies. When I started I was envious of the eye-popping pensions that some public utility employees enjoyed. Some of that went away, and I saw quite a few clients who seemed "trapped" by their pensions. Their jobs had become miserable, but they couldn't leave till they were vested, or worse, till they were ready to retire. Public sector employees got less, but what they did have was portable, and because they could contribute, could help accelerate their retirement date.
I can't tell you what will be better, but I've seen both work for my clients. Good luck!

 

[gooddog]

At least with a private 401k, the money you have put in is yours and can't be taken away.

That is a mighty big assumption, especially since that very money is being 'taken away' at this moment via devaluation of the dollar and low interest rates. In the future, I can easily see the congress voting a 'surcharge' on 401k accounts. The say something along the lines of $1mil is excessive and needs to be taxed at a 10% one time rate. For the good of the country, you know.

 

[WyomingLife]

That is a mighty big assumption, especially since that very money is being 'taken away' at this moment via devaluation of the dollar and low interest rates. In the future, I can easily see the congress voting a 'surcharge' on 401k accounts. The say something along the lines of $1mil is excessive and needs to be taxed at a 10% one time rate. For the good of the country, you know.

I don’t think it is a “mighty big assumption” at all. Sure, subject to constitutional limits, Congress could do whatever it wanted to today — vote to nationalize all industries, raise the tax rate to 99%.

This thread was basically teeing up the choice between privately funded (401k) versus government funded (pension) retirement. I’ll take the former over the latter everyday. If one believes there is a material risk the government would confiscate one’s savings, why would one trust the promise from the same sovereign to fund one’s retirement 40 years from now? A bird in the hand and all that.

The wealth proposals that the progressives have floated to date have targeted billionaires.

And politicians recognize that 401k savings are not enough. The last thing they are going to do is start to impair private-based retirements.

There is risk in anything. The risk of the government confiscating a portion of my 401k is in the same category as a meteor striking my house, as I see it.

 

[gooddog]

I don’t think it is a “mighty big assumption” at all. Sure, subject to constitutional limits, Congress could do whatever it wanted to today — vote to nationalize all industries, raise the tax rate to 99%.

The federal government has already passed $2,500,000,000,000 of 'stimulus', and is getting ready to do another $3,000,000,000,000. Inflation is already real, and inflation is a tax. Some in congress have already talked of taxing Roth's in excess of a specific $ amount. My point is, that government can do whatever it wants - seen it first hand in 30 years of government (as others here have too I'm sure). That gets back to private vs government employment. I side on the government side. A good example of why is what is going on right now. Government finds itself 'essential', you won't see a lot of government employees losing their homes or biz's. Government will find the serfs non-essential. Retirement is the goal, but stable employment along the way has to be credited some value on a monetary basis. Stability of employment usually rewards a person with a higher pension or other retirement means. JMO, I could be wrong.

 

[Big_Hitter]

That is a mighty big assumption, especially since that very money is being 'taken away' at this moment via devaluation of the dollar and low interest rates. In the future, I can easily see the congress voting a 'surcharge' on 401k accounts. The say something along the lines of $1mil is excessive and needs to be taxed at a 10% one time rate. For the good of the country, you know.

at one point not too long ago, there was proposed legislation to cap/tax DC balances in excess of a threshold - the threshold was related to the 415b maximum DB pension converted into a lump sum I believe - the legislation didn't pass

 

[FatBob]

I worked in the private sector until age 35 and then began Federal service. My experience is that Federal salary is less than the private sector but the stability is better. A lot of people will mention how good the health coverage is in retirement; however, they often neglect to mention that when you turn 65, your Federal Employee Health Benefits (FEHB) become secondary insurance to Medicare....however, what you pay for the FEHB does not decrease. For example, if you retire at 62, you only get three years of FEHB before it becomes secondary to Medicare but you are still paying full price for the FEHB from 65 until death. An increasing number of Federal Employees are "suspending" their FEHB when they turn 65 and purchasing a Medicare Supplemental policy because the premiums are cheaper and the coverage is the same. If/when that math might change, you can always "un-suspend" your FEHB.

There is also a misconception that you need to make it to your Minimum Retirement Age (MRA) ---- usually 57-years-old ---- to get a pension check. No true, you can leave Federal service at any point beyond 5-years of service and pick up a deferred pension when you turn 62. Of course, the number of years of service has a direct effect on your pension....more is better.

Bottom line.....the increase in FEHB premiums over the years has reduced the value of the benefit in retirement, you can get the same coverage cheaper with Medicare and a supplemental policy. As a result, Federal employment is not the Golden Handcuffs it used to be.

 

[Chuckanut]

I have a descent pine and brass pension from my home state. The last time I checked, before the recent economic crisis, it was funded to about the mid 80% area. So, I recently reran FireCalc and a Montecarlo simulation showing cut of 20% to my pension. While it's not very pretty, it's still OK.

Like others have said pensions vary by state and by when people were working. The best pension plan in my state has been closed to new people since the mid 70's. It is also the one with the least secure funding. My is being replaced by a hybrid plan - half DB and half DC. I believe most of the newer young folks are taking the hybrid. I would do the same if I was in my 20's, 30's or even 40's.

 

[thierman]

Here today gone tomorrow. Nothing is what you’d expect it to be. The best laid plan... you get the idea.

As Maicon gladwell has proven in his study of the birth months of hockey players, the best are the ones who get the most rewards along the way and therefore really like playing.

Moral- Do what you love to do and the money will follow. Do what you hate and the money is not worth it.

 

[morriss003]

Welcome to the forum Datsun. I worked for the Federal government for 30+ years and one of the reasons was that I liked the idea of being able to retire at a reasonable age with a decent pension. When I started out, I didn't focus on health insurance but, by the time I retired I realized how critical that is. For me, it worked out well but public employment doesn't work out for everyone. Jobs are jobs, things go wrong.

I would suggest focusing on maintaining a skill set that gives you employment flexibility and performing work you like. The mantra you will see here is to live below your means and build up an independent portfolio sufficient to support you through retirement. Pensions are great, if you stay long enough to earn one, but there are too many things that can go wrong to put all of your eggs in that basket.

Good advice.

 

[guitarguy]

Datsun, I think you're really missing a key question: what is going to be a better fit for you, one that prompts you to excel and grow and be at the top of your game? One that helps to make you happy?

If you see it as just a job and it doesn't motivate you to excel, it's not going to end well, regardless of what you do. And like your Dad, you won't enjoy life very much. As many have pointed out, it's a huge error to project what any public pension will be in the future. Make no mistake, this pandemic is already killing budgets everywhere, both public and private, and pensions/benefits will be slashed heavily. To hope otherwise is wishful thinking.

My GF had an excellent Federal job for 30 years (after 5 in private sector), nice pension and benefits. But it was her LBYM and investments that made her retirement (last year) comfortable; without that she'd be OK but not great. OTOH it was 30 years of mind-numbing, soul-sucking mediocrity working for the Feds. It changed her, and she's still unwinding all the negativity from her mindset.

I was in private sector for 33 years, in a challenging field I loved. I got pretty good at it ONLY because I loved it. Started my own business 20 years in, did pretty well, on track for FIRE in 10 years. Just 3 years in a bad divorce and related/resulting business bankruptcy wiped me out. But I started over, maybe a little wiser in my approach, and went from 0 to an extremely comfortable retirement in just 5 years.

If you want a great life (and retirement), you need to get excited about your work and get really good at your job, and never stop learning. To excel is the best job security in the world. The private sector will reward you well for your success, and the rest will fall into place.

If you're low on motivation and view your job as just a paycheck (which is fine, many are in that boat), then public work may suit you well. Either way, things are going to look a lot different when you retire.

Best of luck!

 

[donheff]

I worked in the private sector until age 35 and then began Federal service. My experience is that Federal salary is less than the private sector but the stability is better. A lot of people will mention how good the health coverage is in retirement; however, they often neglect to mention that when you turn 65, your Federal Employee Health Benefits (FEHB) become secondary insurance to Medicare....however, what you pay for the FEHB does not decrease. For example, if you retire at 62, you only get three years of FEHB before it becomes secondary to Medicare but you are still paying full price for the FEHB from 65 until death. An increasing number of Federal Employees are "suspending" their FEHB when they turn 65 and purchasing a Medicare Supplemental policy because the premiums are cheaper and the coverage is the same. If/when that math might change, you can always "un-suspend" your FEHB. The FEHB also covers international health care so

FEHB costs the same in retirement as when employed but it also remains in full force after retirement. Medicare Part A (free) covers hospitalization but Part B is optional (technically, even Part A is optional but it makes sense to enroll and virtually everyone does). I don't have Part B so my FEHB continues in the same way it did when I was working which means I pay the same co-pays and deductibles. But I don't pay Part B, which can be very costly if you have dual pensions or large RMDs. I also don't pay Parts C or D and instead rely on the FEHB. FEHB also covers health costs while on international travel (paid for an ER visit in France).

The FEHB insurance companies want retirees to take Part B (and 70% do) so they waive deductibles and co-pays, and pay full rates on out of network doctors. About 70% of retirees take Part B and do end up with an expensive (albeit comprehensive) supplement. The other 30% skip Part B and continue with what is generally viewed as good health insurance at an acceptable out of pocket cost. Very few feds drop FEHB and take a Medicare supplement instead. The only option for suspending FEHB in favor of a supplement is to take a Medicare Advantage program. The suspension allows you to come back to FEHB if you drop Advantage. A fair number of Feds in plans like Kaiser go with the Advantage program. Part B costs are included in the Medicare Advantage enrollment so they would go up for high income retirees.

 

[dixter]

the third option.... work for yourself and start your own company... when you get ready to retire you sell the company and live off of that.... too many ways to make money.. you just need to figure out what would make you happy and work your tail off for a few years growing your company...

 

[Jcny18]

Private vs. Public

I worked in the Private sector until age 52. I'm now 153 days away from retiring from State government. Holding on by the skin of my teeth because of an already in progress re-organization and now the impact of Covid-19 on state budgets. I have to do 10 years to get the retirement medical, which I REALLY need. My retirement medical is totally free, AND they reimburse Medicare Part B. If you are in your 30's, I have to say I have my doubts that government pensions will be what they are when you get to retirement age. I see small changes being made already that are making it tougher. Longer vesting and lower benefits. Also, the public sector has somewhat lower salaries and generally no bonus or incentives. Many rules and (until Covid) little flexibility in terms of working from home, etc. Old fashioned management techniques.


As others have said, you may like it or not. You can give it a go and if you hate it, you can move on. I sincerely believe the short term economic outlook is awful, but with the exception of certain sectors, most of the economy will bounce back. I am worried about hospitality and travel, but I'll end here as I am digressing from your original question.

I'm grateful I would up in the public sector, because of the retirement medical.

 

[Steeler75]

Like some others, had 12 years in private sector then switched to public for the last 20. Have small pension from private and now a nice pension and free health care from public sector. Best decision for me as taking a public position enabled me to FIRE at 54, given health care and decent pension that meets our normal expenses.

More importantly, LBYM is critical as it allowed us to fully contribute to 401k and 457 during career, which provided another solid leg of the retirement stool.

While things worked out well for me, it is also a priority to do something you enjoy as 30+ years is a long time and you want to enjoy the ride too.

 

[calwatch]

It definitely depends on what employer and how well funded the pension system is. Ironically, despite California's shaky financial situation, I think California for new public sector employees is fine. Most of the county pension systems are hovering around 80% and post Jerry Brown everyone is paying half the cost. Depending on the state, there may be flexibility in going between different agencies, through reciprocity, so you don't need to feel locked into an employer. Retiree health care is a concern but for some of the reasons listed above, I think it is less important, and can always be downgraded (i.e., the Blue Cross PPO currently offered as a default could be reduced to an EPO, or the Kaiser HMO also offered could convert into a Bronze HDHP model) as there was nothing contractually that obligated a specific plan design. It would get a lot of backlash but is not impossible.

 

[CyclingInvestor]

I worked as a programmer from 1979-2006, 19 years in aerospace then 8 years in financial services.

I chose the no-pension private route over the public or pensioned private route, figuring that a maxed out 401k would be better than a pension for me. I figured a pension might trap me in an unpleasant work situation. I kept the 401ks in SP index funds, then rolled into dividend stocks in an IRA after leaving each job.

It worked out well. I could not have retired at (net) full salary replacement at 48 on a pension.

 

[jastew]

OP - one thing you need to consider is how motivated are you to achieve. I went into the Fed gov after a 1.5 yr layoff during the dotcom implosion for all the reasons you've heard here - pension, security, healthcare. I managed to stay 11 yrs before I had to leave. I've never had a more soul sucking, demoralizing job in my life, before or since. People around me frowned heavily on trying to do something good with my career and produce good work. The overwhelming majority were just there to collect a check and skate as much as possible. We used to joke that the building could collapse and kill everyone, and productivity would increase. I'm much happier working harder but able to produce something I'm proud of without beating back the naysayers and negative influences to do so. I guess it depends on where you worked but I heard much the same story wherever I went.