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Work pension, whats better?

Old 02-10-2018, 02:13 PM
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Default Work pension, whats better?

So I went to a pension workshop at work. In a small nutshell, our pension is a defined benefit where each employee chips in X% from each check and the employer matches it. The company has a list of about 18 mutual funds where I can stash it. This includes bonds, equities (local, global, American), fixed income.The money is not pooled together, its mine and no one else's. I control my risk class and which investments I want which I like. Also nice is that if I dont use it all then I get a nice nest egg I can leave behind to my wife or children. I have full control of how I want to withdraw it. But if I don't manage it correctly, or if I live to a really old age, it could run out. Although we are a small company, we teamed up with many others and in total our plan has about 3000 members and a total assets of apparently $78M (if you add up all the individual portfolios).

The other type of pension is a guaranteed income which a lot of government employees have. From what I understand, they chip in X% from each pay check and the employer matches it. Each employees earns 2% pension a year and over the course of 30 continious years, they earn a maximum benefit of 60-70%. That means, they are GUARANTEED 60-70% of their regular annual income for the rest of their lives totally worry free. BUT there is a catch. If they retire early, they take a hit of minus X%. Breaks in service record, if you wish to share your pension with your spouse also takes a hit of minus X%. So in other words, if you want to retire at 55, share your pension with your wife, you will get clawed back a % from the maximum benefit. But the big drawback for me, is that if you retire at 65, and happen to die at 70, then you're screwed ... the money taken from each check is pooled with others, managed by others and there is no personal nest egg at the end.

This got me thinking, last two funerals I attended, both were men, one was 70 and the other was 72.

Which pension do you think is better?

Last edited by makonnen; 02-10-2018 at 02:18 PM.
Old 02-10-2018, 02:21 PM
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I thought if you go the guaranteed route and you share your pension with your spouse, that yes, you receive less, but your spouse continues to receive a pension benefit even after your death.
Old 02-10-2018, 02:23 PM
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The first "pension" you describe sounds like a traditional 401k. Don't like the sound of #2.
Old 02-10-2018, 02:26 PM
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Would you ever consider putting more than the match in? Does one have more benefit if you max out your contribution versus the other?
Old 02-10-2018, 02:30 PM
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1st one is a common 401k with employer match. The 2nd one is a typical pension. I would take the pension and open a Roth.
Old 02-10-2018, 02:32 PM
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Originally Posted by Ahoy Vay View Post
1st one is a common 401k with employer match. The 2nd one is a typical pension. I would take the pension and open a Roth.
Here's your answer.
Old 02-10-2018, 02:37 PM
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The company I retired from has both, so I get a guaranteed amount each month and I also have my little nest egg growing....
Old 02-10-2018, 02:48 PM
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You've confused defined benefit with defined contribution. The first plan you describe is a DC plan and the second is a DB plan. A 401k is a form of DC plan.
Old 02-10-2018, 02:56 PM
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Originally Posted by Brad1 View Post
I thought if you go the guaranteed route and you share your pension with your spouse, that yes, you receive less, but your spouse continues to receive a pension benefit even after your death.
That is the guaranteed benefit pension but the problem is that there is a big clawback in benefit if you want to share it with your spouse after your passing. And no guarantee of course that you will outlive your spouse.

I can't figure out which pension is better...
Old 02-10-2018, 02:56 PM
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Originally Posted by Prospective View Post
You've confused defined benefit with defined contribution. The first plan you describe is a DC plan and the second is a DB plan. A 401k is a form of DC plan.
Right I always get the terms mixed up.
Old 02-10-2018, 03:05 PM
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How solvent is your company. What % funded is pension plan. How long till you retire?

The second plan always sounds great until you get a few bad years of investment returns from the manager and current retirees start living longer than the actuary table estimates budgeted for. Then the company has a few loosing years and can’t contribute enough to properly fund the plan.
Old 02-10-2018, 03:07 PM
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Also you have to think about who is backing the #2 Pension option.

Federal government, State, City, Private.... There have been many cases where people have lost or had drastically reduced pensions because their employer did not fund the pension correctly. Look at Detroit for example.... just one of many.
Old 02-10-2018, 03:08 PM
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Others have posted it already. I have a pension, set up similar to your option 2 (true pension) AND a 401k. I didn't do a Roth, although I should, but most pensions are set up so you get 100% of your vested value (yrs of service X percentage of plan X typically highest average 3 of last 5 years salary) when you retire if you take it all, and then if you carry over survivor benefits it drops depending on what percentage you want your survivor to receive. You really can't go wrong with this option. Sure the money is less if you put your wife in at 100% but if anything happens to you she is set. That piece of mind means a lot to me, probably will to most happily married people.

Take option 2, include survivor benefits, and open a Roth or 401k if they will match any, or both.
Old 02-10-2018, 03:35 PM
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Originally Posted by makonnen View Post
That is the guaranteed benefit pension but the problem is that there is a big clawback in benefit if you want to share it with your spouse after your passing. And no guarantee of course that you will outlive your spouse.

I can't figure out which pension is better...
We don't have enough information to figure that out for the OP. Does his spouse have a pension of her own? Is she entitled to her own Social Security benefit or will she be receiving the spousal benefit (and how big will her benefit be?)? Does the OP and spouse have significant personal savings to supplement pension and SS? How many years is the OP from voluntary retirement? Just to start asking questions...
Old 02-10-2018, 04:01 PM
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Originally Posted by makonnen View Post
So I went to a pension workshop at work. In a small nutshell, our pension is a defined benefit where each employee chips in X% from each check and the employer matches it. The company has a list of about 18 mutual funds where I can stash it. This includes bonds, equities (local, global, American), fixed income.The money is not pooled together, its mine and no one else's. I control my risk class and which investments I want which I like. Also nice is that if I dont use it all then I get a nice nest egg I can leave behind to my wife or children. I have full control of how I want to withdraw it. But if I don't manage it correctly, or if I live to a really old age, it could run out. Although we are a small company, we teamed up with many others and in total our plan has about 3000 members and a total assets of apparently $78M (if you add up all the individual portfolios).

The other type of pension is a guaranteed income which a lot of government employees have. From what I understand, they chip in X% from each pay check and the employer matches it. Each employees earns 2% pension a year and over the course of 30 continious years, they earn a maximum benefit of 60-70%. That means, they are GUARANTEED 60-70% of their regular annual income for the rest of their lives totally worry free. BUT there is a catch. If they retire early, they take a hit of minus X%. Breaks in service record, if you wish to share your pension with your spouse also takes a hit of minus X%. So in other words, if you want to retire at 55, share your pension with your wife, you will get clawed back a % from the maximum benefit. But the big drawback for me, is that if you retire at 65, and happen to die at 70, then you're screwed ... the money taken from each check is pooled with others, managed by others and there is no personal nest egg at the end.

This got me thinking, last two funerals I attended, both were men, one was 70 and the other was 72.

Which pension do you think is better?

no your not screwed your dead.....your spouse however...........
Old 02-10-2018, 04:35 PM
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Originally Posted by hottoddie View Post
The first "pension" you describe sounds like a traditional 401k.......
Same thing that I was thinking.

I am fortunate in that I have both. My pension was fully funded by my employer and is based on the highest 5 years salary of the last 10 years of employment. As of January 2017, the program's liabilities were 97 percent funded, I believe.

My 401K was matched up to 8%.

I'm retired now and living exclusively off of the pension with no current plans to touch the 401K. Hopefully I'll let my kids deal with that headache just like I'm having to deal with my father's.

Last edited by FishLife; 02-10-2018 at 04:42 PM.
Old 02-10-2018, 04:42 PM
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Originally Posted by makonnen View Post
That is the guaranteed benefit pension but the problem is that there is a big clawback in benefit if you want to share it with your spouse after your passing. And no guarantee of course that you will outlive your spouse.

I can't figure out which pension is better...
Ok. That answer' s the question I had. My Wife and I are in a similar situation, except she s the one that has the pension. I on the other hand do not work for an employer that offers a pension, so I'm a 401k saver. In our particular situation we went with the spouse benefit for the pension. And yes, it does reduce the amount just as you described. If I outlive her, I'll get a pension (granted reduced), and I'll have whatever is left of my 401k. If its the other way around, she s the beneficiary of my 401k and she'll have her pension too. We plan on having no debt once we retire, except maybe the occasional car payment. We're hoping to retire in a little less than 5 yrs.

I can't say if how we're going about it is the most intelligent way. It just seems the most financially secure way given our far from extravagent lifestyle.

I always say I should be a financial advisor. Take my financial advice, but then do the opposite. Lol.

Good luck.
Old 02-10-2018, 04:52 PM
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Depends on A LOT of factors

I am one of those noe drawing on a defined benefit (pension plan) after 20 years service as police. So at 48, I was drawing on it..

I currently work for another agency and working on another.


The pension is probably better, if you gonna stay there. Here is why

I know people who opted for a investment type retirement and 5hey controlled their money. 2008 rolled around when a few were going to retire, it was worth about 1/3, so they could not.

Pension plans (if ran correctly and monitored) work well if you are gonna stay there 30 years AND THE COMPANY IS HEALTHY..
Old 02-10-2018, 04:54 PM
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Does #2 get a cost of living adjustment? If not inflation will eat into it after you retire as the years go by.
Old 02-10-2018, 04:55 PM
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What a great problem to have, awesome!!

The only advise I can give you is this:

Wait for Sprockets to respond!!

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