How much should I need or want for retirement in 30 years?

[hehateme000]

Hi everyone. I recently got a new job (career) that will pay very well and also has a defined benefit plan (pension). The pension is a fixed amount. As of right now, every year of service will give me $275 a month when I retire. So 32 years would give me $8,800 a month. I'm 28 so 32 years would take me to age 60 where I would get 100% of the pension.

Also, the fixed monthly amount has increased over the years. 15 years ago the amount was $175 a month and 5 years ago it was at $225 a month, and now it is $275 a month. So I ASSUME it will continue to increase over the years, but I'll assume it stays at $275 a month. In 30 years it could be at $500 a month. I don't know thigh for sure.

My question is I don't know how much extra I need to save for when I retire. The $8,800 a month is only worth $3,200 in today's dollars. I have no idea how much retirement is going to cost me. I know I'll want to have extra money but I don't want to oversave. Should I try to just be aggressive now and taper down in the future?

[disneysteve]

I don't want to oversave.

Nobody ever gets to retirement and says, "Darn, I've saved too much to live on for the rest of my life."

I would save as if the pension didn't exist, because you have no idea if it still will in 30 years, or 20, or 10. Also, you have no idea how long you will stay at that job. You might be there for 4 or 5 years. You might be there for 10 or 15 years. It's highly unlikely that you will be there for 32 years.

Save at least 15% of your gross annual income for retirement. A couple of decades from now, when you are close to retirement, if you're still at that job and that pension still exists, you can think about paring back on your own contributions then. Or just keep them going and enjoy a really comfortable retirement - or be able to pack it in and retire several years earlier than expected because you've prepared yourself really well.

[Nutria]

because you have no idea if it still will in 30 years, or 20, or 10.

This, 1000%.

DB pensions are a millstone around every company's neck. Take for example a person who started to work at BigCo at age 22, and works until retirement at age 65. That's 43 years. The company then pays (because so few fully fund their pensions) him $100K/year + health insurance for the 20 more years he lives, chock full of expensive medical procedures.

[kork13]

Nobody ever gets to retirement and says, "Darn, I've saved too much to live on for the rest of my life."

I agree completely with Steve. Worst case scenario, you end up with more money than you need. Tragic. Maybe that means you travel more, or you get to be a philanthropist, or you just get to retire early at 55, or sooner.

My advice: Front load your saving. It gives you so much more flexibility, because you're not counting on a pension that could disappear, or future earnings that never happen due to a career-ending injury/illness, a career change, family considerations, or a litany of other "What If's". So at a minimum, save 15% of your income, all the time, no matter what. If you can, more doesn't hurt.

If it helps, I'm in a similar situation. 31 y/o, in the military & planning to earn the somewhat generous retirement pension. But we're currently saving about 50% of our income, which I've done for most of my career thus far. I'm grateful for that, because my wife is considering becoming a SAHM, which was not originally "the plan" for us. But because we've always saved heavily, when she quits her job, we can just slim down our savings to a more normal 15-20% and still be on track for a comfortable, early retirement, whether I get the pension or not.

Life happens... Be ready for it.

[hehateme000]

I appreciate all the responses. I will treat my pension as if it doesn't exist.

The good thing is I am allowed to save through a 401a with my work, and the max they let you put in is 14/hour. We only work 35 hours a week that could still allow me to save $25K a year, more than the max with a 401k. Although since I am a new apprentice, my 401a doesn't start until 2.5 more years.

Also, the union I am with is strong. I am way happier I have a pension through them rather than the government. I have heard nothing but good things about this union, so hopefully the pension works out. Either way, looks like I will try to save as much as possible for now. Maybe open up a Roth IRA.

[Fishindude77]

Also, the union I am with is strong. I am way happier I have a pension through them rather than the government. I have heard nothing but good things about this union, so hopefully the pension works out.

Be careful and check this out for yourself, don't just go by word of mouth.
A huge percentage of union pension funds in the US are grossly underfunded.

[disneysteve]

A huge percentage of union pension funds in the US are grossly underfunded.

One of several reasons you should just treat this pension as if it doesn't exist.

[Fishindude77]

One of several reasons you should just treat this pension as if it doesn't exist.

Yep, this is going to be a sad deal for many of these union members when retirement age is reached and everything they've been promised isn't there.

[Drake3287]

I happen to be in almost the same situation as your starting out in right now, almost to the dollar. In my case though it's Public Pension. Lucky for me it's the biggest one in the country so based on my age now I think I'll weather any pension disasters that might happen years down the road.

As for new employees just starting out now, I can't believe at some point things will won't change negatively for them. When I was starting out the thought of our pension system having problems was impossible to believe. Now it's in the news daily.

In my case I saved about a million dollars in various investments to go along with my pension. Seem's like a lot but it's really not. I'll be comfortable but never wealthy which for me is fine. Living the same life style in retirement years is all I really need.

One question though, is any of the money paying into your retirement your money or strictly company money?

[disneysteve]

As for new employees just starting out now, I can't believe at some point things will won't change negatively for them.

It isn't just new employees. I know plenty of people who have seen their "guaranteed" retirement benefits trimmed back even after retirement. Companies have simply spent decades making promises that they just can't afford to keep, especially in regards to health insurance. Costs have skyrocketed at a rate far beyond what anyone predicted years ago when those guarantees were made.

[~bs]

I would save as if the pension didn't exist, because you have no idea if it still will in 30 years, or 20, or 10. Also, you have no idea how long you will stay at that job. You might be there for 4 or 5 years. You might be there for 10 or 15 years. It's highly unlikely that you will be there for 32 years.

or you could get married with 5 kids and find it tough to save, or divorced, or suffer a work ending medical condition or any number of things. it's always a good idea to be fiscally responsible. Saving up front may give you the option to retire at 50 instead of 65.

Back 30 years ago, I highly doubt people predict with accuracy how their life and retirement goals would turn out. I doubt people back then would have seen the fall of the pension retirement struture and the rise of the 401ks as the primary means of retirement. It's no different in 2017 predicting what the economic climate will be like in 2047. You really never know.

[hehateme000]

One question though, is any of the money paying into your retirement your money or strictly company money?

I think it is all the company money. Well, there are two retirement plans. One is the Defined Benefit Plan, which is the pension I was talking about.

The other is a 401a, and that one is my money. It still acts like a normal 401k but the good thing is I am allowed to invest up to around 25k a year, instead of a 401k where the limit is like 17k? It may help me to catch up from lost time since I don't have anything yet and I am turning 28 in 2 days.

How can I tell if my union is strong or weak? It is true that I have just been going off of word of mouth. I just figure it is in SF, the money is some of the best in the nation. It is a multi employer pension but there are around 100 employers. If one company went bankrupt, it wouldn't affect the pension at all, I think. I may not fully understand how it works though, but I feel like the only thing that would make the pension dry up is either fraud within the union or horrible investments.

[disneysteve]

Another big thing is that saving upfront gives your money far more time to compound.

$1,000 invested at age 30 will grow to about $6,700 by age 62 assuming a 6% annual return.

If you wait until 50 to invest that $1,000, it will only grow to $2,000 by 62.

I feel like the only thing that would make the pension dry up is either fraud within the union or horrible investments.

Many pensions are simply underfunded. The people in charge are not setting aside sufficient funds to meet the future obligations they are promising their workers. In some cases it is rather fraudulent. In others, it's probably just poor planning and management. And yes, investment returns matter. So does life expectancy. If a lot of people live longer than the actuaries predicted, that puts a huge strain on the system.

[~bs]

a lot can change in 30 years.

there was changes made to legislation for pensions in private companies. this weakened protection for pensioners and made it easier for companies to cut benefits. You never know what other changes may come down the pipeline. And they make these changes rather easily, as public sentiment is largely against pensions. Its a case of the (perceived) have's vs have nots.

If possible,y ou definitely should put aside enough money in the 401k style plan to retire without the need for pension and social security. Prepare for the worst, hope for the best

[~bs]

the union and pension are 2 separate things. if the company goes bankrupt or has trouble with the pension, the union won't be able to save it.

It isn't just new employees. I know plenty of people who have seen their "guaranteed" retirement benefits trimmed back even after retirement. Companies have simply spent decades making promises that they just can't afford to keep, especially in regards to health insurance. Costs have skyrocketed at a rate far beyond what anyone predicted years ago when those guarantees were made.

It's only partially related to "can't afford to keep". Some companies can't, but a lot of companies can afford it. With law changes, why have your company struggle and throw money at promises made decades ago when you can just give the pensioners the shaft and improve your bottom line?

2 rule changes went into effect in the last 5 years, and I don't doubt more will come over the next 3 decades, as private and public pensions are already underfunded, and "solutions" will be looked for. One rule allows companies to deliberately underfund the pensions, the second allows pension plans to cut benefits for retirees. Just think about what the combination of these two laws mean...

https://www.cnbc.com/id/100694955

https://www.washingtonpost.com/business/economy/congress-could-soon-allow-pension-plans-to-cut-benefits-for-current-retirees/2014/12/03/62e5112a-7b0c-11e4-9a27-6fdbc612bff8_story.html?utm_term=.ab2542a46dfb