Before you commit to the drudgery, make sure you evaluate if your pension is really worth it.
Let me start by saying this post may be controversial. I have some opinions on pensions that are not, well, mainstream. When I refer to “pensions” in this stack, I mean the defined benefit kind—the kind that pay you set amount of money each month for your life upon retirement.
Pensions used to be more common in the private sector, today it is rare the average worker receives a pension from his or her private employer. For various reasons (including life expectancy) the costs of pensions are cumbersome to companies, and many have done away with them. Where pensions exist most commonly now is the public sector—military, teachers, police, firefighters, etc. Oftentimes, people employed in these sectors are paid lower than market rate compensation during their working years in exchange for a guaranteed retirement income (i.e. the pension).
If you are a worker with a pension, and you feel fulfilled with your employment, and would stay in some similar position or field regardless of a pension—congrats, you are not the reader I’m trying to help today. But if you are the person who is counting down years (if not decades), in a tiresome employment all for the pension—you know exactly the self-imposed prison a pension can create. I have some thoughts on escaping…
How Pensions Entice Workers
Pensions can be very enticing. They are commonly structured so that if an employee remains at an employer for a certain period of time (most commonly 5, 10, and 20 years), the promised retirement payout will increase. For example, if a city worker remains at the city for 5 years, he or she is promised a lifetime payment at age 65 of $300/month. If however, that same worker remains for 20 years, the payment is increased to $2,000/month—a substantial increase.
So along the way, there are periods when the benefit is just “years” away, enticing employees to stick out potentially dreadful daily life all for an incremental increase in their future pension. A common scenario: perhaps you have made it over 10 years with an employer that pays the maximum at 20 years—so now you feel obligated, no matter the work environment—to stick out the remaining 10+ years.
The Point of Work
Pension benefits are certainly an overall a positive for financial success AT RETIREMENT. What they are not a positive for, is how your life may look while you wait out that retirement date in a job you abhor.
I have a philosophy about what your daily life should look like if you want to even have a chance at those fleeting moments of joy in life. I believe very strongly that we should all aspire to live lives of meaning and purpose—using our crafts to improve ourselves, our families, and the world around us. Sure—this is aspirational, as we all have aspects of our profession that are less than pleasant. But if you are depressed every Sunday night about what you are facing Monday, for months or years on end—whatever you are doing needs to be changed—pension or no pension.
I see countless times this reality—a client or friend is “trapped” in a job that makes them miserable. Keep in mind, if you are spending the majority of your life doing some tedious nonsense you despise, this will impact your health, the relationships you have with your family, your desire to give back to others in your community, and your overall demeanor and approach to living. No pension is worth this sacrifice.
All Well & Good, But You Have Bills to Pay
Now, nothing I’m saying here is financial advice. Don’t read this article and decide to pull a Jerry Maguire with no plan. You need money to live, and you need to be thoughtful about how you obtain said money.
However, if the drudgery I’m describing resembles anything in your life—and you’re just counting down the days for your pension benefits, and it’s going to require years more of misery, here are some financial realities you should consider.
If you left your job, and found something equivalent without a pension, would it pay more? Often times, private sectors pay more than public sector jobs partly because they do not have the same robust pension benefits. If this is a possibility for your field, how much more would it pay? Could you save and invest the increase in income and build your own future pension?
For example, consider a public sector employee making $50,000 per year planning to receive $1,500 per month in income after working 20 years. Let’s assume this employee has 10 years more until he reaches the magic 20 years. If he were to work in the private sector making $65,000 (a $15,000 per year increase), and if he saved that $15,000 per year and invested it at a 6% growth rate, he would have more than $200,000. Would this nest egg be enough to make up that 10-year difference in pension growth? I’ve had this scenario play out many times with clients, and sometimes the answer is yes, and sometimes it’s no—but it’s worth considering if you hate your job.
Can you leave your job at your current pension level and find something else and plan for retirement without the 20-year magic pension? This question is similar to the one above, but really, if you left your pension job now, took whatever small pension you may have vested in and started working somewhere else, could you plan for retirement as if the pension didn’t exist? If you are young, and under 10 years into a pension system, the answer to this is most likely yes.
How much more do you really need to work to vest? If you are 18 years into a 20-year vesting schedule, hate your job, but have gotten through it hating it most of time—now is not the time to leave. The reality is, you may have already sacrificed a lot of happiness, health, and other parts of your life to get close to that 20-year mark. You should earn what you’ve sacrificed so much for. But my advice to those who are at much less than 20—even only five years, and you already hate your job—begin making an exit strategy.
Whatever your situation is, if you are miserable and want to possibly plan an escape path, I recommend consulting with a financial planner who can help you game out all types of scenarios based on your personal situation. You may not be as trapped as you thought.
Most people would not stay in a relationship 20 years if it made them entirely miserable. Why would you sacrifice for something much less valuable—money? Don’t let a pension ruin your life.
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