401(a) consequences?
May 10, 2012 5:45 PM Subscribe
I am a state employee at a university that mandates participation in a 401(a) retirement plan alternative, so neither the state nor I pay into social security.
I signed this form affirming that I am forfeiting future social security payments or disability benefits.
What should I be doing to compensate?
It's worth looking through SSA's information to see the impacts of this time based on how long you remain a public employee not subject to Social Security. If you don't work there for a particularly long time, your Social Security benefits may be relatively unchanged.
posted by zachlipton at 6:00 PM on May 10, 2012 [1 favorite]
posted by zachlipton at 6:00 PM on May 10, 2012 [1 favorite]
Here is what I did to terrify myself about how much money I'll need in retirement: I took my current salary and assumed a 3% /year growth in compensation until age 65. Then I assumed 2% inflation. Then I figured out how much savings I'd need to pay myself that much money per year, using age 90 as a death date. It was a couple million bucks (in future dollars).
What did I need too do to get there? Save approximately 90% of my take home pay.
If I wanted to have a bundle of money where I could live off of the interest, it was about 8 million.
Now, that assumes I'll have the same living expenses, and no Social Security. My only plan is to hustle my way into having a paid off house by the time I retire, and hope that Social Security does not go insolvent. (Of which I am fairly certain.)
Social Security only asks for 12.4% of your gross salary, but that is way, way, way too low in my opinion.
Based on the Social Security statements I get, Social Security will probably be enough to rent a tiny apartment and eat. Anything else I'd want would have to come from savings.
posted by gjc at 6:06 PM on May 10, 2012
What did I need too do to get there? Save approximately 90% of my take home pay.
If I wanted to have a bundle of money where I could live off of the interest, it was about 8 million.
Now, that assumes I'll have the same living expenses, and no Social Security. My only plan is to hustle my way into having a paid off house by the time I retire, and hope that Social Security does not go insolvent. (Of which I am fairly certain.)
Social Security only asks for 12.4% of your gross salary, but that is way, way, way too low in my opinion.
Based on the Social Security statements I get, Social Security will probably be enough to rent a tiny apartment and eat. Anything else I'd want would have to come from savings.
posted by gjc at 6:06 PM on May 10, 2012
It's worth looking through SSA's information to see the impacts of this time based on how long you remain a public employee not subject to Social Security. If you don't work there for a particularly long time, your Social Security benefits may be relatively unchanged.
You need 40 quarters of work to qualify for full benefits. So, 10 years of full time work.
However, if you work there long enough to qualify for their pension, you won't be able to collect SS in addition to that.
So yeah, if you get those 10 years of full time work and contribute to Social Security, then you will not be denied Social Security just because you signed that form and worked for this public institution for a few years.
posted by gjc at 6:09 PM on May 10, 2012
You need 40 quarters of work to qualify for full benefits. So, 10 years of full time work.
However, if you work there long enough to qualify for their pension, you won't be able to collect SS in addition to that.
So yeah, if you get those 10 years of full time work and contribute to Social Security, then you will not be denied Social Security just because you signed that form and worked for this public institution for a few years.
posted by gjc at 6:09 PM on May 10, 2012
You need 40 quarters of work to qualify for full benefits. So, 10 years of full time work.
Erm, not exactly. That's where the Windfall Elimination Provision and the OP's form comes in. As I understand it, if you have a government pension and don't pay into Social Security, your Social Security benefits are reduced at least somewhat unless you have at least 30 years of substantial earnings ($20,475 or more for 2012) that you did pay into Social Security. So if you worked 15 years at the university and 25 years paying into Social Security at other jobs, you'd lose up to $191/month in benefits if you were 62 this year (could be less if your pension is small). The reduction phases in between 20 and 30 years of substantial earnings,
So yeah, you won't be denied Social Security, but depending on how long you work there and how many years you work elsewhere, you may receive less in benefits.
Either way, Social Security, assuming it continues, is going to help you from becoming completely destitute in retirement, but you'll want additional savings one way or another. Your university's HR department should be able to tell you what kinds of retirement savings plans are offered through the institution as a first step.
posted by zachlipton at 8:36 PM on May 10, 2012 [1 favorite]
Erm, not exactly. That's where the Windfall Elimination Provision and the OP's form comes in. As I understand it, if you have a government pension and don't pay into Social Security, your Social Security benefits are reduced at least somewhat unless you have at least 30 years of substantial earnings ($20,475 or more for 2012) that you did pay into Social Security. So if you worked 15 years at the university and 25 years paying into Social Security at other jobs, you'd lose up to $191/month in benefits if you were 62 this year (could be less if your pension is small). The reduction phases in between 20 and 30 years of substantial earnings,
So yeah, you won't be denied Social Security, but depending on how long you work there and how many years you work elsewhere, you may receive less in benefits.
Either way, Social Security, assuming it continues, is going to help you from becoming completely destitute in retirement, but you'll want additional savings one way or another. Your university's HR department should be able to tell you what kinds of retirement savings plans are offered through the institution as a first step.
posted by zachlipton at 8:36 PM on May 10, 2012 [1 favorite]
This happened to my Dad. At about 60 he took a job working for the Federal Government. He worked there for about 12 years.
Now he gets Social Security, CalPers and a Federal Government pension. So....yeah, do that, apparently you can work for crap wages your whole life, for the public good, and rally at the end and make a shit-pile of money in retirement.
Seriously, we should all be so lucky.
posted by Ruthless Bunny at 6:23 AM on May 11, 2012
Now he gets Social Security, CalPers and a Federal Government pension. So....yeah, do that, apparently you can work for crap wages your whole life, for the public good, and rally at the end and make a shit-pile of money in retirement.
Seriously, we should all be so lucky.
posted by Ruthless Bunny at 6:23 AM on May 11, 2012
zachlipton is right; there is a pretty complex interaction between your Social Security earnings and time in non-covered employment. In general, your state and the Social Security Administration have agreed to exempt you and your coworkers from Social Security because they are providing a pension plan that is effectively substituting for Social Security, so you need to read the paperwork and speak with the HR department. (If they aren't too helpful, do you have any friends who are also employed at the university and work on or teach accounting, economics, or related issues?)
Your decision will depend not only on the university plan but also how old you are, how long you worked in Social Security covered employment in the past, how long have you been in this job, and how long do you expect to stay.
Your immediate concern should be to make sure that you have good disability coverage. In general, public employers do have good DI coverage, but you need to check and find out if you should buy private supplemental coverage.
posted by Mr.Know-it-some at 6:24 AM on May 11, 2012
Your decision will depend not only on the university plan but also how old you are, how long you worked in Social Security covered employment in the past, how long have you been in this job, and how long do you expect to stay.
Your immediate concern should be to make sure that you have good disability coverage. In general, public employers do have good DI coverage, but you need to check and find out if you should buy private supplemental coverage.
posted by Mr.Know-it-some at 6:24 AM on May 11, 2012
Response by poster: Thanks, all - I appreciate your insight and especially the advice about disability coverage.
I am not part of my state's pension plan; instead, I contribute ~11% of gross and the state matches it - it all goes into the 401(a). I've been making small 403(b) and Roth IRA contributions, but this has been a good wake-up call to step those up.
posted by sweet Annie Rich at 10:11 AM on May 11, 2012
I am not part of my state's pension plan; instead, I contribute ~11% of gross and the state matches it - it all goes into the 401(a). I've been making small 403(b) and Roth IRA contributions, but this has been a good wake-up call to step those up.
posted by sweet Annie Rich at 10:11 AM on May 11, 2012
This thread is closed to new comments.
Personally, I'm putting a total of 26% of my gross salary (slowly working my way up to 30%) in deferred compensation and public employment (defined contribution) plans. I probably ought to have more like 40%, but that's more than I've managed to set aside in any year.
Social Security only asks for 12.4% of your gross salary, but that is way, way, way too low in my opinion.
To get an idea of how much you should be setting aside, use a retirement savings calculator.
posted by SMPA at 5:54 PM on May 10, 2012