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Pension vs IRA

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rockycro
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Pension vs IRA  Reply with quote  

I recently left a government job for work in the private sector. I have the option of leaving my pension contributions with the state or rolling the money into an IRA. I am 31 years old. I could not collect the pension until I am 55 with penalties or 62 with no penalties. The full value of the pension (at age 62) would be about 15,000 per year. The current contribution balance that I could roll over is around 24,000.

Do I take the money and put it in an IRA or leave the money and collect the pension in 30 years?

Thanks.
Post Fri Sep 20, 2013 1:45 pm
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oldguy
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My situation wasn't a lot different than yours altho it was all in private industry. (I'm age 74, retired @ 60). Our company switched from pension to 401k when I was about 40. My pension is in the $15k range, SS about $24k - and my 401k had about a million in it when I retired - it's quite a bit more now, I take out RMD every year since 70 1/2. The biggest part of my wealth (and current income) is the 401k.

It depends mostly on your investments. Your $24k lump, placed in an 11% index for 30 yrs is $550,000, That could spin off $27k/yr when you start drawing it.

30 yrs of 401k input at max (now $17,500/yr) at 11%/yr would be $3.8M - so that is where your major family wealth will occur.

At retirement you will probably move your $3.8M into a Rollover IRA - so the $550k & the $3.8M would be in the same place, same investments, same rules - ie, RMD at age 70 1/2. No diversification, all eggs in that basket. For that reason alone I would keep the $15k/yr annuity (even that doesn't mathematically optimize your wealth it buys some insurance in the form of diversification.

BTW, will your govt pension & your SS pension be subject to the WEP cap? (My civil service engineer friends got dinged when they retired.)
Post Fri Sep 20, 2013 3:24 pm
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coaster
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You might want to do some research into the soundness of the NJ state pension system. Whether or not the money's going to be there in 30 years to cover the pension obligations is a real question mark for some states. I don't know anything at all about NJ. We had one member from Califormia who opted to take his state pension money now. That state's finances are a horrible mess.

~Tim~
Post Sat Sep 21, 2013 5:42 am
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Anton Martin
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Re: Pension vs IRA  Reply with quote  

quote:
Originally posted by rockycro
I recently left a government job for work in the private sector. I have the option of leaving my pension contributions with the state or rolling the money into an IRA. I am 31 years old. I could not collect the pension until I am 55 with penalties or 62 with no penalties. The full value of the pension (at age 62) would be about 15,000 per year. The current contribution balance that I could roll over is around 24,000.

Do I take the money and put it in an IRA or leave the money and collect the pension in 30 years?

Thanks.


I have similar opinion as coaster and would suggest you put the money into IRA instead of keeping it with the state. As you are only 31 right now and it will be a while before you would be able to collect your pension, and the situation can be a lot different from what it is right now.
Post Tue Sep 24, 2013 3:08 pm
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clydewolf
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quote:
Originally posted by coaster
You might want to do some research into the soundness of the NJ state pension system. Whether or not the money's going to be there in 30 years to cover the pension obligations is a real question mark for some states. I don't know anything at all about NJ. We had one member from Califormia who opted to take his state pension money now. That state's finances are a horrible mess.

Federal law prohibits a state from filing bankruptcy.
Post Tue Sep 24, 2013 11:51 pm
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coaster
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quote:
Originally posted by clydewolf
Federal law prohibits a state from filing bankruptcy.

Who said anything about bankruptcy?

But .... the level of underfunding is pretty scary:

quote:
State Budget Solutions, a fiscally conservative research group, reports that by its reckonings New Jersey’s unfunded pension liabilities come to a massive total of $171.67 billion. That’s a sum equal to $19,366 for every man, woman and child in the state.

The research group says New Jersey’s public-sector retirement plans are only 34 percent funded for the long term. (That overall national figure is 39 percent, according to State Budget Solutions’ calculations.)

State Budget Solutions’ $171.67-billion unfunded liability figure for New Jersey is a sum equal to 33 percent of New Jersey’s gross state product or total state economy. The research group says that percentage figure puts New Jersey is the top tier of a dozen states with gravely underfunded pensions.


from:

http://www.trentonian.com/general-news/20130916/state-watch-nj-pension-time-bomb-still-ticking

David Neese; (c) The Trentorian; 09/15/2013; (reprinted under Fair Use)

What makes it scary is that public-sector pension plans are exempted from major parts of ERISA; they are instead regulated by state law; and laws are known to be changed from time to time.

~Tim~
Post Wed Sep 25, 2013 4:09 am
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HerbertH
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What if Detroit bankruptcy is followed by New Jersey!! Chaces are quite low though.

“While more than 20 counties and municipalities and authorities in 10 states have filed bankruptcy since 2003 because of poor financial practices or unsustainable pension debt, New Jersey has not had a local government bankruptcy since the Great Depression.” – Source: NJ.com

I suggest try to hedge your retirement finances and don’t leave it vulnerable even to a least-likely-to-happen economic catastrophe.
Post Wed Sep 25, 2013 11:49 am
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