Money or the Power (retirement question actually)

[Ronin]

I have a question about a job situation I have.

I currently have a law enforcement job where I'm paid $80K (not counting overtime) per year and I have a government paid retirement up to 90% after the age of 50 years old. I have a 401K type plan, but they offer no matching.

A few of my friends I use to work with in the military have gotten "consultant" jobs that pay around $100K per year, but do not have a paid retirement. I believe the company does a 10% 401K match.

Benefits are about the same.

Lets say I were to switch to the consultant job, how much more would I need to save to earn the same retirement as I'd get from the LE job? I plan to retire at 54 yrs old.

[mdcrim]

How many years do you have until full retirement? Consultant jobs are great, but they are not nearly as secure as gov't jobs, which is one of the reasons they pay better. Generally those jobs are contract based, meaning that you are hired by the company to work a specific contract. If the company loses the contract, they may not have another contract needing your skills. In this economy and with what the president is doing (sinking money into state and local governments), I'd say you'd be safer to stay where you are.

A lot of the consultant jobs are defense contractors and the rumor is that DoD will be taking major cuts this year. Those consultant jobs may very well still be available after you retire if you wanted to make some more money then. Good luck!

[jIM_Ohio]

I have a question about a job situation I have.

I currently have a law enforcement job where I'm paid $80K (not counting overtime) per year and I have a government paid retirement up to 90% after the age of 50 years old. I have a 401K type plan, but they offer no matching.

A few of my friends I use to work with in the military have gotten "consultant" jobs that pay around $100K per year, but do not have a paid retirement. I believe the company does a 10% 401K match.

Benefits are about the same.

Lets say I were to switch to the consultant job, how much more would I need to save to earn the same retirement as I'd get from the LE job? I plan to retire at 54 yrs old.

10% match? get that in writing before any decision is even considered. It might be 1/3 of all contributions up to 10% (so you put in 10% and company puts in 3-5%).

If you had a salary of 80k and the pension was 90% of that, I believe pension would be 72k. Does the pension have a cost of living adjustment (is it COLA- this is a HUGE dealbreaker)?

72k should be valued at 25X the amount. Meaning look at pension as having a value of $1.8 M if it is COLA and probably $1.4 M if no COLA.

If you are 25 years old and wanted the same value at age 50 ($1.8 M) you would need to invest $6500/year and take on market risk to get $1.8 M (with an 8% return).

If you are 35 and wanted the $1.8 M at age 50, you would need to invest $33,000 per year (that is correct- lose 10 years and you need to invest 5X as much).

33k would mean you could contribute 16.5k and employer contributes 16.5k- that is not realistic to expect an employer match that high though.

33k probably means 5k from employer and 28k from employee. That means a person making 100k needs to live off of 72k to equal your retirement package.

Ironically 72k is about what you will make in retirement.

One other issue- if the "90%" of salary scares you, do this- put 10% of your pay into 401k.

You get 3 benefits:
1) Your taxes go down.
2) You will be living on 90% of what you make
3) your 72k pension income will be increased by the 8k per year you are contributing to the 401k. If you are 35, and the 8k grows at 8%...

if you are 25 now, at 50 the 401k has $2M in it.
if you are 35 now, at 50 the 401k has $900k in it

Obviously allows you to spend more than 72k per year in retirement.

If you go the route I suggest, there might be better tax efficiency than putting $8k in a 401k, this was just an example.

[MonkeyMama]

Some thoughts,

How likely is it that the government will be able to fund your pension at 90% when you retire? (Odds are probably slim - there is nothing guaranteed about pensions). Government jobs tend to come with a lot of benefits, but their ability to fund them in the long run is suspicious if you ask me. I'd rather work in the private sector and get paid more, and then have it on my own shoulders to invest it well enough for a comfortable retirement.

On the flip side, 10% match is probably a discretionary match, meaning it can change at any time. You wouldn't be able to get that in writing, for sure. An employer with a solid history of 10% match is good, but this is the type of economy where things like 10% matches are the first things to be cut.

Others can help you run the numbers, but there are risks and benefits for each scenario.

[Ronin]

Some thoughts,

How likely is it that the government will be able to fund your pension at 90% when you retire? (Odds are probably slim - there is nothing guaranteed about pensions). Government jobs tend to come with a lot of benefits, but their ability to fund them in the long run is suspicious if you ask me. I'd rather work in the private sector and get paid more, and then have it on my own shoulders to invest it well enough for a comfortable retirement.

On the flip side, 10% match is probably a discretionary match, meaning it can change at any time. You wouldn't be able to get that in writing, for sure. An employer with a solid history of 10% match is good, but this is the type of economy where things like 10% matches are the first things to be cut.

Others can help you run the numbers, but there are risks and benefits for each scenario.

Why would they not be able to pay the retirement? They've been paying out the retirement for many years and haven't had a problem yet. I'm somewhat the opposite of you, I'd rather have a paid retirement waiting for me instead of relying 100% on savings and investments to take care of me.

[Seeker]

I have a question about a job situation I have.

I currently have a law enforcement job where I'm paid $80K (not counting overtime) per year and I have a government paid retirement up to 90% after the age of 50 years old. I have a 401K type plan, but they offer no matching.

A few of my friends I use to work with in the military have gotten "consultant" jobs that pay around $100K per year, but do not have a paid retirement. I believe the company does a 10% 401K match.

Benefits are about the same.

Lets say I were to switch to the consultant job, how much more would I need to save to earn the same retirement as I'd get from the LE job? I plan to retire at 54 yrs old.

Sounds like a 457 plan. "Up to" is not guaranteed.... but generally you can look forward to a good pension.

Your current age will determine the real numbers to save,

I contribute 10% currently to a 401k. First 3 % is matched 100%, second 3% is matched 50% and the remaining 4% is unmatched. Your consultant position is very unusual.

I too would stay in LE regardless of the numbers. There's risk in LE, but not like the risk of losing your contract.