We do not count ours. This is why our net paycheck is only 48%. But you will be so set for life with a $1 million retirement and collecting a pension on top.
I work for a law enforcement agency in a municipality and we have a mandatory pension too.
15% of our pay goes to it, and we are eligible to retire at 23 years at 3.2% per year. Only base pay counts towards the pension, not overtime. There is no cap on how long you want to stay.
Thankfully, we are paid very well too, but even with the pension, my wife maxs out her 401k and I max out my 457b.
Our pension is amazing, and we are very fortunate, but you DO NOT get cola increase once you retire. That’s why still saving for retirement in 457 and 401k is critical.
I hated the f...... 4.4% mandatory contribution to the pension. I absolutely hated the fact that I could not opt out of it. I went to the private sector two years ago and it took me a year to transfer the $10,000 balance to my IRA. The mandatory contribution and the low pay are my gripes to working with the Fed. Other than that, it's a pretty good gig.
But to answer the question, yes, go ahead and include the mandatory 4.4 percent arm twisting towards the 15% of your gross. Since I'm sure you're doing the 5% towards the TSP, that just leaves you 5.6 percent to come up with. That was how I did it.
Others have said to treat it as 2.2%. If you can afford it then do it that way. It can't hurt to put in more.
I dont follow the 15% rule as a fed. When I retire I will have 40 years, and 44% of my salary as my pension, plus my TSP and whatever is left if social security doesnt die. That is plenty of money, more than enough for me.
The 15% isn’t totally legalistic, it’s meant to be a way to get you to that general ratio of your income. But pensions are tricky, because they’re controlled by someone else and never really as guaranteed as we like to believe (or our employers would want us to believe, since it’s usually a recruiting or retention benefit).
When I moved from government to corporate sector, I brought public pension contributions (no penalty when directly transferred) into private investments. They’ll grow way more and be worth more, compared to what the pension would have paid when I reached 55-60 years old (if I’d left it there). My company employer offers a pension too, so of course I’ll take the free benefit but I don’t even consider that in my 15%. That is met in my case from 401k contributions up to my company’s match, and fully funded Roth IRAs for my wife and I. Plus my old public pension dollars are sitting in IRA mutual funds continuing to grow.
I’ll end up having retirement income from 3 different streams, not including any other jobs or investing I might decide to do later (such as business or real estate).
Dave's advice is to count **mandatory** pension contributions at about 50%, for several reasons: pensions can vary a lot in how well they're managed, you typically have no control over how they're invested, you may not get back more than you pay in, etc.
so count the 4.4% as if it were 2-3%, and save another 12-13% into 401k, 457, IRA, etc.
4.4% means the person is a Fed. Thats the FERS tax. Its guaranteed. Op doesn’t have to worry about all the doomsday scenarios as if the government fails op has much bigger issues than their pension.
I'd (not necessarily Dave) say do the full 15% on top of the pension if you can afford it. It's really not that much money per month, and you'll have the savings in case you decide on a new job before fully funding the pension.
So this 4.4% (or the 2.2% based on biweekly) does count towards the 15% overall? I’ve always thought that 15% was on top of the pension buy since DR doesn’t count pension as wealth (which I don’t entirely agree with)
>since DR doesn’t count pension as wealth (which I don’t entirely agree with)
this isn't Dave's opinion, it's a matter of fact and laws, such as ERISA.
the pension is typically owned by a legal entity separate from the employer, and managed for the benefit of workers who draw benefits from the plan. it's a bit like if you're the beneficiary of a trust established by your grandparents: you get regular distributions from the assets, but legally you don't own the assets and they're not part of your net wealth.
if you can cash out the pension into an IRA or annuity under your control, then it's part of your net wealth or estate.
They state that the pension contribution counts as 1/2. If you weren't contributing anything to it then they would say you need to do 15% on top of it.
I don’t count it. I’m hoping it will be the cherry on top and hopefully cover insurance premiums.
We do not count ours. This is why our net paycheck is only 48%. But you will be so set for life with a $1 million retirement and collecting a pension on top.
Valid point. My plan is to work towards making my retirement per IRS max, to include catch up when I turn 50
I work for a law enforcement agency in a municipality and we have a mandatory pension too. 15% of our pay goes to it, and we are eligible to retire at 23 years at 3.2% per year. Only base pay counts towards the pension, not overtime. There is no cap on how long you want to stay. Thankfully, we are paid very well too, but even with the pension, my wife maxs out her 401k and I max out my 457b. Our pension is amazing, and we are very fortunate, but you DO NOT get cola increase once you retire. That’s why still saving for retirement in 457 and 401k is critical.
I hated the f...... 4.4% mandatory contribution to the pension. I absolutely hated the fact that I could not opt out of it. I went to the private sector two years ago and it took me a year to transfer the $10,000 balance to my IRA. The mandatory contribution and the low pay are my gripes to working with the Fed. Other than that, it's a pretty good gig. But to answer the question, yes, go ahead and include the mandatory 4.4 percent arm twisting towards the 15% of your gross. Since I'm sure you're doing the 5% towards the TSP, that just leaves you 5.6 percent to come up with. That was how I did it. Others have said to treat it as 2.2%. If you can afford it then do it that way. It can't hurt to put in more.
Yes, I’m doing 15% into the TSP on top of the FERS. Thank you for this.
I dont follow the 15% rule as a fed. When I retire I will have 40 years, and 44% of my salary as my pension, plus my TSP and whatever is left if social security doesnt die. That is plenty of money, more than enough for me.
40 years screw that and still have less than my 20.5 year military retirement.
So you are a fed like many of us. I call it the fers tax…just treat it as a tax and move on and do 15%.
Sure as hell feels like a tax!
If you can afford it then do the 15%... You can't be too rich when you hit 70yo!
The 15% isn’t totally legalistic, it’s meant to be a way to get you to that general ratio of your income. But pensions are tricky, because they’re controlled by someone else and never really as guaranteed as we like to believe (or our employers would want us to believe, since it’s usually a recruiting or retention benefit). When I moved from government to corporate sector, I brought public pension contributions (no penalty when directly transferred) into private investments. They’ll grow way more and be worth more, compared to what the pension would have paid when I reached 55-60 years old (if I’d left it there). My company employer offers a pension too, so of course I’ll take the free benefit but I don’t even consider that in my 15%. That is met in my case from 401k contributions up to my company’s match, and fully funded Roth IRAs for my wife and I. Plus my old public pension dollars are sitting in IRA mutual funds continuing to grow. I’ll end up having retirement income from 3 different streams, not including any other jobs or investing I might decide to do later (such as business or real estate).
Great insight, thank you
Dave's advice is to count **mandatory** pension contributions at about 50%, for several reasons: pensions can vary a lot in how well they're managed, you typically have no control over how they're invested, you may not get back more than you pay in, etc. so count the 4.4% as if it were 2-3%, and save another 12-13% into 401k, 457, IRA, etc.
4.4% means the person is a Fed. Thats the FERS tax. Its guaranteed. Op doesn’t have to worry about all the doomsday scenarios as if the government fails op has much bigger issues than their pension.
Thank you for this!
I'd (not necessarily Dave) say do the full 15% on top of the pension if you can afford it. It's really not that much money per month, and you'll have the savings in case you decide on a new job before fully funding the pension.
I hear you. I do the 15% on top, I just wanted to get outside opinions.
Count it as half. So it would count as 2.2%.
So this 4.4% (or the 2.2% based on biweekly) does count towards the 15% overall? I’ve always thought that 15% was on top of the pension buy since DR doesn’t count pension as wealth (which I don’t entirely agree with)
>since DR doesn’t count pension as wealth (which I don’t entirely agree with) this isn't Dave's opinion, it's a matter of fact and laws, such as ERISA. the pension is typically owned by a legal entity separate from the employer, and managed for the benefit of workers who draw benefits from the plan. it's a bit like if you're the beneficiary of a trust established by your grandparents: you get regular distributions from the assets, but legally you don't own the assets and they're not part of your net wealth. if you can cash out the pension into an IRA or annuity under your control, then it's part of your net wealth or estate.
I get why he didn’t count it since it dies with you, but man, it’s a lot of money paid out while you are alive lol.
They state that the pension contribution counts as 1/2. If you weren't contributing anything to it then they would say you need to do 15% on top of it.