Decoding the Legal Jargon: How AI Legalese Decoder Can Help You Compare 401k and Pension Options
- May 18, 2024
- Posted by: legaleseblogger
- Category: Related News
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## Job Offer Evaluation: Retirement Plans
I recently received a job offer which has made me consider the differences in retirement plans between my current job and the new offer. At 39 years old, I have a decent amount saved in my 401k and most retirement calculators suggest that I am on track to reach my retirement goals.
### Current Employer Retirement Plan
My current employer offers a 6% match for my 401k contributions, however, there is no immediate vesting. This means that if I were to leave my current job today, I would lose around $10k in unvested matches. I was aware of this when I started applying for new roles.
### Offered Employer Retirement Plan
On the other hand, the employer offering me a job provides a 3% match with immediate vesting, along with a pension plan. The pension plan calculates benefits as 1.35% of my final average monthly earnings (considering the last five years of service). However, I would need to work for at least five years to become vested in the pension plan.
### Decision Making
Considering these factors, I am now contemplating whether it would be wise to increase my contribution to 12% in the new employer’s 401k plan to match the level of benefits provided by my current employer. This is especially important as I am at an age where long-term financial planning is crucial, and I want to ensure I make a well-thought-out decision to avoid any setbacks.
### How AI Legalese Decoder Can Help
The AI Legalese Decoder can assist in understanding the intricacies of the retirement plans offered by both employers. By decoding complex legal language and providing simplified explanations, it can help me make an informed decision about which retirement plan would be more beneficial for my financial future. Additionally, it can calculate the potential long-term impact of my contribution levels and help me weigh the pros and cons of each option before making a final decision.
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I have a pension as well; one thing I’d like to add is that, even though I am vested and will receive xx% of my final salary when I retire, what if I was to quit today? xx% of my today’s final 5 salary would worth how much? I wasn’t sure if I liked the answer…
Not sure what the precise question is, but wouldn’t it be better to save that 12% if it’s possible, anyway?
that loss of 10k sucks but mathematically, I think pension outweighs the 3% extra match & 10k.
I’m sure you’ll take my words with loads of salt since there’s a lot of circumstances in your end that I don’t know.
Does it come with a COLA, is there a WEP? I just had to make this decision recently. If this is for a private company, I would not do a pension, but my job is government. There is some math you can do to see when a pension would start out performing a regular retirement account, and mine would outperform after 10 years of service (will be getting 30 in total!) I also like how my pension plan did the three highest years average, which isn’t always the years before actual retirement, I would hate to work a nice paying job and then be demoted or something because of age, and then that’s what my pension is calculated off of.
What happens if you die before retirement, do your contributions go to your beneficiaries? Are there other accounts they have that you can make additional contributions to?
Pension plans are getting rarer and rarer these days. I’ve recently retired and had three different vested pensions. Each individually were not that much but added up to a comfortable amount. That’s free money for you.
You’ll have to do the calculations based on these factors: when will you vest in current plan? Presumably you can afford the extra 6% if you stay at your old company? How long do you plan to stay either in your current job or new job? Do both companies offer a traditional 401k and Roth 401k? ( a whole other discussion based on your current salary and anticipated future salary) How financially stable are the companies and pension plan?
Another thing to consider in the IRA vs pension question is there your risks lie. With an IRA, you’ve got market risk, that is the market will tank and you may have to sell assets at a loss to live off of. With a pension, you’ve got counter-party risk, that is there won’t be money to pay you fully in the future.
Good luck
The pension is really only as good as the plan sponsor. Additionally, for a pension to really matter, you have to commit a significant part of your career to that company. If you were talking about Bobs Lock and Key on Main Street, then I wouldn’t give the pension much value. If you are talking about a major sponsor or the feds, then sure. I think it’s also important to think about how you want to “shape” your retirement. For example, many plans won’t let you retire very early if that’s your desire. Personally, I’m more of a portfolio guy. The math can be the same but when you die your pension dies with you. A portfolio continues to create wealth for whomever you leave behind in future generations. Just my thoughts.