Retirement planning with a pension?

[superstah]

Here's our situation:

Salary #1: $70k (before tax)
Retirement #1: Contributes ~8% of salary into pension. Upon retirement at 65, will receive 100% of the average of last 3 years of salary (CalSTRS teacher retirement); pension does get adjusted for inflation during retirement -- payment does transfer to #2 for life upon death.
Additional Retirement #1: Max $ going into Roth, $1000/yr going into separate 403(b), Does not contribute to social security, so is not eligible for SS.

Salary #2: $72k (before tax)
Retirement #2: Currently contributing 13% into 401(k), but employer matches 6% of salary for a total
of 19% into 401(k) per year.
Additional Retirement #2: Max $ going into Roth, Eligible for SS

Total current retirement balances (401k, 403b, Roths): $79k

We are 28 and 29 years old in California.

My question comes down to -- how do you know if you are saving enough for retirement, especially if one person has a pension? I've looked at a lot of retirement calculators and its easier to plan when both individuals contribute to a retirement plan. It's a little more confusing to me when one person has a pension. We have $79k in our retirement balance, but this doesn't include the fact that one of the incomes will be replaced during retirement. Additionally, we don't know what the final pension amount will be, as it depends on final salary.

If possible, we would love to live comfortably during retirement and travel. However, we always worry whether or not we would be able to afford it by the time we are retirement age.

Any advice how to better see whether we're on track for retirement?

Thanks!

[Thrif-t]

To be safe, I'd plan without the pension. You've got a long way to go and who knows what can happen with that pension in the future. My DH has a pension but I don't. The way things are in our state we are already seeing changes that were not in the cards when he started working 23 years ago. I'm glad we always saved in addition to his pension. He has deferred comp and has been contributing to that all along.

[~bs]

I agree with the above poster. Save enough to handle retirement even if the pension is cutback or eliminated. If you continue saving the way you are, I think you'll be fine. Local Governments have found ir tough to cut pensions even in bankruptcy, but 35 years is a long time.

Even assuming the pension and social security won't be around, your savings rate should be enough for a comfortable retirement.

[Joan.of.the.Arch]

We certainly made the assumption that our pension would be there for us! Our pension is not nearly so generous as yours, and the fund seems to be surprisingly healthy-- two factors which might make it more reliable.

At some point, you've got to assume something will have continuity. Plan as though Social Security will bite the dust, as though pensions will be pulled out from under you, as though inflation will be sky high for decades on end, as though the US dollar collapses? No, unfortunately you cannot cover all dred possibilities!

I would caution you to find out if your partner can really receive your pension, whether it would be at the 100% level (wow!), and whether #2 is really eligible for Social Security if #2 receives your pension....In our case, my spouse is not eligible for Social Security. I technically am eligible, but as long as his pension comes into the household, I cannot collect SS. I cannot even collect it based on my own record if he dies but I continue to receive his pension. Thus I need to consider which would be greater, my SS or his pension. You might be in the same situation.

For using retirement calculators, I sometimes just pretend that the pension is an investment of the monthly amount times the number of months after retirement I "plan" to live, but which does not quite keep up with inflation in its interest gains.

Then, we just made sure we could live on less than the pension alone, leave our IRAs and 403B alone, and conitnue adding to undesignated savings. For some years after the start of the pension we will be working PT as well. The PT work we had not planned on earlier, but health insurance just got so high in the last few years and we must pay for that. We are not yet Medicare age, but wonder, too, whether that will be there for us. We think it will, perhaps at a reduced amount, even though we are getting close to the age. We shall see.

[~bs]

IMO, making ASSumptions is how one gets blindsided. As far as retirement is concerned, I believe in setting it up like a stool with many legs. If one or two gets kicked out from under you, you still have the rest to support you. However, if you didn't plan ahead and only have 1 or 2 legs, perhaps a weak 401k and social security, if anything happens, you're flat on your ass.

And I think 35 years down the line, it's a fair ASSumption that either social security or the pension may not be there, and if it is, severely diminished in purchasing power. Hence the need for retirement options that the government/company doesn't have its hands on - 401k and roth. One cannot look at the sheer amounts pension funds & ss is underfunded by and simply think everything is going to be ok decades down the road. Especially if the OP lives in california and has an overly generous pension plan. Generous also translates to extremely costly. Obama is already talking about fudging the CPI (AGAIN) to decrease SS payouts to future recipients.

[snafu]

IMO you need to understand the specific of your and spouses pension plans. Are you each vested? What entity manages the pension, what is their Income/Equity ratio and what are the top ten holdings? We set up an Excel spread sheet and tracked our contributions and end of year values.

35 yrs is a long time and you may find other opportunities come your way. What options will your pension plan allow? Can you roll your pension into some other retirement instrument along with vested sums? Look into your crystal ball and try to figure out what age retirement benefits will be accessible in 2049. With actuarial life span figures no longer at 64, it's likely that senior benefits will creep to 72. People retiring now need to fund 35 years of retirement. Funding assisted living for their last 10 years is expensive.

[JoeP]

With the current financial situation in California, I'd set up my own retirement on the side: Roth IRA, personal IRA (if possible), and even cash.

[Joan.of.the.Arch]

~bs, with your emphasis on ASS and my own use of the word assumption, I guess you were directing part of that at me. I did provide the example of using not just the pension, but IRA's, 403Bs, savings otherwise, and additional work to provide for the later years. I did in fact suggest that superstah's pension system might be less reliable than my own.

Do you give that same advice to plan as though the pension will not be there to people working in the private sector? I see an awful lot of advice lately to public employees that they better understand that the contractual obligations of pensions are really too much for society to bear, and the public employees should damn well know that.

[~bs]

So I guess you've never heard the saying about everytime you make an assumption then... Please don't take it too personally, wasn't meant as an insult, just a reminder.

Also seems to me that you really don't understand the difference between a defined benefit and contrib. Plan otherwise you wouldn't be arguing the point. Look at it this way, if social security was treated like a 401k, and not like a pension plan, it wouldn't have the financial problems that it currently has. And there are a lot of similarities between the two when it comes to making promises they can't keep, they from the plan, underfunding, and other mismanagement issues.

[Joan.of.the.Arch]

Defined contribution or defined benefit---I think all parties in a contract should be held to the terms it lays out.

[~bs]

A defined contribution plan is administwred by a 3rd party and not allowed to mismanage or steal from. A 2 mil 401k is a 2 mil 401k.

Don't get me wrong, I am in a pension plan and believe it has its place. Id rather be with one than without. But Im also a realist in that I believe the chances of pension promises being broken is a real risk. The government has been breaking the social security promises for decades. Companies and governments go bankrupt, which can affect future benefits actually received

[JoeP]

Defined contribution or defined benefit---I think all parties in a contract should be held to the terms it lays out.

Agreed! A lot of things should be held to terms. But reality is that they aren't.

[johntomba]

Here's our situation:

Salary #1: $70k (before tax)
Retirement #1: Contributes ~8% of salary into pension. Upon retirement at 65, will receive 100% of the average of last 3 years of salary (CalSTRS teacher retirement); pension does get adjusted for inflation during retirement -- payment does transfer to #2 for life upon death.
Additional Retirement #1: Max $ going into Roth, $1000/yr going into separate 403(b), Does not contribute to social security, so is not eligible for SS.

Salary #2: $72k (before tax)
Retirement #2: Currently contributing 13% into 401(k), but employer matches 6% of salary for a total
of 19% into 401(k) per year.
Additional Retirement #2: Max $ going into Roth, Eligible for SS

Total current retirement balances (401k, 403b, Roths): $79k

We are 28 and 29 years old in California.

Thanks!

The answer is easy. You both have nice salaries, there is NO reason why you shouldn't be able to max out both 401k. Do it.

[Frugal Guru Jenny]

Statistically speaking, the chances that the teacher will still be teaching at 65 are pretty low. So look at what will happen if the teacher leaves the system at various ages.

[snafu]

Frugal Guru: What is the probability of official retirement age being extended?