How to factor pension into FIRE Forum

[Anonymous User]

Going to start a gov job that has a pension shortly. If I stay a while, like the vast majority of attorneys in the office do, I should get around 100K a year. How should I factor that into retirement planning in terms of setting my savings goal? Should I assume I'll get less as I would with, say, social security?

[Anonymous User]

Your FIRE number is based on an assumption of how much per year you expect to spend on ALL your expenses in retirement. Once you have that number, you work backwards based on expected investment returns to get a FIRE total number you need to save before you retire. (see tools like: https://engaging-data.com/visualizing-4-rule/)

In your case, once you find that number for expenses per year, you subtract your yearly pension amount before calculating your FIRE total number. $100k/year is more than enough on its own to retire today and likely for the next 20 years on for most people without a family so that's amazing.

[Anonymous User]

I guess I phrased my question weird. I meant should I reduce the pension amount in the calculus based on risk of it getting reduced or cancelled outright or something in the future. Seems less likely than not but I know plenty of people assume they will get little if any social security when calculating what they'll need to save for example

[Anonymous User]

I guess I phrased my question weird. I meant should I reduce the pension amount in the calculus based on risk of it getting reduced or cancelled outright or something in the future. Seems less likely than not but I know plenty of people assume they will get little if any social security when calculating what they'll need to save for example

[nealric]

There are different types of pensions and your rights may vary based on the plan. I'd read the plan documents to get a better idea. A good rule of thumb is to think of a pension as part of the bond portion of your portfolio. It's not 100% safe from risk, but probably less risky than equities.

With a government employer, credit risk isn't huge, but the PBGC benefit may be lower if the plan defaults. Not an issue with federal government, but maybe possible if state/local government. Early cancellation typically pays out some benefit, but it's often calculated in a way that doesn't really make employees whole. Then, there's also cash balance pension plans where there is a sum certain you could roll into an IRA if the plan were cancelled or you went to another job.

[logical seasoning]

You should get familiar with how your pension works. My State Govt (CA) monthly pension amounts really kicks in once you get to 62 years old. Like I think if you retire even a few years before 62, your monthly pension payment can be thousands of dollars lower.

When I looked into it, Govt pension plans arent really conducive to FIRE, because they really only kick in after many years of govt work

[UnfrozenCaveman]

Do you think that if you retire as early as people who are going for FIRE that you would get 100k per year? I would think not?

Also, just to clarify some things, PBGC doesn't insure any government pensions that I'm aware of. In the off chance that the government couldn't fund its pension commitments, it's not really clear what would happen. There's not many precedents as I think there have been less than a handful of municipal bankruptcies.

[Sackboy]

Do you think that if you retire as early as people who are going for FIRE that you would get 100k per year? I would think not?

I'm confused why more people aren't flagging this. $100k/yr. from a DB pension is insane in 2021. I can't imagine a gov't agency pension getting that high unless you reach a very high grade and stay until you're in your 60s. And, at that point, you're not doing FIRE; you're just retiring. Even then, I don't think I've heard of such a thing.

[logical seasoning]

Do you think that if you retire as early as people who are going for FIRE that you would get 100k per year? I would think not?

I'm confused why more people aren't flagging this. $100k/yr. from a DB pension is insane in 2021. I can't imagine a gov't agency pension getting that high unless you reach a very high grade and stay until you're in your 60s. And, at that point, you're not doing FIRE; you're just retiring. Even then, I don't think I've heard of such a thing.

My read was that he wasnt expecting to FIRE with 100k, but that his salary in his govt job would amount to 100k a year, and how early could he FIRE based on that.

If I am mistaken, yeah OP, you arent going to FIRE with 100k on a govt job. That would require you to have like 6 million in the bank

[Anonymous User]

Government pensions are sort of the opposite of FIRE. Mine will result in a very good income assuming I stay in a government agency until I retire but as mentioned above it requires both many years on the job (at 20 years I’ll get 40 percent of my salary) and an age no one would consider very early retirement.

Also not helpful to FIRE, but good for long term retirement planning in government jobs - take advantage of being able to contribute to both a 401k and 457b, for $39k a year contributions.