NYS Pension vs Option Retirement (401k)

[frofan]

Hello all, I'm new here and hoping for some insight on which retirement option is best. I'm 32, married, 2 young children.

I'm a new state employee and have the option between a NYS Pension or a 401k. My required contribution is 4.5% for as long as I'm employeed. I think there is a good chance I will stay as a state employee until retirement, but I'm always open to bigger and better opportunities. My wife is also a state employee, she is a tier 4, so obviously choose the pension plan. She will most likely retire with it maxed at 65 or 75% of her final pay.

Pension - 10 yr vesting period. 1.75% per year of employement. 20 years = 35% final salary. Then 2% for every year over 20 years. If I stayed for 30 years, I would max it at 55% of my salary. At retirement, I can have it payout for my life at 100% or take a 5 or 10% reduction and have it payout for who ever is alive longer, my wife or I. This is a guaranteed annual source of income. The NYS pension is also something like 80% prefunded, so its safe. The problem is, what happens if my wife and/or I die at a fairly early age, that money is gone. Also, if I leave the state payroll before 10 years, I don't get anything other than what I put in.

401k - 1 yr vesting period. Employer contributes 8% for 7 years, then 10% for the rest of the employment. The nest egg will greatly depend on the stock market, which can be volatile. I'm vested right away, and since I'm young can be aggressive with my money hoping that interest does it job compounding my investments. I also have something to pass on to my children if we don't use it all up.

Thats the jist of it. Hopefully some one with more knowledge of the current contracts in NYS can chime in. What would you recommend given my age and my options? I met with a financial advisor from the 401k company, and they obviously pushed their product. Thanks in advance!

[snafu]

Sorry, couple of questions...Have you been contributing to a retirement plan at your current employment or earlier employment? What is your plan for those funds? Does your current budget allow you to contribute the maximum based on your income? How knowledgeable or willing to learn about Bond and Equity markets? How much risk and volatility can you tolerate and still sleep at night? How much time are you willing to expend to monitor your retirement plan?

What choices does the 401K offer? Can you choose any ETFS, low MER, low fee Mutual Funds like Vanguard or Fidelity? What credentials of advisor - accredited, Certified Financial Planner? What percentage to advisor who is silently paid whether your portfolio is roller coasting up or down?

How do you feel about consulting with a paid for service Financial Advisor?

[frofan]

I have around $35k in my current 401k. I was contributing 8%. My salary is approx 65k a year. I plan to roll them into a vanguard roth IRA given my age.

I know some basics on investing, but probably wouldn't have the time to learn enough to become an advisor or day trader. I'm currently investing partially in the the life cycle 2050 plan, and a mix of mid cap and growth annuities. I review my investments a few times a year.

The 401k is with TIAA-CREF. It has its own funds, no options from vanguard or fidelity.

I could not find any certifications on the advisor. His title was simply consultant.

[samuelwright]

I would strongly suggest using the optional program; and avoiding the pension plan. Increasingly, state governments (and local municipalities) are struggling to meet their pension obligations.

Many lawmakers work to find creative ways to undermine these obligations. There is no "guaranteed" pension. I would not trust the information you are being provided; as it is all subject to change over time.

It's a huge decision, of course. I encourage you to search for news articles relating to pensions not being fulfilled. These trends are shameful. :-/ I tried to post two links to related articles that speak to this issue, but links are not allowed on this forum.

At the moment your pension may be "80% funded" - but, do not underestimate what lawmakers and public policy officials will do when they are pressed to meet demands of their states or localities.

One other item to consider: as government organizations become squeezed to save funds, they may be under pressure to terminate employees that are close to receiving their pensions. I worked for a state organization; and sadly, I saw this strategy used many times.

[jIM_Ohio]

Hello all, I'm new here and hoping for some insight on which retirement option is best. I'm 32, married, 2 young children.

I'm a new state employee and have the option between a NYS Pension or a 401k. My required contribution is 4.5% for as long as I'm employeed. I think there is a good chance I will stay as a state employee until retirement, but I'm always open to bigger and better opportunities. My wife is also a state employee, she is a tier 4, so obviously choose the pension plan. She will most likely retire with it maxed at 65 or 75% of her final pay.

Pension - 10 yr vesting period. 1.75% per year of employement. 20 years = 35% final salary. Then 2% for every year over 20 years. If I stayed for 30 years, I would max it at 55% of my salary. At retirement, I can have it payout for my life at 100% or take a 5 or 10% reduction and have it payout for who ever is alive longer, my wife or I. This is a guaranteed annual source of income. The NYS pension is also something like 80% prefunded, so its safe. The problem is, what happens if my wife and/or I die at a fairly early age, that money is gone. Also, if I leave the state payroll before 10 years, I don't get anything other than what I put in.

401k - 1 yr vesting period. Employer contributes 8% for 7 years, then 10% for the rest of the employment. The nest egg will greatly depend on the stock market, which can be volatile. I'm vested right away, and since I'm young can be aggressive with my money hoping that interest does it job compounding my investments. I also have something to pass on to my children if we don't use it all up.

Thats the jist of it. Hopefully some one with more knowledge of the current contracts in NYS can chime in. What would you recommend given my age and my options? I met with a financial advisor from the 401k company, and they obviously pushed their product. Thanks in advance!

If you expect to work there a long time, and can invest some time in learning how to invest, the 401k will be tough to beat.

10% of your income contributed from employer is HUGE! Add in another 10% from you and that is a 20% savings rate.

[frofan]

Thanks for the information! I do have one other question. I have $55,000 in my previous employers 401k. Should I leave it, roll it over to an IRA, or a Roth IRA? I'm 32, plan on retiring around the age of 60. I'm currently paying a $25 a quarter management fee on top of approx 1.2% expense ratio. If I have a large enough investment at retirement, I would consider purchasing a snow bird house in Florida for half the year to avoid taxes.

[JoeP]

Thanks for the information! I do have one other question. I have $55,000 in my previous employers 401k. Should I leave it, roll it over to an IRA, or a Roth IRA? I'm 32, plan on retiring around the age of 60. I'm currently paying a $25 a quarter management fee on top of approx 1.2% expense ratio. If I have a large enough investment at retirement, I would consider purchasing a snow bird house in Florida for half the year to avoid taxes.

Rolling it into an IRA will avoid taxes until you are ready to withdraw.