A Wiser Retirement®

289. Are Pensions Worth the Wait? The Golden Handcuffs Debate

• Wiser Wealth Management • Episode 289

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Pensions can provide a valuable source of retirement income, but deciding whether to stick with a job solely for the pension is more complex than it may seem. In this episode of A Wiser Retirement® Podcast, we give a breakdown of the key benefits and trade-offs of relying on a pension, and how to assess whether it's the right move for your financial future.

Related Podcast Episodes:
- Ep 137: Financial Planning in Your 50s

Related YouTube Videos:
- How Much is Social Security Reduced if I Have a Pension?
- What's the difference between pensions and IRAs?

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- Schedule a Complimentary Consultation: Discover how we can help you achieve financial freedom.
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This podcast was produced by Wiser Wealth Management. Thanks for listening!

The Value of Pensions in Retirement

Speaker 1

The value of a pension where I see it is just like social security it helps you reduce how much you're actually gonna take from assets you saved. If you are just solely relying on pension and social security, depending on what you spend, it may not be enough Because over time costs can go up.

Speaker 2

Welcome to a Wiser Retirement Podcast. Are you curious about if pensions are worth the wait? I'm Casey Smith. Today, I'm joined with Senior Financial Advisor Shauna Theriault. Each week, we bring you practical advice on retirement, investing and planning for your financial future. Don't forget to subscribe to the podcast wherever you're listening. Let's get started. Hey, shauna.

Speaker 1

Morning. How are you?

Speaker 2

Doing good. So what's new with you?

Speaker 1

Nothing May. December is over, so the kids are out of school, and I guess this is going to air on June 23rd, which is actually my birthday week. Oh well, there you go.

Speaker 2

That's happy early birthday.

Speaker 1

And we're talking about pensions. That doesn't make me feel old at all Pensions and getting older.

Speaker 2

That's great. I got a weird text from you recently. You were like a bike to this place on the square and it's great you sent me this menu Some Mediterranean place. I didn't even ask you about the restaurant because I was like bike and I made my in my head. I had you like pedaling down Church Street fighting all the traffic.

Speaker 4

Man Sean was like you know, living on the edge, and I'm like really.

Speaker 2

Yeah, you're wearing like the US postal outfit as you're cruising through town. Right, I knew you didn't do that. No, and I totally forgot about the Weiser Mile.

Speaker 1

Right, we have this whole trail that's behind our building.

Speaker 2

So they're behind our building, right between us and the Mariana market is. Well, it's longer than a mile, but yes it is.

Speaker 1

I think you can ride it from the square, it's mountain to river. It's M2R. So it goes from Kennesaw mountain. It goes all the way to the Chattahoochee river, but the bike path ends way before that, which I discovered.

Speaker 2

Oh, does it.

Speaker 1

Yes, and then you're just on streets, and then that was scary scary, so we turned around right.

Speaker 2

So anyway, we have a whole mile that we're in charge of. Uh, when it's cleanup miles, we don't actually own the mile yeah but yeah, so we go out there.

Speaker 1

I told lily we own the mile though she was very impressed that you owned a whole strip we have a whole strip.

Speaker 2

So because it goes right past the weiser office, this trail, so if you're in the riding bikes, uh, you could come park, I guess somewhere near the square and you could ride it toward the mountain or park in the mountain and ride it toward, toward here, it's probably what three miles to the mountain or something.

Speaker 1

It's not that far, I think. It's like three and a half miles to the mountain.

Speaker 2

And then what happens past the mountain? Where does it go?

Speaker 1

I don't know, but if you go the other way, does it end up in kensal?

Speaker 2

like it ends up by the school, like I think so I think so, I and well, ksu.

Speaker 1

No, I don't think the mountains by ksu, because that's over at like exit three, but that's true I don't know I haven't been past the mountain, so well, it's a nice little stretch and I totally forget.

Speaker 2

So you.

Speaker 1

So you backed that with your daughter, you did, and then it was fine, where did you? Park your bikes to go eat inside the office oh, you parked well, you can't leave them on your bike rack because I don't want to steal it like, like attaching it to a tree or something no, I actually put it inside the office.

Speaker 2

I was like put it in here locked, so I didn't think you'd mind that's funny, it's on saturday yeah it was great, it was fun we had a good time yeah, so come bike the wiser mile and uh, you know, maybe you'll see sean and lily, absolutely come say hi to us biking down the path. Oh my gosh, I never even thought about doing that.

Speaker 1

Well, we should have a workouting where we all go bike the mile.

Speaker 2

There's going to be like 17 of us. Now I know that'd be fun. They'd be like oh my god, there's a gang.

Speaker 1

Is there a race somewhere? A race, yes.

Speaker 2

Oh, it'd probably turn into a race.

Speaker 1

Maybe there's a few of us that are very competitive.

Speaker 2

We do the three miles in like you know 30 seconds, absolutely, absolutely. It's good exercise I probably should buy a bike, all right, um, so let's talk about pensions. I've seen this recently on a few uh. Well, honestly, it kind of came to mind this whole topic, uh, with all the governmentoffs. I don't want to get into the politics of that.

Introducing The Wiser Retirement Podcast

Speaker 2

But, you know, the government spends $2 trillion more than it's supposed to. So you know, if you had a company that was shedding that much cash, there would be layoffs there too. So, overall, I think yes, maybe some government employees are hurt by this, but at the same time, unemployment continues to drop. So they're getting private sector jobs. Overall, I guess, is what the data says. Yeah, but, needless to say, I saw this interview and there was a young lady who said well, I had just gotten the job and I had this pension. I thought I was set and I started thinking about that. I was like are you set? I don't know. I mean, I guess, in how you think about things, yeah.

Speaker 2

Because you would have, so a federal worker would have Social Security. Social Security and would have a pension.

Speaker 1

And then benefits too, usually like medical benefits.

Speaker 2

Yeah, pretty good medical benefits. But I guess if you were a little more ambitious and you're in the private sector doing a job, Making more money, yeah, and saving more. Is making $60,000 to $80,000 as a government worker and saving more Is making $60,000 to $80,000 as a government worker. Is it better to be making $150,000?

Speaker 2

in the private sector, and then saving and creating your own pension, if you will, or your own Because you know, if you started early enough, you're going to grow way more money in the stock market than you are waiting for a pension to develop over time.

Speaker 1

Now there are other situations like firemen.

Speaker 2

Firemen have a very short work lifespan and I've seen some of them go be firemen. Then they max out their pension and they say OK, you're done now, and then they go work somewhere else for another pension, and then this is one case you work somewhere else. When they came to us they were finishing up a third career, so you literally had like three pensions in social security yeah that's pretty good, yeah, you think about it. Or or military people who work the full, the full time, but you had 20 years yeah, and then, they come out and if they're pilots, they then go fly and.

Speaker 2

And the airlines? Yeah, airlines don't have pensions anymore. Most of them don't.

Speaker 1

But their funding is like a pension, because the company contributes so much.

Speaker 2

That's also different because military pilots get paid pretty good money. They have to pay them some type of market rate, or else they would all just leave and go fly for the airlines.

Speaker 1

Well, we see people come out of the military, have their pension. They're relatively young because they wanted the service early and then they go in corporate America and they may not have a pension per se, but I mean some corporations still have pensions are very few in between, though Some banks do.

Speaker 2

I know judges do. I know that's not corporate, but I think what we're going to well, we'll go through our points here, but I think what we're going to come to the conclusion on is it really depends on what your job function is. I mean, if you were a secretary or an assistant and in the private sector you're not getting paid more than $100,000, I would think.

Speaker 1

Right.

Speaker 2

Where the government you might be getting paid $80,000.

Speaker 1

Yeah.

Speaker 2

Maybe the difference is yeah, it's better to have that pension and everything.

Speaker 1

Teachers, teachers.

Speaker 2

Right, I was just thinking, thinking that teaching in private school is typically a calling yeah, well, and then the wep has gone away too, for most teachers right where they were.

Speaker 1

I feel like very few teachers were affected by that yeah I feel like there's holes.

Speaker 2

There weren't whole states. It's county by county as to who was put into social security, who wasn't. So I I think we're gonna come to the conclusion that maybe it's dependent on each family in each circumstance right, but it's individualized, for sure but you know, people call them the golden handcuffs, which I've always associated that to be with, uh, really bad ceos.

Speaker 1

Well, that's fair. But I mean, if you like what you're doing and it pays you well and you get, you know.

Speaker 4

I wouldn't. I don't know if I would stay because, there's a pension.

Speaker 1

Right, I don't, I don't, I don't know that you would stay somewhere where you're completely and I don't know, I guess some people would stay where they're completely unhappy just to get the pay out of the pension.

Speaker 2

I mean there's other, there's other types of pension, like things like stock options, retirement benefits, um other things that might keep you in a situation because you well, you have, you have this equity or whatever you would lose if you left.

Golden Handcuffs vs. Career Freedom

Speaker 1

Yeah, I mean I've seen a lot of corporations put those in place cause they don't have pensions anymore. But the way that they compensate is maybe they do restricted stock units, or they put a portion of your bonus per se in like a deferred compensation or some sort of deferral, or, you know, pay out of our issues and you know, and then it pays out over three years, you know, at a certain period of time in the future, and so that kind of always holds you because they're always rolling and every year you vest and you get more and more and more and you know your pay today is going in there and you don't get it for three years, you know, as far as like bonus or incentives, and so that to me is more of a golden handcuff because that can start getting really large, especially if the stock's doing well.

Speaker 1

So you know you'd be walking away from a large sum of money that you're not vested in yet, which I guess you could say is true of a pension Cause that you know, depending on how long you live, right, that could be a large payout potentially over time.

Speaker 2

So what do you think the value of a pension is?

Speaker 1

The value in terms of you know the the value of a pension, what? Where? I see it is just like social security it helps you reduce how much you're actually going to take from assets you saved. If you're, if you're just solely relying on pension and social security, depending on what you spend, it may not be enough.

Speaker 1

Um, because over time, costs can go up and typically when you see a lot of inflation, the the people, in my opinion, where inflation hurts the worst is when you have you're raising families, you're buying all this stuff.

Speaker 1

You know you're you're buying clothes each year and you're buying all the school stuff and you're you know you're always buying goods, and so inflation hits you really hard, whereas when you're retired, the big ticket items is where you really get hurt, when you're buying a car or something like that, and so if the inflation is not keeping up with pensions and Social Security, then you know you really have to have other savings. But it helps you from taking out over time out of your investments if you are saving to investments. So I see the value in that, you know, because it really can help with that 4% rule we've talked about. You know, living with your means and not taking, you know, a large amount from your investments, and so the other, if you have more income sources that can really help prolong or preserve your assets for you or for the next generation. So I think that's powerful tool.

Speaker 2

Um, and our planning software would look at a pension and count it as guaranteed income.

Speaker 1

Yeah.

Speaker 2

So it definitely boosts the probability long term.

Pension Benefits and Downsides

Speaker 3

Yeah, exactly, and it helps if you know you become ill and it preserves your assets longer. Before we jump back into the episode, do you know if you are ready to take off and launch into retirement? Get your pre-retirement checklist. A free guide from Wiser Wealth Management. From cashflow to social security, we've got your countdown covered. Go to wiserinvestorcom slash guides to download your free guide today. Now let's get back to the episode.

Speaker 1

your free guide today Now let's get back to the episode. I don't know, I I'm really I've seen too many pensions fail. We're talking about private pensions, right? Public pensions, right. I mean I've seen too many pensions fail, even in retirement. Now there's an insurance to help cover that, right, so I never look at it as a guarantee, I, you know, I mean it could go away or be reduced as long as it's covered by that insurance, which most are in the private sector.

Speaker 1

Um, you know, it's just I don't look at it as a guarantee. And and usually, depending on what you elect at the time which I know we'll get into that, sometimes there's not a beneficiary if it's a non-spouse, you know. And so I'm always a fan of a lump sum pension too. If you get that option, if it works with your plan, I like that, cause that that to me, is more of a guarantee that you know, and not guarantee that it's going to be there, cause obviously, if you put it in the market, it could, you know, but the way we invest money, it could last a long time. And you know, I just I'm a, I'm a fan that if it works with your plan to do a lump sum and you have that option, that maybe you consider that.

Speaker 2

Yeah, well, we have calculators for that. Yeah, a lot of times a lump sum is better just because you control it. Yeah, Especially if you, if a husband, a wife and let's say you passed away early, then that money can go to the kids where if you both die in a car crash, otherwise yeah, the company wins yeah yeah, um yeah, so I you know.

Speaker 2

Guaranteed income, survivor benefits, right, so you'd be guaranteeing your spouse or usually that's an option that they could continue to gain payments, or at least a lesser payment, that's always, always a question that we get to.

Speaker 1

It's like what should I elect? There's all these options. When you go to take it, you have to decide, right there. Right, do you want the lump sum? Do you want the 50% survivor, 75%? No, none, you know. And that's a calculation of how long are you going to live and how long is your spouse going to live. Right, so you know.

Speaker 2

What do you?

Speaker 1

think that some of the downsides are to waiting on a pension. The downsides to waiting on a pension, you know, probably, I don't know, maybe being in some place, you don't you feel stuck?

Speaker 2

You're not really happy with your job. If you hate your job, yeah.

Speaker 1

But you feel like you have to stay there because it's such a payout. I have seen If you hate your job, yeah, but you feel like you have to stay there because it's such a payout. I have seen I had a good friend of mine that potential income in retirement was beneficial to her because they hadn't really saved enough and so she left a job she really loved to go back to a government position that she didn't really care for. That she wasn't happy and she's actually still there right now. So she kind of feels stuck.

Speaker 2

Yeah't know it's. It's hard if, if you're not able, if you're unable to save on your own, like I was having a conversation with a teacher recently who kind of fell on some harder times and tried, tried their hand in real estate and that didn't really work out and I started thinking he is like man, like you're way behind on just finances. So what's the best thing to do? And yeah, probably the best thing is return to public school, uh, and go go after that pension. They'd already had like 12 years of public school work.

Speaker 2

So you're only talking another. What 18 years to get fully vested in the pension? Yeah, so it sort of makes sense where that's not where the person's heart was. The person's heart was in a private Christian school.

Speaker 4

But if you stay that route.

Speaker 2

You'd have to save a lot of money at an older age to hit the same number. So those are just hard decisions. You'd have to save a lot of money at an older age to hit to hit the same number. Yeah, so those, those are just hard decisions. So I could see how you'd be dissatisfied in your job waiting for you're just waiting for a day. And then what if you? What if you had health complications in your early retirement years?

Speaker 4

I mean that'd be horrible.

Speaker 1

Yeah, so I don't know.

Speaker 2

Those are all these tough conversations, and I mean that'd be horrible, yeah, so I don't know that. Those are all these tough conversations. Um, and also too, you know what if you're limited to that position? What if, what if you never grow?

Speaker 1

Yeah, but there's no advancement place to advance or grow your income.

Making the Stay or Go Decision

Speaker 2

Um, and private pensions. They could take them away and you might get frozen, of course, at that point. If it's just frozen, you've already accumulated the time. So I guess then you could certainly leave and look for greener pastures, I guess. But yeah, those are things to think about. What do you think some factors are to be, what factors we consider before we decide to stay or go?

Speaker 1

I look at your financial plan, first and foremost, the numbers are uh to be what? What factors we consider before we decide to stay or go? I look at your financial plan first and foremost the numbers, and you can't make every single decision based on just the numbers.

Speaker 1

Um you know, looking, looking at when are you going to vest in these things? You know what are the vesting. If you're really close to vesting in something, maybe you know waiting another year or two is better than waiting a decade, you know. So I mean, if you're close to vesting to something, look at that. You know other factors, like we talked about earlier savings into 401k, retirement accounts, et cetera. Is there another way, if you were to change positions, that you could run the numbers and say, if I stayed here and get this pension, this is what it looks like. But if I stay, you know, if I move here which you know, you have to weigh that Are you happier there? Could you potentially make more and then save more to a retirement account and maybe your financial plan looks similar? You?

Speaker 2

know. Well, that's the benefit of using a financial advisor. I don't know that people actually go and calculate this before they make these decisions. Right, I feel like they just go. I'm going to go here and, yeah, it pays more and that should be fine, but there's really this back of the napkin kind of math.

Speaker 1

True, Well, and I feel like sometimes we take that for granted the tools that we have accessible, because it's like oh, just run the numbers.

Speaker 1

It's not that easy for the layman person to just go oh, let's run the numbers. It in person. To just go, oh, let's run the numbers. It's like well, how does it take into consideration taxes? Because most of these pensions are taxable and if you take the lump sum you roll it to an IRA and then there's required minimum distribution. So there's so many moving pieces to running the numbers, the returns, the taxes. I mean there's so many different moving pieces. Unless you had a planning software, I don't know that you could just run the numbers. You know we always like to do the breakeven calculation. That's a simple calculation, though when you're running numbers of what's better, That'd be like lump sum versus the annuity.

Speaker 2

But what I'm talking about is your mid-career. You're 35, 40 years old. Then what do you? You know? How do you make that decision? Yeah, because you don't know the future. So there will be some risk involved. Maybe this whole thing comes down to just a person's risk profile, maybe staying at the government job I say government job, but it could be any pension job you stay at the pension job.

Speaker 1

There's just not that many corporations that have pensions anymore Some of them do, but there's just, they don't offer it that much anymore. Yeah, so that makes me feel like maybe you should stay and find a position you like at a corporation, if they have it, because normally it's only big corporations that even have them.

Speaker 2

Yeah, that's true.

Speaker 1

So you can move around internally potentially.

Speaker 3

Yeah.

Speaker 2

But again to your point they could go away, because I've seen them go away. I mean, ideally, you're saving in a pension and you're maxing out your 401k plan and you're doing backdoor Roths and you're doing all these things ideally, right.

Speaker 1

Yeah if the cash flow stays, Then the plan looks really really good.

Speaker 2

Right exactly, you know I think for our airline clients, for the pilots especially, I mean that's kind of a no brainer If you enjoy the military work, stick around long enough to collect the pension, Because when you come out, you're getting 18% of what you make into your 401k plan.

Speaker 1

Yeah, and that's like a pension in and of itself, really. Exactly, and that's what they put into place after the pension went away in 08 and 09. Right, yeah, exactly. And most and most, you know more, most people in corporate don't get that kind of contribution at all or a pension.

Speaker 2

So you know, they're, they're we do a 6% match here. I think I feel like that's a little uh, that's rich, not normal.

Speaker 1

It isn't.

Balancing Math and Personal Happiness

Speaker 2

I've seen them go down to like four mainly yeah, so well, I, you know I think it comes down to it depends on the family situation. You got to do the math. This is where a financial advisor can help you do those calculations. We do a lot of those in our one-time flat fee service to help people make those decisions. We did a ton of that stuff in 2020, when everybody was changing, changing jobs. But I would not just go based on how you feel about it. I would actually put some data behind it. But also, you know, if you're going to create the formula, maybe 50% of it is real math and what you need to be doing, and then the other 50% is how you feel about working. You get one life to live. Not only are we slaving away because you know this pension is better for us Now, if it's the difference between not paying your mortgage Right.

Speaker 1

Working until you're 80. Exactly.

Speaker 2

Exactly Then yeah, there's some common sense that has to kick in there to find joy somewhere, yeah, but anyway, yeah. Anyway, thanks for doing this topic, shauna. I thought I just saw that clip and I was like is it really better to stick around for a pension? Are we really seeking jobs because they have a good pension?

Speaker 4

Yeah, I'm an entrepreneur.

Speaker 2

I'm a risk taker Right. So in my mind I'm like why would you do anything for that?

Speaker 1

Limit yourself.

Speaker 2

Go, go create, go create something. But not everyone has my brain and how they think about things either.

Speaker 1

No, no, not at all, and sometimes it's the safety of, you know, guarantees as as much as there is a guarantee. But you know again, a lot of these are backed up by insurance too. So there is, and then obviously, the government has the power of taxation.

Speaker 2

So well, if you're thinking about this topic for yourself, you're probably in your fifties, because it seems like everyone that tries to decide what they want to do with their pension is in their fifties. So we have an episode from a long time ago, episode 137, financial planning in your fifties. So you can kind of use that as a litmus test on where you should be and how you should be thinking. Also, we have a YouTube channel, a Wiser Retirement. What's the difference between pensions and IRAs? How much is Social Security reduced if you have a pension? Actually, that's a trick question. It's not really reduced anymore.

Speaker 4

Right.

Speaker 2

It was. That's been a positive change. Thanks for listening to today's episode. If you want to learn more about us or our fiduciary financial advisors, you can do so by going to wiserinvestorcom. Click on the episode notes. See you guys next week. Thanks, Sean. Thanks.

Speaker 4

Thanks for listening to a Wiser Retirement Podcast. We hope you enjoyed today's episode. Make sure to subscribe wherever you're listening. That way you don't miss any new episodes. We'd also appreciate if you could leave a rating and review.

Speaker 4

If you have any questions about anything that was discussed today, head to wiserinvestorcom and reach out. This podcast is strictly for informational purposes only and is not to be considered as investment advice or a solicitation to buy or sell any financial products, securities, digital assets or any other investment vehicles or a basis to make any financial decisions. Wiser Wealth Management Incorporated is a registered investor advisor with the SEC. The host and or guests may personally own securities, digital assets or other investment vehicles mentioned on this podcast. Neither the host nor guests of the show are compensated for their participation and no referral fees are paid to or received by any host or guest for clients, listeners or similar interests. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor, tax professional, insurance professional and or legal professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.