My wife has access to a pension through the mass public school system. She is a child psychologist . They take out 11% of salary per pay check. To qualify she needs to work untill age 60. She also has access to a 403b which we plan to max out.
I have access to 403b through work. My salary is about 500k and hers is 50k. She works three days a week.
Does it make sense to keep her in the pension or just invest the money, so she has the flexibility to retire before age 60. If she retires at age 59 she would get her contributions back plus a small amount of interest.May 13, 2019 at 8:15 am MST #214248BCBikerParticipantStatus: PhysicianPosts: 234Joined: 01/10/2016
Does she lose all of that 11% if she does not work until 60? If so, I would skip it.
Aside from that 403(b) access that job has a minimal impact on your financial situation which means she is going to feel like it is not worth her time at some point before age 60.
If she does lose that 11%, you don’t want her to have the sunk cost of that 11% keep her from freeing up her time with something she enjoys more.May 13, 2019 at 8:22 am MST #214253
What do you mean lose 11%?
If she retires at age 59 or earlier she gets all her contributions back, so she would not lose the 11% if that’s what you mean.May 13, 2019 at 8:26 am MST #214254PedsParticipantStatus: PhysicianPosts: 4229Joined: 01/08/2016May 13, 2019 at 8:31 am MST #214256CraigyParticipantStatus: SpousePosts: 2020Joined: 09/16/2016
It really depends on how good the benefits are.
Plus your expectations regarding the viability of the plan.
A lot of these public pensions are sweetheart deals where you get a heavily taxpayer-subsidized retirement. 11% seems steep, but what does the state put up?
LEVEL 1 WCI FORUM MEMBER.May 13, 2019 at 9:34 am MST #214269LordosisParticipantStatus: PhysicianPosts: 1654Joined: 02/11/2019
Does this 11% come out pre tax?
“Never let your sense of morals prevent you from doing what is right.”May 13, 2019 at 9:48 am MST #214271CordMcNallyParticipantStatus: PhysicianPosts: 2690Joined: 01/03/2017
I’m assuming the 11% comes out pre-tax and then if she retires before and gets her contributions back then she would be taxed on that at that time. I probably wouldn’t mess with the pension but I am admittedly usually fairly negative on pensions.
“But investing isn’t about beating others at their game. It’s about controlling yourself at your own game.”
― Benjamin Graham, The Intelligent Investor
Yes the 11% is pretaxMay 13, 2019 at 1:11 pm MST #214326DreamgiverParticipantStatus: PhysicianPosts: 837Joined: 03/09/2017
If she leaves before 60, what exactly does she get back? what she put in? What she and her employer put in? Indexed to inflation? Indexed to nothing?
My suspicion with similar pension plans in the past is that she gets back exactly what was withheld from her paycheck, with no growth. If so, I’d take that money and invest it separately. Hard to predict what changes life will bring your way. But that is just me, I am more nomadic in nature, some people like to stay put forever.AnneParticipantStatus: PhysicianPosts: 1114Joined: 11/07/2017
I mean she’s not working for the money. Just do whatever she wants.Click to expand…
Just to be contrarian, I dislike when people say this about the lesser earning spouse.
If you have a SAHS or are single, and you make 500k, and you switch to a job that is pretty much identical but makes 550k, or take additional side work that brings in 50k, did you change jobs or add a side gig for the money? Probably. Just because you have enough doesn’t mean you don’t do something for more money. Every bit that is brought into the household counts. Making your spouse feel that their contribution doesn’t matter is not going to help your marriage.PedsParticipantStatus: PhysicianPosts: 4229Joined: 01/08/2016
Or I could have meant it in the context of taxable v. pension v. 0% return of ~5K will not be determining factor on the retirement of a household making >0.5MM.May 13, 2019 at 4:31 pm MST #214366TimParticipantStatus: AccountantPosts: 2851Joined: 09/18/2018
1) “She works three days a week.”
2) “Does it make sense to keep her in the pension or just invest the money,”
3) “She has the flexibility to retire before age 60.
Keep investing the 11% in the pension plan. She is deferring the tax liability. How much she has in the plan when she decides to retire compared to the value of the pension is really her choice. Then “retiree benefits “ may be “worth it” in numerous ways. $55k plus healthcare alone to 65 and Medicare may give her a sense of accomplishment. She will get her contributions back, most likely pay a lower tax rate if she leaves before 60.
Nice reward at 60 yrs if she chooses to work the 3 days.
Maybe it’s not worth it, she will have the option. Don’t take it away with a calculation of after tax investment returns. Each year she works she contributes. The pension is icing. Pure and simple, she may be proud of it. She may decide it’s not worth the effort. She can retire this year.May 13, 2019 at 5:50 pm MST #214375ZZZParticipantStatus: SpousePosts: 665Joined: 06/18/2018
“Just to be contrarian, I dislike when people say this about the lesser earning spouse…Every bit that is brought into the household counts.”
Except for when it costs more to bring in that little bit than that little bit is worth. It’s not an indictment of the other spouse, it’s simply a reality of our tax code.
The lesser earning spouses marginal income comes at the 35% federal bracket plus 5.1% taxachusetts, plus 1.45% Medicare (Mass school employees are SS exception), plus 0.9% Obamacare tax – so 42.45% marginal rate on her 1st dollar (whereas a single earner would pay only 6.55 % marginal on their first dollar…as the standard deduction would make the first 12.2k fed tax free — a 36% marginal difference on the first dollar)
Take home (ignoring pension deductions, etc.) ends up being just under 29k. If earning that 29k after tax necessitates childcare which otherwise wouldn’t be needed, or any other work related expenses that wouldn’t otherwise be incurred, the net benefit heads to 0 pretty quickly — the lower earning spouse is quite literally not working for the money, because on net, they aren’t earning any money.
At some point, adding in the responsibilities and hassles of a job, the challenges of vacation coordination, and missing out on time together exceed the value of the marginal net income of a low earning spouse.
The lack of doubling of the tax brackets from single to married (top marginal singles rates starts at $510k, MFJ isn’t twice that, it’s only $612k) is a huge disincentive to work for low earning spouses married to high earners. That takes lots of smart, qualified people who could provide valuable contributions out of the workforce, and society loses.MnSaverParticipantStatus: Other ProfessionalPosts: 62Joined: 01/04/2018
I recommend checking the plan documents. Something didn’t seem right about your post, and everything I find online says that you get an undpreduced benefit after age 60 and 10 years of service (for those that started after 2012). It might be worth making an appointment with MTRS to get all the details laid out. In most systems, as long as you meet years of service the retirement age is when you start pulling benefits not when you retire. For example, you retire at age 55 with 30 years of service but don’t start pulling pension until 60.
That pension could be worth millions. With your income you might not need it, but it still provides a nice safety net.