[quote=AN][quote=SK in CV]
The assertion (I believe) was that a $100K pension was the equivilent to a $3Million 401K. It simply isn’t. Nothing about annual raises. Nothing about inflation. With a 401K you have unlimited flexibility. Skip withdrawals entirely until you’re 70. Even after that, minimum distributions are pretty small. 100% of any remaining balance can be left to an heir, with a pension you can’t do that. (Possibly a lower survivor annuity.)[/quote] You’re assuming those in the public sector have no saving and their only source of money saved for retirement is the pension. These flexibility also apply to the money public employee save. If anything, they have much more flexibility. Since they can just spend their pension money for retirement and the money they’ve been saving since they start working can grow until that die without ever being touch. That would be a huge chunk of money if they let it grow for 60+ years. We all know time is compound interest best friend. Especially when it money is allow to grow without being withdrawn.[/quote]
I’m not assuming anything other than the facts presented. Pension v. 401K. Both private and public retirees could have other assets or no other assets. There’s really no question that the 401K provides greater flexibility. The pensioner can’t decide to skip distributions for a year, or reduce distributions in order to reduce taxes.
[quote=AN][quote=SK in CV]The only way to compare is doing a NPV analysis. That, of course, ignores the possibility of a premature death, in which case the value goes way down. So even using a 40 year life is probably overstating the requirement. 30 is probably more reasonable for retiring at 55.[/quote]
NPV is not the only way to compare. But lets take the NPV number. $100k pension growing at 2.5%, the NPV would be ~$2.4M. That’s still a huge chunk of money. Assuming you’re in the private sector, to amass $2.4M by the time you’re 55 and you start working at 22. You’d have to save on average of $72k/year for 33 years if you have no growth. But, I’m sure you’ll say, but you have to take growth into consideration. So, I use 8% growth, which is definitely on the high side. You’d still have to save $15k/year, every year for 33 years to amass $2.4M nest egg. How many 22-30 year old do you know that save $15k/year every year since they get out of college at 22?[/quote]
Most of this doesn’t matter. I was only comparing pension v. 401K at retirement age. How it happened is incidental. I’m not sure what the 2.5% growth is you’re referring to. SD cops pension COLA’s are capped at 2%. And their average pensions are under $65K
[quote=AN][quote=SK in CV]So at 55 years old, if someone is going to offer you either a $100K a year or $3 million in a 401K, which one are you going to take?[/quote]I’d take $100k a year in a heart beat. But these pension are not just $100k/year, it’s $100k/year + yearly increases of 2.5%-3.5%. I’d take that in a heart beat.
All of these calculation is assuming you’d die after 30 years. The pension looks even more lucrative if life expectancy get to 40 years. With the advancement of medicine in the last 30 years, I expect that in 30 years from now, 100 years old will be the new 70.[/quote]
As I said, the COLA’s aren’t 2.5-3.5%, they’re capped at 2%. And the assumption was not death after 30 years, at 4% it lasts over 38 years. And you overestimate life expectancies. 80 may be the new 70, but 100 certainly won’t be.
If you win the lotto, are you going to take the annual payout or the lump sum?
