Cost of losing defined-benefit pension? (USA)
December 15, 2021 7:29 PM   Subscribe

I have a defined-benefit pension plan with my current employer. I am thinking of changing jobs. Do you have any guidance or resources to help me quantify how much additional pay I should be looking for to make up for losing that defined benefit?

I expect that where I go next would most likely has a 401(k) with some amount of matching.

I have worked only about five years with the current employer. And I expect to work for another 10-15 years before retiring.
posted by NotLost to Work & Money (9 answers total)
If you know what you were going to get per month, toy with an annuity calculator to figure out how much you'd need to start with to end up with zero left after your expected lifespan (20 years after retirement?).

Note that is how much you'd need when you retire, so you'd then work backwards with any interest calculator to see how much you'd need to sock away each month to have that in 10 (or 15) years.
posted by noloveforned at 8:02 PM on December 15, 2021

Best answer: I would just get an annuity quote. There are a lot of providers online. Here is is one.

As an example, a $1M annuity purchased right now, paying out in 10 years for a 50 year old female in New Mexico would pay out $5,565 per month.
posted by saeculorum at 8:21 PM on December 15, 2021 [1 favorite]

I have worked only about five years with the current employer.

Are you fully vested in the pension you'd be walking away from? If not, that could make your decision a whole lot easier. Find out what the pension's vesting schedule is before you start doing the math others have mentioned; if you're zero percent vested until five years, after which you're 100% vested, for instance, it may be worth sticking out this job until you hit that 100% vesting mark. If you vest at 20%/year, though, you may be OK walking away at 80% vested right now-ish.

Either way, don't make a decision until you know what your pension's vesting looks like and whether you've satisfied it.
posted by pdb at 9:02 PM on December 15, 2021 [6 favorites]

I don’t know whether this is a fair trade-off, but my job offers either a pension or a more typical retirement plan. If you go with the latter, they contribute 8% of your salary for the first 5 years, after which it bumps to 10%. With either plan, the employee is required to make an additional contribution between 3-5.75% (depending on salary - higher salaries are required to make a greater contribution).

Based on that, I’d be looking for a salary at least 15% higher just to compensate. Minus any required contribution at your current job and/or the new employer’s match.

I’d also do more research because I’m not confident that the two options at my job are “equal,” but it’s a starting point.
posted by Kriesa at 3:04 AM on December 16, 2021 [1 favorite]

Response by poster: Thanks. These are helpful.

I am fully vested with the current employer. I could retire from there in eight years, when I meet the age requirement.
posted by NotLost at 7:50 AM on December 16, 2021

For what it's worth, both pension plans my SO had will still pay out when she reaches retirement age, so she only loses out on the benefit of future contributions. I recall they sent notices yearly with the amount she can expect to receive at retirement age given no further contributions, so you should be able to use that number to help plan.
posted by wierdo at 2:33 PM on December 16, 2021 [1 favorite]

Buying annuitities is pretty pricey, they are basically the most expensive way to finance retirement, but also the most secure. Pension, in my mind, is pretty valuable, though, because it's also very secure, and an excellent way to diversify your retirement assets. It gets more so if you're closer to retirement, because the credits tend to be highly back-loaded. If you want just a ballpark figure, I would say 15% of salary for a 100% pension, because that's roughly the amount you would have to save over a career to have a very safe retirement. I can see that number changing by a factor of two either way if retirement security for a long time is very valuable to you, or if you're more interested in passing on your assets, because pensions are bad at that. Die early, no money for you.
posted by wnissen at 11:08 AM on December 17, 2021

Response by poster: Thank you for all these. They will help me make a better decision.
posted by NotLost at 5:28 AM on December 18, 2021

Response by poster: I did the math this weekend, and accepted the offer this morning. :)
posted by NotLost at 8:20 PM on December 20, 2021

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