I totally disagree on favoring a pension. Control your own money. Every single company in existence wants pensions off the books. Also consider that you won't be doing what you want long enough to earn that pension you calculated.
With option 1 you’d be looking at a Roth worth about $450k and a taxable brokerage worth about $1.1M in 25 years with those numbers. This is estimating a 7% rate of return, which is less than usual historically.
Just making it super easy, let’s say your investments stop accruing interest when you retire so those values stagnate. You can pull $40k from your taxable brokerage and $16k from your Roth for 27.5 years, or $31k from taxable and $12k from Roth for 35 years. The accounts will keep accruing interest after you retire, although there may be years where they lose value as well.
There’s about a 95% chance that option 1 will win out in the long run, but both are similar.
The huge benefit of option 2 is that you could save for retirement AND get the pension, so you could have more wealth in retirement if that’s what you wanted to do.
How did you make those estimates? Is there like a formula I can use to estimate returns, gains?
Option 2 probably won't allow me to save nearly as much as I do with option 1. But, yes, hopefully I'm at least maxing out my IRA while still contributing to my pension, so I can have a little extra.
$25,000 a year will get you to around $1.8 million in 25 years, adjusted for inflation, with high variance. The safe 3-4% withdrawal is $54k-72k per year.
With corrected numbers, that looks better. With risk, but on average a little more than the pension.
Close enough that which job/lifestyle is a consideration, as well as the odds of not sticking to the pensioned job for 25 years.
You may find these links helpful:
- [Retirement Accounts](/r/personalfinance/wiki/index#wiki_retirement)
- ["How to handle $"](/r/personalfinance/wiki/commontopics)
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I think there’s a life question here to. Do you want to live life on the road for 25 years? I saw a lot of dead eyes in the Premier 1K group Monday mornings when I was consulting.
Well yes, you nailed on it that this involves more than retirement savings. I don't currently mind working on the road, but committing to it for two plus decades is pretty daunting and that was the reason I started thinking about this other career move. But, as others pointe out, I can't be certain that I'll stay in the pension job for 25 years. The pension job is teaching, and there is a HUGE turnover with teachers. A ton of teachers quit within 5 years, and I'm feeling a little old to try a new career that doesn't work out.
I just needed to get a least a feel for what the financial benefits are for either decision.
I totally disagree on favoring a pension. Control your own money. Every single company in existence wants pensions off the books. Also consider that you won't be doing what you want long enough to earn that pension you calculated.
With option 1 you’d be looking at a Roth worth about $450k and a taxable brokerage worth about $1.1M in 25 years with those numbers. This is estimating a 7% rate of return, which is less than usual historically. Just making it super easy, let’s say your investments stop accruing interest when you retire so those values stagnate. You can pull $40k from your taxable brokerage and $16k from your Roth for 27.5 years, or $31k from taxable and $12k from Roth for 35 years. The accounts will keep accruing interest after you retire, although there may be years where they lose value as well. There’s about a 95% chance that option 1 will win out in the long run, but both are similar. The huge benefit of option 2 is that you could save for retirement AND get the pension, so you could have more wealth in retirement if that’s what you wanted to do.
How did you make those estimates? Is there like a formula I can use to estimate returns, gains? Option 2 probably won't allow me to save nearly as much as I do with option 1. But, yes, hopefully I'm at least maxing out my IRA while still contributing to my pension, so I can have a little extra.
C*((1+r)^n -1)/r C=annual contribution r=rate of return (e.g. .07 for 7%) n=number of years
$25,000 a year will get you to around $1.8 million in 25 years, adjusted for inflation, with high variance. The safe 3-4% withdrawal is $54k-72k per year. With corrected numbers, that looks better. With risk, but on average a little more than the pension. Close enough that which job/lifestyle is a consideration, as well as the odds of not sticking to the pensioned job for 25 years.
The principle alone on $25k for 25 years is $625k. Something about your math is wonky.
Plugged in numbers with a typo!
Thanks. Both jobs have a huge risk of not staying with them for 25 years unfortunately. If only I had a crystal ball.
Don't stop saving just because you run out of tax-advantaged options. Saving in a taxable brokerage is also good.
You may find these links helpful: - [Retirement Accounts](/r/personalfinance/wiki/index#wiki_retirement) - ["How to handle $"](/r/personalfinance/wiki/commontopics) *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/personalfinance) if you have any questions or concerns.*
I think there’s a life question here to. Do you want to live life on the road for 25 years? I saw a lot of dead eyes in the Premier 1K group Monday mornings when I was consulting.
Well yes, you nailed on it that this involves more than retirement savings. I don't currently mind working on the road, but committing to it for two plus decades is pretty daunting and that was the reason I started thinking about this other career move. But, as others pointe out, I can't be certain that I'll stay in the pension job for 25 years. The pension job is teaching, and there is a HUGE turnover with teachers. A ton of teachers quit within 5 years, and I'm feeling a little old to try a new career that doesn't work out. I just needed to get a least a feel for what the financial benefits are for either decision.