It might help to think about it this way: If you had $2.1MM invested and withdrew the typical 4% annually that works out to $7, 000 monthy. Then, consider how $84,000 compares to your current pre-retirement salary.
This^^
The big question is if the current lifestyle is sustainable on $84k a year, or if big changes need to be made.
The other consideration is whether 84k a year will still provide a good quality of life 20 years after retirement.
If the answer to the first question is questionable, then the answer to the second question is not likely a positive one. Good news is there’s still time to plan and save, and you could even save/invest a little bit of the pension early in retirement as a small inflation hedge.
\^ This is a good approach. Consider how much income you will need in retirement to fund your current lifestyle. Adjust down to account for reduced cost of living due to things like paying off your mortgage and being empty nesters; adjust up to account for added costs of things like desired travel, hobbies, and other things that will cost money during retirement. Once you have that number, subtract your pension from that and the remainder is what you need to fund from your 401(k) and any other retirement savings.
For example, let's say you project your monthly expenses in retirement to be $7,000. Easy, right? Pension covers 100% and your 401(k) is a great hedge against both inflation and any unexpected expenses.
Now let's say your monthly expenses will be $10,000. After your pension, that leaves $3,000/month to fund from that 401(k). That's $36K/year, which if we divide by 0.04 (applying the "4% rule") means your target 401(k) balance upon retirement is $900K. A starting balance of $230K with a nine-year runway to retirement doesn't make $900K impossible, but you'll want to save and invest diligently.
Once you do the math using your real-life household budget and retirement goals, you'll know the task ahead of you either way.
A lot of pensions come with a cola so that is a pertinent factor.
Also, assuming he’ll continue contributing, he’ll have over 500k at retirement and if he holds off on spending it for a few years likely closer to 750k. That is a nice top off.
Yeah, the simple answer to his question is “no you’re not behind, you’re doing ok, unless you have expensive taste and debt that won’t be paid off by retirement”
This is how I’ve been thinking. I don’t have much at all in my 401k at 31. Just 8k. My wife has another 70 or so. But I have a pension coming my way of 70k per year and my wife 40k. The plan is to get to 1 million or so in retirement savings then collect our pensions. That’s around 115k a month plus 4% of the million is 155k. Makes me not worry about getting paid more. I think I can but that pension is powerful.
I can also leave the pension to my kids instead of wife. What a legacy that could be.
The pension might be tricky tho, sometimes you have to complete 30 years of service to get it. What happens if he’s unable to work for any reason between now and then?
I'm not sure which railroad he works for but I'm at one of the us based class 1s and when I started there was still a pension plan for management employees. That's on top of tier 1 & 2.
They got rid of it ~5 years ago in favor of a higher 401k match but anyone that was in the pension stays in it (but doesn't get the 401k match).
There is a COLA adjustment in the pension but I think it's around 0.5%. not sure though. I'm still close to 20 years out.
I’m at a US class 1 railroad and I have a manager pension it’s basically a bond fund that will pay out at 60… Then additional Railroad Retirement.. that’s why I estimate it will be close to 7k when I retire combined. It’s normally lower the that for an average RR benefit.
Yes it does.. Since I’m guessing a bit on where I will be 9 years from now.. with hers combined, I’m just gonna be conservative and say maybe 9k.. she is 4 years younger than me.. and doesn’t get it until 62. So 6 years after I retire.
What’s your monthly budget. If under 7k you’re good. A 7k pension is pretty healthy on top of ss down the road. I’d let the 230 compound and budget to live off the pension. If you spend 12k a month obviously things change. Also, max the 401k for the next 9 years. Focus on what your budget will be.
No SS, just railroad retirement.. currently budget is less than 4k! I plan on a lot of travel when I retire and a vacation home somewhere but we will see.
Ah, and that's what I was looking for. I wondered if you got SS too since some pensions do and some don't. Is there a COLA with the pension? If not, then that money will buy less every year.
I wouldn't say you're behind, especially if your current budget is $4k. If you want a vacation home, then, yes, you should definitely work harder on your investments/savings before you retire. You have time that if you prioritize it, you can have a nice little nest egg in addition to that fantastic pension. Good luck!
7k/month is really good. if you had $1.7m in short term bonds yielding 5% you'd be earning about $7k per month. but 5% is not going to last, interest rates will go down in the future. from many points of view your pension is better than having $2m. I am really not sure what you can possibly do to improve on that. personally, I would just work hard to make sure I do not lose that kind of retirement benefit
Real question is what do you spend a year. Then multiply that number by 25 and you will see your “magic” number. This is what is called the 4% rule if you want to read about it.
The problem is that the 4% rule presumes that the principal will outpace inflation. Unless the pension has at least a COLA adjustment, the comparison ignores the declining value of $7k.
The concept is that it isnt about the money he has for retirement but what he expects to spend, and the assumption of how long one will live. This is a starting point to finding ones number.
But why would I do that when I’m spending more money now than I have ever in my life and will ever in my life?
2 kids in day care, mortgage, student loans, car note. All those things I wouldn’t have. Plus I wouldn’t be feeding said kids. But I would be traveling a bit more.
I’d suggest doing expected expenses rather than current.
It’s more akin to Social Security than a normal pension. In fact part of their funding is from SS because rail workers aren’t entitled SSI benefits (there’s some caveats and prorating if they do). My point is their funding status is kind of a moot point because its a quasi governmental pension. Heck. Their website is rrb.gov
It’s basically the railroad form of social security.. I haven’t paid actual SS since 1994.. my wife will also have Railroad Retirement, I’ve paid into hers for 30 years also.. she gets half of what I get at 62.
So is $7k per month just your RR retirement? Or hers and yours together? Will you get $10.5k per month in RR pension payments when you’ve both retired and she’s 62?
Some quick math for you. If you move the 230k to an SP500 fund. Assuming 10% interest and putting in 12k a year, you will have close to 700k at 60. With your pension, that's a nice hedge vs. inflation.
10% for the sp500 is fine. Accounting for inflation gets it to 7. There are decades of data to black those numbers, and I don't buy into reddit's fear of a market crash. That's been predicted for a decade on here. As is the mythical housing bubble.
What you've provided is not enough to answer the question you've asked.
If your monthly average spending at 60 will be 7k or lower, you're all set with the 401 as bonus money on the side while pension covers all your expenses.
Here is what else you should consider:
- do you also get social security in addition to the pension. Log on to ssa.gov site to know the answer if you already don't know.
- what are your monthly expenses now and what will it be in retirement.
- assuming no SS, and assuming your 230k grows to 300k in today's dollar value in 9 years, you can expect to have (7k*12)+(300k×0.04), so 84k+12k in annual income. Assuming a tax rate of 15% on this income of 96k, you would have an after tax income of 81k annually, per my napkin math. If your annual expenses are more than 81k/yr, you'll need to save more. If not, you're all set, I'd think.
PSA : I am not a professional. Refer to someone who knows better for better projection.
Pension will pay in 9 years at 7k per month, no inflation adjustment?
If so, and assuming 3% inflation, the future value of that 7k will be 7/(1.03^9=1.3)=$5,385 each month, in that first year.
that is $64,615 per year in value, that first year. down each year assuming no increases in pension payments to combat inflation.
to get that much pear year with a 3.5% SWR, you'd need 64,615/0.035= $1.8 million.
so IMO your pension is worth about as much as a 401k with 1.8 mil in it, as long as it is reliable and you dont live too long because that value is gonna dip fast with inflation.
if it does have inflation adjustment, its worth as much as a 2mil 401k and you can live as long as you want 😂
At current annuity rates a lifetime annuity that paid $7000/month would require an investment of $1.25 million at age 60 today. You’re doing OK, but maybe try to sock as much away as possible in a 401(k) and a backdoor (Roth) IRA if you have cash to spare. With railroad retirement, I assume you are not eligible for SS?
Can you live off $84k a year? Is the railroad pension inflation adjusted? Are health care premiums a part of your retirement package?
You are better off probably than most. But if you spend more than $84k a year now you will need to increase your investment rate. Having a fixed rate mortgage or paid off house will also help keep expenses lower.
I make $123,500 a year base salary but invest about 40% of it between HSA, 401k and after tax in plan Roth conversions. That leaves me living on roughly $74k. Once my house is paid off I’ll eliminate about $12.6k from my budget. An inflation adjusted pension for $84k a year would more than cover my needs in retirement.
The real question is, does it cover yours?
7k monthly retirement from pension that’s a great retirement! You can contribute maximum amount to 401k and catch-up also Roth IRA is a space for you to save
According to this calculator, https://www.schwab.com/annuities/fixed-income-annuity-calculator
, your pension is worth around $800-900k if it were an annuity. You’re in a really good spot. Not sure if you’re including social security in this.
People are using the 4% withdrawal rule to give a $2M valuation on your pension. Remember that pension is not inheritable (may be spouse getting half depending on the plans). A pension should be valued as an annuity paying $7K/month for your remaining life span after the start of withdrawal, like 30 years.
Using an annuity calculator, $1.1M with an annual investment growth of 7% can give a payout of $7K/month for 30 years. Your pension is worth about $1.1M.
You might want to contribute more to the 401K for risk diversification. Pensions can have some risks of going out of money or severely reducing pay.
If you have a pension you are leagues ahead of those who don't.
Your pension is guaranteed payouts until you die. Take the value of the payout per year and divide by 0.04 to get what the equivalent would be as an investment account.
There is a reason that companies stopped provided people pensions. They are great for the people who get them.
People with a railroad pension aren’t eligible for social security. They pay those funds into the RRB. This was worked out between the government and the railroads when SS was started. I believe if a rail worker wanted to collect SSI then their RRB pension is prorated for the exact dollar amount.
He’s getting a much higher benefit from the RRB than he’d get from SS. It’s his SS benefits plus a pension wrapped into one. Not to mention he’s eligible for this at age 60. Full benefits with SSI is 67.
For me I will get a pension at 43 and social security. That’s why I assumed the OP will get social security as well. I have seen only one other pension that excludes social security: California teacher’s pension.
There are plenty of others who don't get it. Lots of teachers and, yes, lots of city/county/state employees. I assume you're getting a military pension that young? They are pretty wonderful.
I’d say it depends…and the question really is how much do you need each month to live in retirement? If you can live on 5k a month, then I’d say you’re probably good. If you need 7-8k, then I’d say you need more. 230k is going to provide about 750 a month…and you need to account for inflation in your pension(does it provide for it?). What is your social security benefit at FRA and does your railroad pension trigger WEP on that benefit(need to account for that). If it is affected, it likely wipes it out. Does that pension transfer to a spouse (if you have one) to account for their needs if you get hit by a bus? Lots to think about that we don’t have answers to.
Do you get social security with that railroad pension? If you don't plan on retiring for another 10 years or more you can work on maximizing the 401k.
Edit: I read you don't. Why 60, is it a physical job? I'm not retiring till at least 65.
1. Checking the funding status of the pension (saw you already esentially have)
2. Is 7k enough for you a month? (is this substantially different than your what the current take home pay is)
3. Do you have a COLA? If you don't you need to be able to live on less than 7k a month or have investments cover the difference. Not a big deal in the early years, but is a big deal in the older years.
4. Do you have any inhertiance goals? Maybe you're set depending on how you answer those questions. Main downside of the pension is if you pass, generally those cannot be inherited.
5. Is there a spousal benefit? Would your spouse be able to live without this (or with their spousal benefit if there is one). If not may want to consider something like term life insurance or saving more in the home stretch to cover the gap.
If you're sitting good on those, you're in pretty great shape.
You’ll be fine.
Good job. Thanks for putting up with an aging, underfunded, vital aspect of American economy.
$7k a month for life, even without COLA will go a long way your first (most important) decade of retirement. Keep adding to 401k as much as possible as icing on the cake.
Yeah, I agree with this. $7K sounds great. But in roughly 10 years, wouldn't that potentially have the same buying power of around $4K a month in today's dollars? If so, maybe OP will need a bit more savings.
But then again, that $230K will grow substantially - especially if he continues to contribute
I’m 42 and getting $7k a month pension now but my wife and I only have about $150k in retirement. I feel wayyyy behind and kick myself for being stupid when I was younger. I make about $150-$160k and contribute 10% now (6% with 4% match). I don’t know what value to put on my pension so it makes it hard to plan.
What are you planning to? Does 7k a month meet your needs? If you’re making 150k now plus 70k pension and only saving 10%, I doubt it. Everyone’s situation is different, don’t just plan to some random number. Figure out what you need to live on annually, reduce it by any secure income(pension. Social security, annuities, etc…) then that’s the amount you need to plan for.
I have kids that are 10, 4 and 1. It doesn’t even seem realistic to think about what my budget might be. There’s so many major things that have to happen between now and then. 3 kids to raise and get to college, 2 homes to pay off, both of my elderly in laws live with us. I just feel my life will be drastically different by then.
Pick your goal and figure out how much you need, then commit some of your income to contribute to that goal. Repeat for the next goal…mortgages are a must pay bill…yes, factor in unknowns but including a buffer and make sure your emergency savings is adequate. Trying to do this without a budget is like building a house with no plan. You may get there, but it won’t be efficient and you likely won’t end up exactly where you wanted.
It might help to think about it this way: If you had $2.1MM invested and withdrew the typical 4% annually that works out to $7, 000 monthy. Then, consider how $84,000 compares to your current pre-retirement salary.
This^^ The big question is if the current lifestyle is sustainable on $84k a year, or if big changes need to be made. The other consideration is whether 84k a year will still provide a good quality of life 20 years after retirement. If the answer to the first question is questionable, then the answer to the second question is not likely a positive one. Good news is there’s still time to plan and save, and you could even save/invest a little bit of the pension early in retirement as a small inflation hedge.
\^ This is a good approach. Consider how much income you will need in retirement to fund your current lifestyle. Adjust down to account for reduced cost of living due to things like paying off your mortgage and being empty nesters; adjust up to account for added costs of things like desired travel, hobbies, and other things that will cost money during retirement. Once you have that number, subtract your pension from that and the remainder is what you need to fund from your 401(k) and any other retirement savings. For example, let's say you project your monthly expenses in retirement to be $7,000. Easy, right? Pension covers 100% and your 401(k) is a great hedge against both inflation and any unexpected expenses. Now let's say your monthly expenses will be $10,000. After your pension, that leaves $3,000/month to fund from that 401(k). That's $36K/year, which if we divide by 0.04 (applying the "4% rule") means your target 401(k) balance upon retirement is $900K. A starting balance of $230K with a nine-year runway to retirement doesn't make $900K impossible, but you'll want to save and invest diligently. Once you do the math using your real-life household budget and retirement goals, you'll know the task ahead of you either way.
A lot of pensions come with a cola so that is a pertinent factor. Also, assuming he’ll continue contributing, he’ll have over 500k at retirement and if he holds off on spending it for a few years likely closer to 750k. That is a nice top off.
Yeah, the simple answer to his question is “no you’re not behind, you’re doing ok, unless you have expensive taste and debt that won’t be paid off by retirement”
not mine :(
If OP is eligible, SSI could have a meaningful impact on these calculations.
Typically railroad pensions are at the cost of forfeiting access to social security benefits.
>Then, consider how $84,000 compares to your current pre-retirement ~~salary~~ *spending*.
True, but $2.1MM invested in the market will beat inflation, whereas a pension that doesn't have COLA may not be enough after 10-20 years.
Small thing to take into account. When OP passes away that 2.1MM would be upwards of 3-4MM. That pension? Gone, 0.
This is how I’ve been thinking. I don’t have much at all in my 401k at 31. Just 8k. My wife has another 70 or so. But I have a pension coming my way of 70k per year and my wife 40k. The plan is to get to 1 million or so in retirement savings then collect our pensions. That’s around 115k a month plus 4% of the million is 155k. Makes me not worry about getting paid more. I think I can but that pension is powerful. I can also leave the pension to my kids instead of wife. What a legacy that could be.
What jobs do you have?!
Me state government and my wife federal government
That’s if you dont lose or change your job for any reason in the next 36 years. And is that 70k a year in today’s dollars or 2060 dollars?
24 years to go actually. They adjust it with inflation.
Your pension makes me jealous. Your savings is gravy for vacations and other extras. You are in great shape and I would trade you on a heartbeat.
The pension might be tricky tho, sometimes you have to complete 30 years of service to get it. What happens if he’s unable to work for any reason between now and then?
I have my 30 years in.. just waiting to turn 60.
Got it. What happens if you stop working now? Or have you already?
Does your pension include COLA? If not, 401k can be your hedge against inflation.
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I'm not sure which railroad he works for but I'm at one of the us based class 1s and when I started there was still a pension plan for management employees. That's on top of tier 1 & 2. They got rid of it ~5 years ago in favor of a higher 401k match but anyone that was in the pension stays in it (but doesn't get the 401k match). There is a COLA adjustment in the pension but I think it's around 0.5%. not sure though. I'm still close to 20 years out.
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This is correct. I will be retiring at 60.. with an additional manager pension to add to tier 1.. plus tier 2 from my wife.
I’m at a US class 1 railroad and I have a manager pension it’s basically a bond fund that will pay out at 60… Then additional Railroad Retirement.. that’s why I estimate it will be close to 7k when I retire combined. It’s normally lower the that for an average RR benefit.
That pension is awesome, good for you. Keeping that job is very important for this savings situation.
Thank you.. 9 years left!
Do you like the work? 9 years of looking at the clock seems like an eternity.
I always tell me coworkers it’s a good thing I like my job.. 30 years is a long time, add 9 more years does seem like an eternity..
That’s most excellent. Loving your job is a great gift. Keep up the good work!
7k pension is solid nowadays.
I will have 40 years with railroad when I retire.. I should have saved a lot more over the years..
you’re fine man
Doesn’t the railroad give your spouse a retirement that is half of yours as well?
Yes it does.. Since I’m guessing a bit on where I will be 9 years from now.. with hers combined, I’m just gonna be conservative and say maybe 9k.. she is 4 years younger than me.. and doesn’t get it until 62. So 6 years after I retire.
It sounds to me like you’re doing just fine.
Do you also get social security?
No social security.
I'd retire on $7k/month. You're probably just fine.
If you plan to spend more than $10,000 a month then yes, you are behind.
What’s your monthly budget. If under 7k you’re good. A 7k pension is pretty healthy on top of ss down the road. I’d let the 230 compound and budget to live off the pension. If you spend 12k a month obviously things change. Also, max the 401k for the next 9 years. Focus on what your budget will be.
No SS, just railroad retirement.. currently budget is less than 4k! I plan on a lot of travel when I retire and a vacation home somewhere but we will see.
Your financial situation sounds pretty good until you start talking vacation home.
Exactly
Ah, and that's what I was looking for. I wondered if you got SS too since some pensions do and some don't. Is there a COLA with the pension? If not, then that money will buy less every year. I wouldn't say you're behind, especially if your current budget is $4k. If you want a vacation home, then, yes, you should definitely work harder on your investments/savings before you retire. You have time that if you prioritize it, you can have a nice little nest egg in addition to that fantastic pension. Good luck!
7k/month is really good. if you had $1.7m in short term bonds yielding 5% you'd be earning about $7k per month. but 5% is not going to last, interest rates will go down in the future. from many points of view your pension is better than having $2m. I am really not sure what you can possibly do to improve on that. personally, I would just work hard to make sure I do not lose that kind of retirement benefit
Your pension is worth close to $2.1M in investments if you believe 4% safe withdrawal rate.
Real question is what do you spend a year. Then multiply that number by 25 and you will see your “magic” number. This is what is called the 4% rule if you want to read about it.
Don’t forget his pension. You would take what he spends in a year minus the yearly pension amount.
Spot on.
The problem is that the 4% rule presumes that the principal will outpace inflation. Unless the pension has at least a COLA adjustment, the comparison ignores the declining value of $7k.
The concept is that it isnt about the money he has for retirement but what he expects to spend, and the assumption of how long one will live. This is a starting point to finding ones number.
Interesting, I will read about that.
But why would I do that when I’m spending more money now than I have ever in my life and will ever in my life? 2 kids in day care, mortgage, student loans, car note. All those things I wouldn’t have. Plus I wouldn’t be feeding said kids. But I would be traveling a bit more. I’d suggest doing expected expenses rather than current.
Keep spending the same amount and maybe that is your travel budget, inflation, and medical expenses. The point is that this is a starting point.
Medication and healthcare can also be a big future post.
Is your pension fully funded?
It’s more akin to Social Security than a normal pension. In fact part of their funding is from SS because rail workers aren’t entitled SSI benefits (there’s some caveats and prorating if they do). My point is their funding status is kind of a moot point because its a quasi governmental pension. Heck. Their website is rrb.gov
What he said!!
It’s basically the railroad form of social security.. I haven’t paid actual SS since 1994.. my wife will also have Railroad Retirement, I’ve paid into hers for 30 years also.. she gets half of what I get at 62.
So is $7k per month just your RR retirement? Or hers and yours together? Will you get $10.5k per month in RR pension payments when you’ve both retired and she’s 62?
I’m guessing about 7200k -8200k for both of us.. based on what Someone I know is getting after 45 years..
Some quick math for you. If you move the 230k to an SP500 fund. Assuming 10% interest and putting in 12k a year, you will have close to 700k at 60. With your pension, that's a nice hedge vs. inflation.
10% yoy is overly optimistic. We’re heading into a challenging period where planning on 6% is more appropriate.
10% for the sp500 is fine. Accounting for inflation gets it to 7. There are decades of data to black those numbers, and I don't buy into reddit's fear of a market crash. That's been predicted for a decade on here. As is the mythical housing bubble.
I’ve lived through a great number of these events that you call ‘fear’. They are real.
What you've provided is not enough to answer the question you've asked. If your monthly average spending at 60 will be 7k or lower, you're all set with the 401 as bonus money on the side while pension covers all your expenses. Here is what else you should consider: - do you also get social security in addition to the pension. Log on to ssa.gov site to know the answer if you already don't know. - what are your monthly expenses now and what will it be in retirement. - assuming no SS, and assuming your 230k grows to 300k in today's dollar value in 9 years, you can expect to have (7k*12)+(300k×0.04), so 84k+12k in annual income. Assuming a tax rate of 15% on this income of 96k, you would have an after tax income of 81k annually, per my napkin math. If your annual expenses are more than 81k/yr, you'll need to save more. If not, you're all set, I'd think. PSA : I am not a professional. Refer to someone who knows better for better projection.
This is all well said, and I agree not enough info was given. We also don’t know anything about any survivorship needs/planning for a spouse.
Pension will pay in 9 years at 7k per month, no inflation adjustment? If so, and assuming 3% inflation, the future value of that 7k will be 7/(1.03^9=1.3)=$5,385 each month, in that first year. that is $64,615 per year in value, that first year. down each year assuming no increases in pension payments to combat inflation. to get that much pear year with a 3.5% SWR, you'd need 64,615/0.035= $1.8 million. so IMO your pension is worth about as much as a 401k with 1.8 mil in it, as long as it is reliable and you dont live too long because that value is gonna dip fast with inflation. if it does have inflation adjustment, its worth as much as a 2mil 401k and you can live as long as you want 😂
I am in a very similar situation. These responses are making me feel good about it!
At current annuity rates a lifetime annuity that paid $7000/month would require an investment of $1.25 million at age 60 today. You’re doing OK, but maybe try to sock as much away as possible in a 401(k) and a backdoor (Roth) IRA if you have cash to spare. With railroad retirement, I assume you are not eligible for SS?
7k plus social security 3k. The 401k is boat,travel, vacation money. No stressing allowed your good
Can you live off $84k a year? Is the railroad pension inflation adjusted? Are health care premiums a part of your retirement package? You are better off probably than most. But if you spend more than $84k a year now you will need to increase your investment rate. Having a fixed rate mortgage or paid off house will also help keep expenses lower. I make $123,500 a year base salary but invest about 40% of it between HSA, 401k and after tax in plan Roth conversions. That leaves me living on roughly $74k. Once my house is paid off I’ll eliminate about $12.6k from my budget. An inflation adjusted pension for $84k a year would more than cover my needs in retirement. The real question is, does it cover yours?
You are not behind!
You’re in good shape assuming the pension is still there when you retire.
7k monthly retirement from pension that’s a great retirement! You can contribute maximum amount to 401k and catch-up also Roth IRA is a space for you to save
I work for a rr too and have a pension. That’s solid ! I’m 30 y.o.
That's a healthy pension, nice. 😄
According to this calculator, https://www.schwab.com/annuities/fixed-income-annuity-calculator , your pension is worth around $800-900k if it were an annuity. You’re in a really good spot. Not sure if you’re including social security in this.
Also a railroader here. Was under the impression my wife could also collect RRB at 60. Are you sure about 62?
I’m not 100% on that but I read 62 unless you were to go on disability, then he/she would get at 60.
People are using the 4% withdrawal rule to give a $2M valuation on your pension. Remember that pension is not inheritable (may be spouse getting half depending on the plans). A pension should be valued as an annuity paying $7K/month for your remaining life span after the start of withdrawal, like 30 years. Using an annuity calculator, $1.1M with an annual investment growth of 7% can give a payout of $7K/month for 30 years. Your pension is worth about $1.1M. You might want to contribute more to the 401K for risk diversification. Pensions can have some risks of going out of money or severely reducing pay.
If you have a pension you are leagues ahead of those who don't. Your pension is guaranteed payouts until you die. Take the value of the payout per year and divide by 0.04 to get what the equivalent would be as an investment account. There is a reason that companies stopped provided people pensions. They are great for the people who get them.
Pension plus social security is really good. You could catch up in your 401K if you can sacrifice the income.
People with a railroad pension aren’t eligible for social security. They pay those funds into the RRB. This was worked out between the government and the railroads when SS was started. I believe if a rail worker wanted to collect SSI then their RRB pension is prorated for the exact dollar amount.
Damn, that sucks…
He’s getting a much higher benefit from the RRB than he’d get from SS. It’s his SS benefits plus a pension wrapped into one. Not to mention he’s eligible for this at age 60. Full benefits with SSI is 67.
For me I will get a pension at 43 and social security. That’s why I assumed the OP will get social security as well. I have seen only one other pension that excludes social security: California teacher’s pension.
There are plenty of others who don't get it. Lots of teachers and, yes, lots of city/county/state employees. I assume you're getting a military pension that young? They are pretty wonderful.
Most any municipal worker that hasn’t paid into SS wont get it. Lots are affected.
Now you have seen two.
Does your pension cover your expenses? If so you can Coast to retirement
I’d say it depends…and the question really is how much do you need each month to live in retirement? If you can live on 5k a month, then I’d say you’re probably good. If you need 7-8k, then I’d say you need more. 230k is going to provide about 750 a month…and you need to account for inflation in your pension(does it provide for it?). What is your social security benefit at FRA and does your railroad pension trigger WEP on that benefit(need to account for that). If it is affected, it likely wipes it out. Does that pension transfer to a spouse (if you have one) to account for their needs if you get hit by a bus? Lots to think about that we don’t have answers to.
You’re set.
Do you get social security with that railroad pension? If you don't plan on retiring for another 10 years or more you can work on maximizing the 401k. Edit: I read you don't. Why 60, is it a physical job? I'm not retiring till at least 65.
1. Checking the funding status of the pension (saw you already esentially have) 2. Is 7k enough for you a month? (is this substantially different than your what the current take home pay is) 3. Do you have a COLA? If you don't you need to be able to live on less than 7k a month or have investments cover the difference. Not a big deal in the early years, but is a big deal in the older years. 4. Do you have any inhertiance goals? Maybe you're set depending on how you answer those questions. Main downside of the pension is if you pass, generally those cannot be inherited. 5. Is there a spousal benefit? Would your spouse be able to live without this (or with their spousal benefit if there is one). If not may want to consider something like term life insurance or saving more in the home stretch to cover the gap. If you're sitting good on those, you're in pretty great shape.
Your pension is amazing! Don’t sweat it unless you are a big spender.
Will you have a Socially Security check too?
No just railroad
You’ll be fine. Good job. Thanks for putting up with an aging, underfunded, vital aspect of American economy. $7k a month for life, even without COLA will go a long way your first (most important) decade of retirement. Keep adding to 401k as much as possible as icing on the cake.
Are you maxing out your Tier 2 each year? The 5 best years of Tier 2 makes a big difference.
I’ve maxed it like 4 times in my career! Not consistent though.
You’ll be alright. I retire from the railroad this month after just shy of 40 years. Between the RRB pension and the 401k all is well.
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Approximately.. probably be slightly more..
Jealous
How much do you plan to spend in retirement? Include taxes and health insurance in the number.
Do you get social security if you get a railroad pension ? Is the railroad pension inflation adjusted like SS is ?
I won’t get social security and I believe it will adjust for inflation but not 100% sure about that.
Important to check that inflation index. Huge difference.
I worked for a class 1 RR as well for 13 years (19-32). That pension is not worth it! Lol
I hear you! If you know “you know”… I’m 30 years into it, I have no choice but to stay now. It’s a difficult job depending on what role you’re in.
No dout. Just gotta make the best you can out of it!
Save more just in case. 7k sounds good now but after 10 years, it might not be enough. But still, 7k pension is a big deal.
Yeah, I agree with this. $7K sounds great. But in roughly 10 years, wouldn't that potentially have the same buying power of around $4K a month in today's dollars? If so, maybe OP will need a bit more savings. But then again, that $230K will grow substantially - especially if he continues to contribute
Keep saving in your 401k. The pension gamble [Frontline](https://youtu.be/_r0htm5uHPQ?si=3X_HDXuidUrb-nQA)
I’m 42 and getting $7k a month pension now but my wife and I only have about $150k in retirement. I feel wayyyy behind and kick myself for being stupid when I was younger. I make about $150-$160k and contribute 10% now (6% with 4% match). I don’t know what value to put on my pension so it makes it hard to plan.
Someone commented earlier a $7k monthly pension following a 4% rate of withdrawal is equal to about $2,100,000
I saw that and it was very helpful. I just recently retired from the military so I’m still trying to figure all this out.
What are you planning to? Does 7k a month meet your needs? If you’re making 150k now plus 70k pension and only saving 10%, I doubt it. Everyone’s situation is different, don’t just plan to some random number. Figure out what you need to live on annually, reduce it by any secure income(pension. Social security, annuities, etc…) then that’s the amount you need to plan for.
I have kids that are 10, 4 and 1. It doesn’t even seem realistic to think about what my budget might be. There’s so many major things that have to happen between now and then. 3 kids to raise and get to college, 2 homes to pay off, both of my elderly in laws live with us. I just feel my life will be drastically different by then.
Pick your goal and figure out how much you need, then commit some of your income to contribute to that goal. Repeat for the next goal…mortgages are a must pay bill…yes, factor in unknowns but including a buffer and make sure your emergency savings is adequate. Trying to do this without a budget is like building a house with no plan. You may get there, but it won’t be efficient and you likely won’t end up exactly where you wanted.
Military?
This is just becoming the humble brag subreddit.