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How to Value or Plan for Employer Pension?

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  • How to Value or Plan for Employer Pension?

    Hey guys/gals!  I'm relatively new to personal finance but am trying to get us on the right track.  I read a lot and have parents that are accountants and an invaluable source of knowledge.  My question is how would you plan or value a pension.  Through our hospital, we have a pension.  Here are roughly the details (website is http://www.persla.org/, if you're really interested):

    -Contributions per employee: 10-11% of pre-tax salary

    -Benefit= 3% x number of years employed x average salary

    -7 years needed to be vested (I have 1yr, my wife has 4yrs- she was previously a teaching MD at university hospital and her years transferred).

    -Could retire and start withdrawal at age 62yo.

    -Last audit of pension showed it was more than 90% funded.

     

    Here's a bit about us:

    Stage of Life: Couple of OB/Gyn's- 32yo (2 yrs into practice), wife is 38yo (4 yrs into practice), 2 kids under 2

    Annual Income: 500k (combined), hospital employees

    State of residence: South Louisiana, LCOL

    Insurance Policies: 3 mill each Term Life, own occ disability (sorry thru NWM, I'm at least smart enough not to fall for the Perm/Universal Life pitch)

    Debts: 140k @ 4.5% fixed(me, pay 3.5k monthly), 265k 2.8% variable (her, pay 5.5k monthly).  These should be paid off in 3 1/2 yrs and 5 yr respectively; Mortgage- 550k @ 3% (3k monthly).

    Retirement: We have probably around 40k in IRA's with Vanguard- contribute the max every year.  I have not started contributing to our deferred compensation plan/457 yet, but plan to in next few years.  $400/month in 529 for each kiddo.

     

    I guess my question is- do I plan and save like this pension is pie in the sky (and we may never see it)?  Or do I plan on this being the bulk of our retirement income.  I know the answer is likely somewhere in between, but wanted to get some input.  I know this is one of those high-quality problems to have.  Thanks for any input.

     

  • #2
    Are you provide with a Pension calculator where you can adjust your salary, years worked, retirement date, withdrawal date? There are a lot of variables here which makes it complex.

    CONGRATULATIONS - Your Pension is 99% funded as of end FY2016 according to it's annual report. You need to check this amount annually because who knows where future liability and assets will be. The website feels like it was developed in 1998 by an intern but it's functional.

    I would continue to fund and max out your tax deferred accounts in order to reduce your tax liability as-much-as-possible. With $500k in annual income you are in the 40+% tax bracket. If you have a large pension 30 years from now and a large 401k, you'll be fine  

     

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    • #3
      Sounds like a ginormous pension.

      You can do a present value of annuity calculation.

      Essentially though it looks if you work enough years you just get your whole salary for the rest of your life... pretty sweet deal.  Probably pretty murderous for our state's finances though  :lol:

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      • #4
        It's similar to what state employees (...and state politicians) retire with.  I'm sure our pension is a result of some shady, backroom deal from a state legislator back in the day.  Powerful state legislators and previous governors often work out these sweet deals for their respective parishes (counties for the rest of you WCI'ers), probably to the detriment of other parishes and definitely to the state as a whole...I'm just reaping the benefits.

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        • #5
          It's hard to say what will be there 30 years from now.  If they're taking 10-11% of everyone's income, they should be pretty flush in perpetuity.  At least in theory.  That said, I would still be just a little nervous if that was the only part of my financial plan.

          This is such a large amount of money that you shouldn't ignore it in your planning.  Of course, if you can afford to plan to retire one day without it, with this simply being icing on your proverbial cake, then you're in fantastic financial shape.

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