my financial situation

[tommyjk]

Is it possible to fully retire once my 20 years is up and I recieve my pension.

Age:22
J*b: civil service with a pension in 20 years of half my final years earnings and full benefits.
Salary: 40k which will increase to 70's in 5 years or higher upon promotion.
expenses: $750/month (live with mom)
debt: $0
savings: 5k in a savings account

financial options with the city job(balances are minimal as I just started contributing)
457 deferred comp currently 20%
regular 401k 0%
roth 401k currently 5%
currently all in the 2045 fund

I can also invest in the city pension system up to an additional 9%(5% pre tax and 4% post tax) of my salary which earns a guaranteed 8 1/4 % per year, which is mine upon retirement. I currently do the 9%

I am having a hard time deciding where to save first. Should I try to max out the 457 and then 401k? I would also like to save up a down payment for a co-op.

If you would like more info please ask.

Thanks in advance -Tommy

 

[brewer12345]

What are your payout options on the additional city pension investment?

 

[W2R]

Some others can tell you where they think you should put your money first. I don't know anything about 457's.

You want to get some money in those retirement accounts so that it can grow, and so that you have tax sheltering for some of your investments once you retire.

I think that as long as you keep stuffing all the $$$ you can into a 401K and into the principal on a house, you'll be in great shape in 20 years. Try to challenge yourself to contribute more than 5%, and increase it as you can.

 

[ziggy29]

Half of your final year's pay for life starting at age 42? With full benefits? No wonder we're going broke.

 

[Walt34]

W2R, a 457 is deferred compensation, similar to a 401k, for city and county employees. Deposits are tax-deductible and are taxed upon withdrawal. The difference from a 401k is that withdrawals can commence immediately without tax penalty upon normal retirement regardless of age.

So a firefighter or police officer who starts at age 21 with a 25-year normal retirement could retire at age 46 and begin withdrawals from the 457 account without any early withdrawal penalties.

 

[tommyjk]

Half of your final year's pay for life starting at age 42? With full benefits? No wonder we're going broke.

Yep, it will start for me at age 41 if I retire at 20 years. The only thing is it is not increased with the cost of living.

What are your payout options on the additional city pension investment?

Its very complicated based on rates which are based on age, but basically I can get an increased pension, or take the money in a lump sum and preferably roll it into an IRA, 401k etc. The current rate for a 41 year old is about $80 extra per year for every $1000 in the pension system.

 

[W2R]

W2R, a 457 is deferred compensation, similar to a 401k, for city and county employees. Deposits are tax-deductible and are taxed upon withdrawal. The difference from a 401k is that withdrawals can commence immediately without tax penalty upon normal retirement regardless of age.

So a firefighter or police officer who starts at age 21 with a 25-year normal retirement could retire at age 46 and begin withdrawals from the 457 account without any early withdrawal penalties.

That does sound like a better option for him, then, if he is thinking of retiring in his 40's (probably?). Thanks for the info.

 

[Leonidas]

Welcome Tommyjk.

If nothing were to change in the next 20 years, and you kept putting money away, I would think your only question about retiring then would be, "What am I gonna do all day?" But stuff do change man. You could wake up ten years from now and find yourself living the whole domestic thing complete with wife, kids, mortgage and future college costs. The days of living at mom's house on $750 a month will be long gone. Finding ways to makes those contributions to your plans while maintaining the grip you have on your expenses while living below your means will be of great future benefit to your plan. It might get complicated though.

I don't know what specific agency you work for, but when I was working I spent a lot of time in NYC working with NYPD guys. Rudy was in office then and I was surprised to find out that there was not a lot of love for him in the PD. Many of those guys felt that he was just another politician who said one thing and did another, and they particularly felt that way about monetary issues. Twenty years is a long time and there will be a lot of mayors and a lot of things happen that may affect how the trust guarantor of all those funds feels about the city's fiscal ability to make good on some promises.

Maybe I'm overly cautious about these things, but given my own experiences with politicians going back on what they said here in my city, I developed a plan "B" just in case.

Overall I would say you are way ahead of the game at the moment. It took me until I was about 25 before I stopped seeking investment opportunities solely in my portfolio of sports cars, vodka and women with questionable morals.

I would say you need to continue to maximize your tax advantaged investments. My back of the envelope figuring shows that you still have some uncommitted salary that you could stick in either/both the 457 and/or Roth401K. My pension has a cola, but I still maintain a high exposure to stocks because I plan on living a long time and I don't want inflation to bite me without some defense. If I was in your position, with a non-cola DB pension, I would be particularly interested in having some hedge against inflation.

Regarding the extra contributions to the pension, I had some problems with that for a while but I decided I like that plan. We had something similar and it worked out really well for me. It started being post-tax, and then changed to pre-tax at a certain time, which slightly complicated the tax situation in that the pre-tax contributions were not eligible for a rollover into an IRA. I think I would want to know more about how taxation would be handled with that kind of strange mix of pre and post tax monies. If you roll that money over and wanted to retire before age 50 (assuming you are an emergency services provider) if you wanted to withdraw that money before age 59 1/2 you would have to either take it as extra pension payments or do a rule 72(t) exempt SEPP. But a guaranteed 8.25% interest for 25 years? That's sweet.