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VA Hospital or Independent Contractor?

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  • Avatar Tomw 
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    Status: Other Professional
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    Joined: 05/18/2019

    I currently make $120 as PT independent contractor and was offered a VA job for $83. How can I beat calculate the benefits of a federal job, such as a pension, to know which path is a better financial decision? I’m in my 30s with one son if that’s a factor too.
    Thanks to anyone who can help.
    Tom

    #215313 Reply
    Avatar jhwkr542 
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    Status: Physician
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    Joined: 02/15/2016

    You’d have to run all the numbers, which is probably a little out of the scope of this forum. Yog wouldn’t be paying self employment tax, so that’s 7% right there. What about health and dental insurance? And then a pension? Match? Sorry to be vague, but you’d need to post all of the details.

    #215640 Reply
    Avatar SLC OB 
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    Also, do you get the GI bill for your son? Lots to add in as far as benefits but we’d need to know the details.

    #215641 Reply
    Avatar Tomw 
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    Joined: 05/18/2019

    Jhwkr,
    Yes 7% tax savings. My company offers health insurance even though I’m IC but the VA would be cheaper by maybe a couple thousand.

    Yes there is a pension which is 30% of my salary after 30 years.

    SLC OB,
    I can offer details if you’d ask please. I’m in need of help with respect to which factors and details I need to consider. Thank you.

    #215660 Reply
    Avatar Tomw 
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    Joined: 05/18/2019

    I’m not sure about GI BILL

    #215661 Reply
    Avatar Dusn 
    Participant
    Status: Physician
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    Joined: 01/02/2018

    Tomw, federal gov’t workers pay into the pension.   It’s 4.4% of your salary that gets taken out of your paycheck  (for the people who started years ago it’s 0.8% but they raised it for new hires several years ago) and most people can’t get the pension until you reach retirement age (I think that’s 65?).   For someone who’s 60 it makes a lot of sense because that money has no time to grow anyhow.  But if you’re 30 years old I’m not sure it’s really such a good deal because if you invested that 4.4% it would be worth a lot more in 35 years.

    There is also no absolute guarantee, even with the federal gov’t.  This past year the white house was pushing to seriously decrease the pension benefits.

    Everyone thinks the federal gov’t pension is such a great deal but for younger workers I’m not sure if it is.  I can’t find anyone else making that argument online to back me up though so I’m not sure if I’m missing anything here.

    The gov’t does offer 5% matching, however, and the TSP is really good.   And I think you can choose to get that 4.4% back and forgo the pension when you leave the fed gov’t.

    #215664 Reply
    Hank Hank 
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    You need military service to get the GI Bill, not just VA employment.

    You need five years of civilian service with the federal government to qualify for a pension.  The current formula is 1% per year of service times the average of your highest three years of pay.  (If you have 20 years or more of federal service and wait until age 62 to retire, you get credited at 1.1% per year).  If you leave the VA, you can get your retirement contributions back or you can wait for a deferred annuity.

     

    #215732 Reply
    Liked by DCdoc, Anne, Tim
    Lordosis Lordosis 
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    Joined: 02/11/2019

    I currently make $120 as PT independent contractor and was offered a VA job for $83. How can I beat calculate the benefits of a federal job, such as a pension, to know which path is a better financial decision? I’m in my 30s with one son if that’s a factor too.
    Thanks to anyone who can help.
    Tom

    Click to expand…

    If it came out a wash which job would you pick?  30 years is a long time.  It is going to be close and staying with a job 1-5 years longer might make more of a difference then government benefits.

    “Never let your sense of morals prevent you from doing what is right.”

    #215734 Reply
    Avatar Anne 
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    Status: Physician
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    Joined: 11/07/2017

    Tomw, federal gov’t workers pay into the pension.   It’s 4.4% of your salary that gets taken out of your paycheck  (for the people who started years ago it’s 0.8% but they raised it for new hires several years ago) and most people can’t get the pension until you reach retirement age (I think that’s 65?).   For someone who’s 60 it makes a lot of sense because that money has no time to grow anyhow.  But if you’re 30 years old I’m not sure it’s really such a good deal because if you invested that 4.4% it would be worth a lot more in 35 years.

    There is also no absolute guarantee, even with the federal gov’t.  This past year the white house was pushing to seriously decrease the pension benefits.

    Everyone thinks the federal gov’t pension is such a great deal but for younger workers I’m not sure if it is.  I can’t find anyone else making that argument online to back me up though so I’m not sure if I’m missing anything here.

     

    Click to expand…

    I’ve wondered about this too.  However, making some quick and dirty calculations, 4.4% of 80k is $3520.  For easy math, let’s round up to $300/month.  $300/month over 30 years at 6% return will get you about $300k for retirement.  If you go by the 4% rule, this gives you about 12k per year in retirement.  Even if you go by a 6% rule, it gives you 18k per year in retirement.  Whereas 80k x 30 x 1% gives you a pension of 24k/year in retirement (yes, I am ignoring inflation and cola adjustments–the PT’s high 3 salary will be sig greater in 30 years, so both a higher pension withholding and a higher pension, but the math still seems to favor the pension unless I’m missing something).

    You also have to factor in things like overtime, time off, benefits, 401k matching (VA is 5%).

    Many VA therapists I know moonlight at other places.  There are a lot of opportunities for prn weekend work in the PT/OT world, and the VA hours and workload gives them the bandwidth to do this and not get burned out.  I think you have to look at both jobs and see which one you would enjoy more.

    #215742 Reply
    Liked by DCdoc, Tim
    Avatar Dusn 
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    I agree in general, Anne.   But I do think it’s a little more complicated.   I think your calculations assume that at the age of 65 he withdraws ALL of that 4.4% + 6% growth that he’s saved on his own.  But he won’t be withdrawing it all at the age of 65.  Let’s pretend he’s able to withdraw a lot of it at the age of 75 because he’s got other money saved up that he used first.   Now it comes out to $537K and it still may favor the pension but it’s a little closer.

    Now let’s say he only ends up working at the VA for 5 years and leaves at the age of 35.   That $17600 (3520 x 5) at 6% would be $181000 at age 75.   Meanwhile his pension from 5 years of work would only be $4150 per year.    I think taking the money he’s contributed out and investing it himself makes more and more sense the younger he is.

    Also we have no idea how the pension may change over time (but probably not for the better).   On the other hand, there are other variables: we also have no idea how investments are going to do over time or at what age we’re going to die…. but there are some benefits to having that money in your hand rather than as a long term promise from the federal gov’t.

    #215762 Reply
    Liked by Tim
    Avatar Anne 
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    I agree in general, Anne.   But I do think it’s a little more complicated.   I think your calculations assume that at the age of 65 he withdraws ALL of that 4.4% + 6% growth that he’s saved on his own.  But he won’t be withdrawing it all at the age of 65.  Let’s pretend he’s able to withdraw a lot of it at the age of 75 because he’s got other money saved up that he used first.   Now it comes out to $537K and it still may favor the pension but it’s a little closer.

    Now let’s say he only ends up working at the VA for 5 years and leaves at the age of 35.   That $17600 (3520 x 5) at 6% would be $181000 at age 75.   Meanwhile his pension from 5 years of work would only be $4150 per year.    I think taking the money he’s contributed out and investing it himself makes more and more sense the younger he is.

    Also we have no idea how the pension may change over time (but probably not for the better).   On the other hand, we also have no idea how investments are going to do over time….

    Click to expand…

    Yeah, those are all good points.  I think making the right decision is a lot more complicated than either of our scenarios, and would require a crystal ball.

    So if he doesn’t need to withdraw his savings until 75, that means he also doesn’t need to live off the pension until 75 if we’re comparing an apples to apples scenario (in both scenarios he saved up other $ that he’s using first).  So at 65 (or 62, as that is currently the standard retirement age for FERS, possibly earlier depending on years of service and year you were born), you take the pension, don’t need it, and it gets invested.  And then you have even more at 75.

    In order to really compare, you would need to know how long you are going to live, what income potential is going to be with different career paths, what burnout/desire to leave employment is going to be with different career paths, what your investment return is going to be, what the market is doing the year you retire and the next several years after, etc.  But it’s difficult to say that not having the pension and saving the $ is necessarily a better deal for young workers than having the pension is.  I do think the pension becomes a better deal the longer one works for the govt.  If you work 5 years when you are young and then leave I think it’s more of a dilemma about taking out the lump sum you have in it rather than waiting for the pension..the flip side of this is you might come back 20 years later and those years will count for a lot more at that point.  But yes, the pension rules could drastically change.  But a lot of other (worse) things could happen to our economy in general, so who knows.

    I will say most of our therapists at my VA seem to really like their jobs.  Every once in a while one leaves to make more $ as an IC and in a year or two they are calling to see if they can get their job back.  Not all work environments are equal though…if you’ve been to one VA you’ve been to one VA.

    #215773 Reply
    Liked by DCdoc, Dusn, Tim
    Dreamgiver Dreamgiver 
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    Status: Physician
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    Joined: 03/09/2017

    In addition to the financial factors, how would the work dynamics change? I worked at the VA as a resident for a total of 3 months many years ago, I am still running away as fast as I can.

    #215783 Reply
    Liked by Tim
    Avatar DCdoc 
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    Agree with @dreamgiver. Doctors either love or hate the VA. I haven’t seen much in the middle. Maybe it’s different for PT. Maybe not. The financials require a crystal ball. Which place do you WANT to work?

    #215827 Reply
    Liked by Lordosis

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