Wally
BrownCafe Innovator & King of Puns
We like to eat. Hard to do when out of a job.
The Thing About OT...
- Thread starter ThePackageDeli
- Start date
ThePackageDeli
Well-Known Member
Let's compare the two scenarios. In each scenario, a person is working for 30 years.
Pension: You have to work AND wait 30 years to begin receiving your benefit. Let's say you retire at 60 and live to be 85(25 years in retirement). Let's also say your pension is $50k per year... $50k/yr * 25 years = $1,250,000, nice! And you may factor annual increases into that total as well.
401k with match: You also have to work AND wait 30 years to begin drawing on your investment without penalty. The big difference between the two right off the bat however is that when you reach age 60 here, you have full access to ALL of your investment IMMEDIATELY. That's a HUGE deal. So, let's assume that with the company match you are able to max out your 401 contribution every year for 30 years. Current contribution maximum is $20,500 per year. And the historic returns on a simple S&P 500 Index fund over the last 80 years is around 10-12% (not 5% like you suggested). So let's be conservative and assume an 8% return for 30 years... $20,500/yr * 30 years factoring in 8% return annually (on average) = $2,500,000, very nice! And you can access all of that money at age 60.
Both scenarios have risk and make big assumptions that can greatly effect their efficacy. The pension route assumes you will live to be 85, and not die 5 years after retiring. And the 401k route assumes the stock market will continue to perform in the future as it has in the past. But all things equal, I'm favoring the 401k route in this scenario.
Up In Smoke
Well-Known Member
In this example you contributed 625K of your income to make the 401k worth 2.5m and $0 dollars to make the pension worth 1.25m. I like the pension return on investment much better.
thecamel
Waiting to put the re in front of tired
FedEx, FedEx ground, and Amazon don't give a damn about the union or the pension either. But try this: recalculate your 401k contribution and match based on $17, $18, or if you're very good at your job $21 an hour. See where that leaves your age 60 total. No union, no $40 an hour, no joke.
Wally
BrownCafe Innovator & King of Puns
Also assuming that you are earning so much that you can afford to sock away 20k every year. Hard to do on $20 a hour or less non-union wages UPS would pay if they could.
The big difference between the pension fund and the 401K is, the 401K is always your money
ThePackageDeli
Well-Known Member
No, if the match is 6%, you've contributed around 450k
ThePackageDeli
Well-Known Member
You could still conceivably max out your contribution every year even making 50k per year with 0 company match and end up in the same place, it would just be more difficult. The bottom line is compound interest wins out over a pension benefit that you might not draw for many years.
ThePackageDeli
Well-Known Member
We've haven't even factored the annual returns of the 401k into this conversation yet. If you have 2.5 mil in your 401k at age 60, you're making $250k per year without even touching the 2.5! Are you kidding me?! The 401k is obviously the better route to focus on. You guys please don't under estimate the power of compound interest. The pension is great and fine but if you load up your 401k and other investments, you will have SO MUCH MORE money in the end. The pension would be as I said earlier, just a cherry on top.
And how many people actually do that?
ThePackageDeli
Well-Known Member
Enough to prove it's do-able. Not the majority obviously, but thousands.. tens of thousands.. every year.
Up In Smoke
Well-Known Member
The 20k per year from you adds up to 625k. The company's 6% would add about $38,000 or 18 months of pension contributions. 1.25 million without any personal contribution beats any compounding you can come up with. If your concern is the pension dies with you, a 2 million dollar term policy would run about 5k per year. The 625k that you didn't spend would pay 125 years of premiums.
ThePackageDeli
Well-Known Member
I'm not sure we're seeing it the same way. If I have to contribute 21% of my income in order to reach the $20,500 limit (which is actually the case in my situation), and the company matches 6%, that means I actually only need to contribute 15% of my own income which is around $15k per year... that's $450k...? Am I doing it wrong?
MyTripisCut
Never bought my own handtruck
Why not just do and have both? Knock it off. We’re not giving up our pension so UPS can use PVD’s to reduce OT, which would restrict the amount you could put into a 401k. Just stop.
ThePackageDeli
Well-Known Member
That's fine. But there is value in making our lives easier and reducing workload, especially for those intending to stick it out for 30 years.
Thebrownblob
Well-Known Member
Is there an award for dumbest post in history on Brown Café?
Thebrownblob
Well-Known Member
Thebrownblob
Well-Known Member
The average 401(k) balance by age
What is the average 401(k) balance by age, and how do you stack up? Learn how much you can save if you max out your 401(k) every year.
Scary how low those 401k averages are. I’m personally destroying The average retirement savings, and I still want my pension.
I was surprised by that number myselfThe average 401(k) balance by age
What is the average 401(k) balance by age, and how do you stack up? Learn how much you can save if you max out your 401(k) every year.www.personalcapital.com
Scary how low those 401k averages are. I’m personally destroying The average retirement savings, and I still want my pension.
sailfish
Master of Karate and Friendship for Everyone
The average 401(k) balance by age
What is the average 401(k) balance by age, and how do you stack up? Learn how much you can save if you max out your 401(k) every year.
Scary how low those 401k averages are. I’m personally destroying The average retirement savings, and I still want my pension.
They also assumed a 23 year could add $20k for the year. I couldn't have done that in my wildest
ing dreams.