By Dr. Jim Dahle, WCI Founder
Kaiser is a very large employer of physicians (almost 25,000) in several states. It's perhaps most prominent in California, and (conflict of interest alert) it has, at least in the past, hired a WCI-owned company (StudentLoanAdvice.com) to provide services to its doctors. As a nonprofit, its employees qualify for Public Service Loan Forgiveness (PSLF) for their loans. Unlike most private employers these days, Kaiser also offers a pension, and we are occasionally asked if “the pension is worth it?”
I'm never really quite sure how to answer that question, mostly because nobody ever defines “it,” and even if they did, a pension has different value to different people. For example, the more you value guaranteed sources of income in retirement and the less investment risk you are willing to take, the more value you should see in a pension. Plus, the longer you live, the more a pension pays you, theoretically making it more valuable for those who live the longest. However, there are methods of quantifying the value of a pension, and once you have done that, you can compare it to whatever “it” you wish, assuming, of course, you can also quantify the “it!”
What Is a Pension?
Years ago, retirement funding in America was viewed as a three-legged stool. The first leg was Social Security (basically a government-run pension program), the second leg was your employer-provided pension, and the third leg was your own retirement savings (whether or not in any sort of tax-advantaged account). Over time, employers, in an effort to lower their costs and risks, eliminated pensions or defined benefit plans (where the employer takes the investment risk) in favor of defined contribution plans (where the employee takes the investment risk). For most, the three-legged stool became a two-legged stool, and because most people lack financial literacy and discipline, it was actually a one-legged stool for at least 40% of retirees. However, there are a few people out there—primarily government employees but also employees of organizations like Kaiser—who still have access to all three legs of the stool.
While pensions can often be converted to a defined contribution plan (and cash balance plans are actually a defined contribution plan masquerading as a pension), the classic pension provides a stream of income guaranteed by the employer until the day you die. Pensions are often indexed to inflation in some manner, and they may even include some healthcare benefits to age 65 or beyond.
More information here:
Comparing 14 Types of Retirement Accounts
How to Value a Pension
It used to be easier to value a pension because you could buy an inflation-indexed pension from an insurance company. They are called Single Premium Immediate Annuities (SPIAs). A few years ago, it became harder and harder and then eventually impossible to buy an inflation-indexed SPIA. So, while you can still use this method, you are really comparing apples to oranges. It can still be a useful exercise, however.
Let's say you are considering getting a pension that will pay you $48,000 a year from age 65 until your death. What is that worth? Well, how much does it cost to buy it from an insurance company? One of the easiest places to get that information is a website from an annuity sales company called immediateannuities.com (no financial relationship). It looks like this:
and then spits out this:
On April 30, 2024, when I ran this quote, a 65-year-old could buy an annuity that pays $6,435 per month ($77,220 per year). Using either trial and error or algebra (X = $48,000 × $1,000,000 ÷ $77,220), you discover that a pension that pays $48,000 per year would cost $621,601. Adjusting that for inflation, of course, requires a functioning crystal ball, and it is an exercise best left to a team of professional actuaries. But suffice it to say that a pension that was indexed to inflation would be worth significantly more than $621,601. As an aside, note that delaying Social Security to 70 is a far better deal than buying a SPIA. Delaying is clearly the “best-priced annuity” out there. That's because everyone gets Social Security but only healthy people buy SPIAs! In fact, there is data suggesting that annuitants actually live longer.
It gets even more complicated if the pension includes healthcare, like the military pension plan that also provides Tricare to its retirees. Basically, you would need to see what purchasing a similar healthcare plan on the open market would cost and add that value to what the pension is paying.
There are other methods of valuing a pension. For example, you can take the annual pension amount and divide it by a reasonable rate of return and then multiply it by a percentage probability the pension will be paid until death, as promised. That's right, sometimes companies stop paying. Due to that possibility, some people, such as Dave Ramsey, advocate you ALWAYS take the lump sum in exchange for your pension and invest it yourself any time you can. I don't feel that strongly about the subject (especially given the usefulness of pensions in mitigating Sequence Of Returns Risk [SORR]), but it is something to keep in mind.
Just like you spend 457(b) money first, maybe you don't want to rely on your employer for decades after retirement. But you're not completely reliant on your employer. There is the Pension Benefit Guaranty Corporation, which is basically a pension insurance company. In exchange for premiums paid by the company/plan, it guarantees some of your pension payment. That amount varies, but it is often thought of as up to $12,870 per month for a 30-year employee—less with fewer years of service and more with more years.
At any rate, this formula could be used as follows: $48,000 per year ÷ 2.5% × 90% = $1.73 million.
If you feel like that overstates the value (since a pension leaves nothing behind when you die), you could multiply it by 50%, leaving a final valuation of $864,000. That percentage should be lower the older or sicker you are. The obvious question becomes what rate of return to use? Certainly, you don't want to use something like the average return of stocks, but perhaps something like the 10-year Treasury bond yield, which was at 4.63% when I first wrote this post. If you used that instead of 2.5%, you'd get:
$48,000 ÷ 4.63% × 90% = $933,000
As you can see, it's clearly a garbage in/garbage out process.
A better method is described here, and it uses charts to determine a guaranteed income multiplier.
If you are a 65-year-old male, you'd multiply the annual pension amount by 17.3 (20.3 if indexed to inflation) to determine its value.
So, a $48,000 pension would be worth $48,000 × 17.3 = $830,400 ($48,000 × 20.3 = $974,400 if indexed to inflation).
How Does the Kaiser Pension Work?
Let's start with a pamphlet handed out to Kaiser employees in northern California. It doesn't tell you much, only that you don't even start qualifying for the pension plan until you've been working for at least a year (1,000+ hours) and that it takes five years of employment (six?) before you're vested in it at all:
Interestingly, I found one of those pamphlets for residents and fellows, and this same chart DID NOT include the pension plan. Several Kaiser websites did say you could request documents from HR that explained the pension, but I couldn't find them online anywhere. All I could find was a few forum posts alluding to how it works.
Basically, you get 2% of your salary (it's unclear if any sort of bonuses or incentive payments are included) per year for each year of employment for the first 20 years and then 1% after that. So, if you work for Kaiser for 10 years, you get a pension paying 20% of your salary (presumably your last year's salary or an average of the last three years or something) starting at age 65 (although there is apparently a way to get the full pension as early as 60). While it's probably important to understand exactly how it works if you are a Kaiser employer, the exact details aren't all that important for our purposes today, and I'm sure they'll rapidly show up in the comments section of this blog post.
But let's say you make $250,000. Twenty percent of that is $50,000. As noted in the calculations above, that sort of pension is probably worth a high six-figure amount, possibly a low seven-figure amount.
More information here:
How Much Money Does a Doctor Need to Retire?
What Is “It?”
However, the question we're asking is whether the Kaiser Permanente pension is “worth it.” We still have no idea what “it” is. Certainly, the pension has value. All else being equal, if you get a pension at one employer and don't at another employer, the employer offering the pension is a better deal. However, all else is never equal. For example, maybe you're comparing an employer that offers a higher salary to a Kaiser job (but somehow magically all else is equal). How much more does that job need to pay to be worth taking over the Kaiser job? Assuming you have the financial literacy and discipline required to actually save for retirement effectively on your own, how much more would you need to be paid to save up an equivalent amount to that pension? Let's say the pension is worth $1 million. To have $1 million after 20 years of earning 5% real on your savings, you would need to save
=PMT(5%,20,0,1000000) = $30,242 per year.
To do that, you probably need to be paid something like $55,000 extra per year in pre-tax salary, depending on your marginal tax rate (which is not insignificant in a state like California). If the other job pays you $325,000 and the Kaiser job pays $250,000, then no, the pension isn't “worth it.” But if the other job only pays $280,000, then yes, the pension is “worth it.”
All employers offer different salaries, work environments, and benefit packages. Comparing one to another feels impossible because it is impossible. However, I hope this post gives you a sense of what a pension can be worth to help you make decisions that are a little bit more informed than just guesswork. Kaiser Permanente has a lot of fans, both among their insureds and among their employees. A generous traditional pension is just one reason why. But that doesn't mean that a Kaiser job is somehow better than every other job out there.
What do you think? Do you work for Kaiser Permanente? How exactly does your pension work? What value do you place on it? Why is it important to you to work for an employer that offers a pension?
One of the most important calculations is not purely financial. That’s “risk”.
Pensions shift risk from the retiree to the pension provider, who pays for how long people live “on average”.
No one knows when they will die. So to minimize risk, you have to “over save” in case you live to 100 or whatever.
With a pension, you don’t need to over save for this portion of your retirement income.
Having a pension “in the mix”, just like having social security, enables one to save less because risk is pooled and shifted away from you.
It is almost always a good deal when viewed as a max life rather than average life calculation.
Each Kaiser group is different. NWP (covers Oregon and south WA) pay a 2% 401k for the first 2 years, then rises to 11% from the 3rd year (11% of salary, bonus, and incentive pay). So a typical salary of $300k is boosted by an employer 401k contribution of $3300 per year, about half of a HSA.
Now their “pension plan”:
NWP Cash Balance Plan
This is a defined benefit, or “Pension” plan. Under this plan you earn an annual 10% pay credit of eligible earnings (what you actually work and earn, not just base salary) and a fixed 4% interest credit based on previous year-end balance. The balance in this plan began accruing on your date of hire, but has a 3 year vesting period, so no benefit is due until the 3 years have been satisfied. Fidelity does not have any involvement with the Cash Balance Plan.
$33k employer 401k contribution, not $3.3k.
The answer is about 15-20%. I’ve given a few presentations to fellows/residents about choosing jobs in California and my wife works for Kaiser while I’m in private practice. I’ve done the calculations you outline above and come to a very similar conclusion but have a presentation that basically shows the final value of the pension over a private practice job is 15-20% (depending on all sorts of unknowns).
So in conclusion: if you’re looking at a Kaiser job that pays $300k… it’s going to be about the same financial compensation as a private practice job that pays $350k assuming you take that extra $50k and put it in a 401k over an assumed 20-25 year career. However the biggest difference is that when you have a personal 401k you (and eventually your estate) own and inherit that chunk of money while the pension disappears.
I hope that’s helpful and I’m happy to share my slides with the math.
I’d love to se those slides if you’d be willing to upload / share!
I would love to get a copy of the slides as well
Same here! 🙂
Can you please share your slides? Thank you!!
I’m a retired physician from kaiser Permanente Northern California. The pension you collect age 65+ is 2% of salary for 1st 20 years, then 1% for every year after that. total amount is limited by IRS limit for pensions. For a highly compensated physician, they give you a lump sum at age 65 to make up the difference.
There is a separate 60-65+ pension that is similar but is not IRS limited, so strict percentage of your salary.
You can delay taking the 65+ pension to get a higher amount, sort of like social security.
Also, if you retire after 60 and have enough years service, they give you very comprehensive health care at no cost to you other than small copay for medications. You have to get care at KP facility if you live in a KP area. If you move outside a KP area, you have PPO type insurance at no cost that is pretty comprehensive but you do have small copays for doctor visits and 90% coverage for surgeries etc. so this is worth a lot of money too. spouse gets same coverage.
Can you tell me a bit about the IRS limits for pensions and the lump sum? It seems like the IRS limit is $275K (https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-defined-benefit-plan-benefit-limits), so are we talking about docs who made >600K assuming they get 50%-60% of their salary for pension.
Since one’s income is likely over the 275k limit for federal pensions, they give you a lump sum at age 65 for the age 65+ pension to make up the difference between the 275k limit and what your 50% pension would be. The lump sum is rather large. To help with the tax hit from that lump sum, they also give you a bit more money.
I work for Kaiser in Southern California which is a separate business entity than Northern CA — and the pension is similar but slightly different. It is a true pension plan in that there are no physician contributions to this benefit. I did not consider the pension when I got my job — partially because in southern CA you are not eligible for it until 10 years of working. So if you leave at year 9 you get nothing and I would not feel comfortable using this in my financial planning since you never know where life may take you in 10 years.
I think for avid readers of this blog a pension like the one through Kaiser may not be worth “it” because you can probably accomplish your financial goals on your own — particularly if there is a different job that pays more. In my area this seems to depend on specialty — for some jobs Kaiser’s comp is competitive, for others not so much.
In my anecdotal experience the pension is of very high value for a lot of docs who work for Kaiser in Southern CA because many are not saving at least 20% for retirement. They have allowed the pension to become “golden handcuffs”. I see a lot of burnout among docs in their 40s-50s but seems that many cannot scale back or even leave altogether because they are depending on the pension and having to work a certain amount of time to maximize the pension benefits. I think part of this is because the cost of living is so high in this area and people are spending a much higher percentage of income on housing.
For me, if I end up staying with Kaiser until the 10 year mark then I think I will probably be in a great position to dramatically decrease my retirement savings. But prior to that I am not using it in my financial planning. That would be my advice to others — if you take a job with a pension just ignore it until you are actually eligible for it so that it becomes a nice bonus instead of golden handcuffs.
Jim, awesome post as always in trying to define is a pension worth “it”. Do you also have to consider who is running the pension fund and how it’s run? At least for me if I were working for Yale University and it was offering a pension I’d feel much safer back in the day when David Swenson was around. Didn’t a lot of companies go bankrupt and could not fulfill their pension obligations and that is why companies offering pensions are going the way of the dodo? Did pension fund managers, investing in risky or active strategies, contribute to these bankruptcies? should we prioritize pensions where the fund managers invest in a passive index fund strategy?
A pension is primarily backed by the company, not the investments. So if you’re going to worry about a pension, that would be the place to start. Not sure I’d pick a different job because its pension fund manager used active management.
One note about the pension is that it can go to descendants. My father was a Kaiser physician in Northern California for 15 years and passed away at the age of 64 while working for Kaiser of cancer. My brother and I inherited his pension plan and had the option of a lump sum, 5 year, 10 year, or 20 year payout. The longer term options were more money over time. I chose the 10 year option as I was a physician in training. It’s helped me jumpstart savings for house down payments, 529 plans, etc at $4700 for 10 years. My brother chose the 20 year plan and is getting $2500 for 20 years and essentially lives on it as he’s unemployed. I can’t remember what the lump sum amount would have been, but it was much less than the amount over time and we like the guaranteed income. They treat their doctors very well in death and getting the life insurance, retirement accounts, etc was seamless at a very sad time.
Would it have been that hard to include #’s for male and female? Male is not universal, and if you want female readers to feel like this is a site that is written for them, then stop defaulting to exclusively male examples.
Hi Stephanie, as the content director, I can assure you that we’ve worked very hard over the last several years to make this site as gender-neutral as possible. We don’t write “salesman” or “saleswoman.” It’s “salesperson.” When we give examples of doctors, we use “they” and not “he” or “she.” We have several female columnists and writers who have written things like this https://www.whitecoatinvestor.com/you-should-invest-like-a-50-year-old-woman/ and this https://www.whitecoatinvestor.com/wife-breadwinner-gender-role-reversal/ and this https://www.whitecoatinvestor.com/starting-my-financial-education/ and this https://www.whitecoatinvestor.com/unique-challenges-for-female-high-income-professionals/. I agree with you that we should always strive to make sure this site is for everybody to read. We work hard to do that now, and we’ll work hard to continue doing that in the future.
I have zero interest in articles “for women” and frankly, using wording that acknowledges the existence of female doctors…the bar on the floor??? this is the second time I have commented on an article on annuities that only gave #’s for men. it is one of the few areas of personal finance where cost actually differ by gender.
For the record, the articles I linked to weren’t “for women.” They were written by women about their own experiences to be consumed by our entire audience. Those were just a few of many examples where all readers hopefully can feel like this is a site written for them.
We’ve also written about how DI can cost more if you’re a woman, another example of how personal finance can differ by gender. https://www.whitecoatinvestor.com/why-disability-insurance-is-more-expensive-for-women/
But I understand your criticism, and I appreciate your insight. We will try our best to do better. You can also feel free to email me at [email protected].
Defensive much? She has a point and you keep explaining why her point is an over reaction. I agree with her.
I know I’m a bit out of the shelf life here for the article, but your post was an interruption of some solid information from posters. Blog reply was completely respectful – [rude comment removed]
They’re all included in the chart that was in the post originally. The example used this time in the text was a male. I don’t think it’s fair to say doing so is “defaulting to exclusively male examples.”
Now that I look at those charts I wonder if someone with a male/male or female/female couple is going to feel discriminated against too, but that was all the website did.
Seriously? They literally spelled out their methods of calculating and stated explicitly that this was one example. The whole article is kinda wishy washy with back of the envelope math, because that’s kind of the point — there are too many assumptions that go into calculating “it” that are person and situation (and gender!) specific, so much that it’s nearly impossible to give a specific “it” number. Gender is one of those assumptions and he picked male here. You can easily use the linked site to recalculate quite quickly based on your own assumptions (as well as flesh out how long you think you’ll live, expected rate of return, etc). Your veiled criticisms of sexism ring hollow in this circumstance and make you look foolish.
I ran this calculation when considering a Kaiser job out of training, and came to a similar conclusion. Value around $40k pa on a salary of $200k ca 2004.
After two decades I sometimes think about how that pension would have been worth 40% or $120k a year in today’s dollars in 15 years (assuming salary went from $200k to $300k over the last 20 years). That would have been nice.
On the other hand my employer has kicked in about 10% pa which closed half the gap. That average $25k per year invested in a long bull market wielding 10% real returns is itself worth $1.5 million. In 15 years it should be worth at least $2.5 million real which would throw off… $100,000 according to the 4% rule. But I get to leave my heirs the balance.
I’m ok with my decision.
As mentioned in another comment, all the Kaiser groups have different retirement packages and the devil is in the details. The Northern California group’s is probably the most robust. I’m 18 months from retiring from this group and the biggest advantage is that the pension saved my bacon earlier in my career when I wasn’t very financially savvy. Now, at the other end, I’m glad I did it. An EP’s salary is ~ $400,000 now ($500,000 if you include benefits – medical, dental, life insurance, 401K match, etc). Most physicians retire with a pension of +/- 40% of salary, so that’s a nice $160,000. And you can retire with ‘full early’ at 60 which includes a lump sum at age 65 to make up for IRS limits as someone else mentioned (this works like a bond – lower value when interests rates higher, but will be worth ~$800,000 for me depending on rates). Because I have this guaranteed income, I have all of my other investments in high risk/high yield vehicles. The downside is, of course, you have to stick it out for 20-30 years.
This is all spot on. One detail left out though is that the $400k you mention is just recently based off of a apx 5% raise. Prior to that raises had been rather flat, so this is a bit of a correction back to average.
It also assumes you’re working 10/10ths (Kaiser’s version of “full time”), which is about 160-170hrs per month (17-19 shifts/month), which not many ED physicians actually do. For an 8/10ths salary (closer to 140hrs or ~15 shifts/month), you’re bringing in $320k + benefits (which as you mentioned are substantial).
I responded to another person above but since you also mentioned the lump sum, I thought I would ask you as well:
Can you tell me a bit about the IRS limits for pensions and the lump sum? It seems like the IRS limit is $275K (https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-defined-benefit-plan-benefit-limits), so are we talking about docs who made >600K assuming they get 50%-60% of their salary for pension.
I would have to do some research to give you details about the lump sum – I know it’s a complicated way to compensate for IRS limits of some kind and it specifically applies to the “Full Early” pension – applicable from age 60-65 only. The link you provided mentions the $275k salary limit, which is a factor I believe. The plan is trying to compensate for that limit.
I’m not sure why you mentioned “>$600k”. It applies to anyone making more than $275k. Also, nobody is getting 50-60% of their salary as pension. As I mentioned, it’s 2% per year of service (which is based on 100% time) up to 20 years, then 1% per year. For me, that’s ~ 28 years at roughly 80% time – I’m just going to barely go over 40% ([25 years x 0.8 = 20 x 2% = 40% ]+ [3 years x 0.8 x 1% = 2.4%] = 42.4%). All numbers are rough). To get 60 %, you would have to work 10/10th for 20 years (for 40%), then 10/10 for 20 more years (to get an additional 20% for a total of 60%). Nobody is doing 40 years at 100% time, ever.
I will update if I can figure out the lump sum portion of the Full Early benefit.
Interesting article, Jim.
When I joined KP, I did it for personal and lifestyle reasons, not purely financial ones. The pension was a pleasant surprise. Couple things–you can qualify for the pension based on a combination of years of service and age that probably differs amongst the Kaiser regions. There is a rule of 80, and also a rule that says you can retire with full pension and medical benefits once you turn age 60 as long as you have 15 years of service.
The value of medical benefits for you and your spouse cannot be understated. Retiring prior to medicare age with full Kaiser medical benefits is an enormous benefit, though not specifically part of the “is the KP pension worth it” calculus.
I’ve also found the collegiality to be refreshing and invaluable in helping prevent burnout. It’s a nice work environment.
That said, owning your own practice seems almost certain to make you much more wealthy than working for Kaiser. In my experience, Kaiser / HMO-minded people tend to gravitate here, while more entrepreneurial types find their way into private practice. It’s nice to have options.
I think my grandmother has probably been on the KP plan longer than anyone alive. My grandfather started there in 1955 so she’s been on it since then. He retired in 1988 and has since passed but she’s been receiving that pension ever since and health benefits. Obviously just like a SPIA some win and some lose but I’d say it was definitely “worth it” for them.
FYI- the initial comment about employees of Kaiser as an nonprofit qualifying for PSLF may not be entirely true for most physicians working with Kaiser. Most of the 8 Kaiser regions are actually 2 separate entities- Kaiser (insurance, hospitals/offices, and staff such as nursing) and Permanente (physician groups). The physician groups are private groups that staff the Kaiser facilities for the region (mostly). So folks who are planning on PSLF may want to double check first if the Permanente group they are potentially working for is private or not to prevent a lot of angst down the line.
Thanks for that important clarification.
Kaiser LA permanente group is non profit now and PSLF works there.
This is the same case for TPMG ( the northern california medical group). Physicians now qualify for PSLF
TPMG docs 100% qualify for PSLF (I had mine approved). It doesn’t matter if it’s a private Permanente group or the Kaiser Hospital —they all qualify now, that was the point, based on changes to CA and TX law.
Hi Ted F,
Good point. Of the 8 regions, there are three that currently qualify for PSLF
Southern California Permanente Medical Group
The Permanente Medical Group
Northwest Permanente Medical Group
Andrew SLA
Good article. It would be really good to have a followup analysis of several government service pension plans and benefits for government employee physicians, and compare that with private practice retirement as a total package. I would suggest the State of California and the federal government. As a whole, each type (Kaiser, state and federal programs) have individual areas where they excel, and other ways in which they do not. As you mentioned, the benefits also vary depending on the specialty and its average compensation, and years of service.
I agree, would like to see a ballpark analysis of the Federal pension program for a physician. It would also be interesting to see an analysis of the full Federal benefit package—the VA tries to sell this as a massive benefit (to offset their lower salaries). But how much is it really worth these days compared to Kaiser and other decent non-profit hospital systems?
From my perspective, in general the federal pension benefit (while a nice feature) has a smaller monthly pension in actual dollars. It varies of course in comparison from state to state. You should also take into account how well the fund is presently funded. Some states manage the funding of their plans well. Other states are so far behind in funding that you have to think about the risk that the future monthly benefit could be eventually reduced.. Some states have constitutional guarantees for state pensions; others do not. The federal civilian pension does have some unique advantages: 1) A very good, cost effective and well run medical/dental and vision benefits plan, with a large number of choices (per residence zip code); 2) If you have active duty years of military service and haven’t qualified for a military service pension, you can add those years of active duty military service at a reasonable cost to your federal civilian pension; 3) If you join later in life, you can often earn a pension with medical benefits after as little as 5 years of service at age 62; 4) If you retire at 62 with at least 5 continuous years of medical insurance coverage, you can usually retire with a small pension AND with full medical benefits. And, when you become 65, you can opt to decline Medicare Part B, and continue your regular pre-65 medical retirement health insurance coverage. If you opt for Medicare Part B, you then choose a federal retirement Medicare Supplement plan. 5) There is a 401K plan with a matching percentage. 6) After the 2nd year of retirement, the pension amount is adjusted to compensate for yearly inflation. Some states also have an inflation adjustment formula; however, the federal formula can be more generous. 7) There is group insurance. It would be really good to see the comparison in actual numbers as you have done with the Kaiser retirement pension. This could give you some guidelines to look at in your analysis. I would look forward to a detailed article and hope that this is possible.
The VA pension only pays 1% per year of employment, so 30 years only gets you 30% of your max salary. The Permanente Medical Group (Northern CA “Kaiser”) would pay 50% after 30 years of full-time service .
Great post, a couple of qualitative things to add from my experience. First, for spouses it can be a great hedge against the one that doesn’t have a pension. Second, we are net savers from one pension and one social security retirement benefit. This assures the best possible chance of staying the course on our investment plan, which I consider a bit different than managing SORR.
I am a pediatrician who started at Nor Cal Kaiser (TPMG) at age 40 and I am now 50. At 10 years in my (very) low paying specialty, my pension benefit right now is $60K a year. I get this at 65 even if I leave today. I can retire at 60 with 5 years of about $120K a year (a “full early” pension from a different pot of money than the regular pension). At 65, I can decide if I want to continue the 120K a year until I die or a variety of other options including a lump sum which works out to about 2 million. This is my 1 real world example of what a 20 year career at TPMG looks like starting at 40 and planned retirement at 60. The pension is a significant amount of money to me, and may be the single best financial decision I ever made.
The benefits package is more than just the pension so the “it” should include those factors.
-TPMG also GIVES me 21K a year into my 401K, not matching, just a gift.
-I have complete medical coverage (the most I have ever paid is a $5 copay for meds and one of my kids has had over a million in healthcare costs). Dental is almost complete coverage.
-I have subsidized disability benefits (60% tax free for a nominal cost).
-TPMG offers the “mega back door roth” and a delayed compensation plan, both of which can save on taxes and are not offered at all companies.
-I get 5K a year for CME.
-I have 6 months of sick leave so my family is completely covered with this + my DI if I get sick.
-My partner shares appreciate at 10% per year.
There are other benefits but these are my favorites.
There are some financial downsides
-Lower than inflation “raises” year after year
-no compensation for backup call
-no overtime pay (only 1x for overtime)
-no pay differential for nights, holidays, weekends (other than holiday pay)
-salary that is lower end of market range for a pediatrician in the Nor cal area
There are others, but these are the ones that bug me the most…
Early in my TPMG career I did not count on the pension and continued to save as if it would not be mine. Now the money is factoring into my math. Many people without a pension work hard and save aggressively to FIRE. With a pension, the full benefits require you to stay to 60, but you don’t need to save as much, so part time is the answer in a “coast FI” modified pathway to financial freedom and abundance.
I am confused. I retired at 65 from Kaiser Southern California and got a very good pension. Keep in mind that the “benefit” is age and inflation?salary adjusted prior to just collecting it so even though the first year of work theoretically pays 2% it pays it on one’s average of the last 3 years of salary, not the first years. When I retired I looked up the cost of annuities from private companies and it would have cost me $4 million to get that annuity so if one divided $4 million by the number of years I worked it is a much better benefit than what is being discussed. Also if one is about the long term safety one has the right to take a full payment (of course a much less some) at the time of retirement and thus receive no monthly payments.
What am I missing or doing incorrectly in these calculations??
You can’t JUST divide it by the number of years worked, you have to include a time value of money calculation. For example, let’s say the pension is worth $4 million and you work 25 years. Your method would suggest that you got a value of $4 million/25 = $160,000 per year. In reality, you could have built $4 million at 8% with just $55,000 per year.
=PMT(8%,25,0,4000000) = $54,715
Kaiser physicians who work 30 years get 50% of their last three years salary upon retirement. There are several ways to take that pension including a maximum monthly payment to the physician that ends upon death or a slightly lower payment that can be continued to the surviving spouse. Also the physicians can participate in a 401k, Keogh plan and potentially an after tax Roth plan. Within the 401k and Keogh are a variety of mutual fund offerings including the option to control the investments yourself with individual stock picking.
I am a FT Psychiatrist with the VA. Looking at what Kaiser has to offer I’m a bit jealous. Should I be? I plan to retire with 30 years of “service” in 8 years. It should be known that I pay into my FERS (Federal Employee Retirement System) every paycheck so is it really a pension or just a second Social Security plan?
Kaiser’s pension payments do not increase to match inflation, and they max out at less than half of the doc’s highest salary during their work at TPMG.
After more than 10 years of full time work, my pension is set to pay 17% of my base salary, in today’s dollars.
In context:
Let’s say that is $5000/month in today’s dollars. Let’s say that I am 40 years old. It would be $5000/month when I am 65 and can start drawing the pension, in 2049, and $5000 when I am 90 , in 2074.
$5000/month in 2074, adjusted for 3% inflation, for example, would be worth ~$800/month in today’s dollars. (Inflation has actually averaged more than 3% over the past 50 years.)
To adjust for 3% annual inflation, $5000/month would need to become $22,000/month when I’m 90, in 2074. But it would remain $5000.
To recap, at TPMG (The Permanente Medical Group, for ~10,000 Northern California doctors):
– pension payments are NOT adjusted for inflation.
– pension payments max out at 50% of your highest past Kaiser salary. My understanding is some pensions (e.g., some state university professors) provide 100% of past salary. Those are very different pensions.
– for reference, salaries can be fairly flat at TPMG. The salary spread between new hires and docs who have been at TPMG for 20+ years can be surprisingly small. It would make sense for the organization to avoid building high salaries for longtime doctors, due to the burden to the organization of the pension.
– TPMG salaries may not keep up with inflation, even when inflation is around 2%.
– for reference, there is a separate monthly payment that can be taken between ages 60 and 65, for doctors who take early retirement after at least 15 years at Kaiser and meet a few other eligibility criteria.
– for reference, the pension is one of several components of the TPMG retirement plan.
I wonder if articles like these that made me covet a job with Kaiser for years. I worked for them for years on very low pay for a subspecialty, without benefits, with the understanding that eventually you are hired from the pool of ‘per diems’ – which did not happen.
As an early career physician, I admired the Kaiser model. I found that certain groups for Kaiser can be better than others and workplace politics are vicious.
Every Kaiser system is different. I work for Kaiser in Colorado.
We get a $14,250 match into our 401(k) each year. We also have a cash balance plan where Kaiser contributes 10% of our salary (up to IRS max of ~35k) and it grows at 4% guaranteed per year without options to choose your own investment. However, whenever you leave Kaiser, whether 5 years or 25 years, you take the cash balance plan with you and can roll it over to your IRA or new employer 401k. I value the retirement package at 50K per year at the minimum, as this doesn’t include the yearly HSA contribution they give us.
In the KP system in Northern California, physicians are not employed by “Kaiser. “ They are partners in or contracted by The Permanente Medical Group (TPMG), a for-profit organization that contracts annually with Kaiser Foundation Health Plan. TPMG physicians are not employees of Kaiser, and the pension provided to TPMG physicians is not administered by Kaiser.
I retired from the Southern California Permanente Medical Group as an FP with 30 years of service in 2004. I was initially paid by SCPMG under their “full early retirement “ (at age 58!) program. At age 65, payments from SCPMG stopped and “Common Plan” retirement payments from the main Kaiser Oakland office began. Full Kaiser medical benefits were provided throughout the entire retirement.
My son took a Kaiser residency and now is on the staff at SCPMG.
When I look at the conditions in private medicine vs Kaiser today, it is as if East Germany had won the Cold War.
As a current subspecialtist with over a decade experience, I think one should compare MGMA with what the base salary at kaiser is. This job market is unlike any other for almost every specialty. I am finding that I am not paid up to par with the MGMA. But if I add in the pension (using factors above), then I might be at MGMA median for the current time period.
So then (minus workplace issues) the dollar calculation (minus the large inflation piece) question is : would you rather have the money up front (private practice) or would you rather have it deferred until you hit 65? If you cannot find a comparable job for your specialty, then kaiser may be fine.
But if kaiser is underpaying your specialty, then explore other options.
Good point that it’s important to consider the whole package.