which retirement plan?

[MikeWaters]

there is the pension-type plan (state of Texas) which is:
(years of service credit times average of highest five annual salaries times 2.3% multiplier). Vesting after 5 years, can only roll out your contribution (matching stays with state).

versus one that is more like traditional IRA. 6.5% payroll deduction, plus 7% matching, 100% vested after one year.

Decision is irrevocable. After you choose one, you can't switch.

With the 2nd one, you have a choice of various companies that have annuities and funds and stuff.

[Mormon Red Death]

there is the pension-type plan (state of Texas) which is:
(years of service credit times average of highest five annual salaries times 2.3% multiplier). Vesting after 5 years, can only roll out your contribution (matching stays with state).

versus one that is more like traditional IRA. 6.5% payroll deduction, plus 7% matching, 100% vested after one year.

Decision is irrevocable. After you choose one, you can't switch.

With the 2nd one, you have a choice of various companies that have annuities and funds and stuff.

Well it kind of depends on a several things. These are things you can decide.

1. Do you plan on working there for at least 5 years?
2. How well do you think your stocks are going to perform over the next 30 years?

3. For the traditional retirement plan do you need to save money to get the retirement package?

4. What is annual increase % in salary you expect to receive?

5. How much do you need to live on when you retire?

6. About How old do you think you will be when both you and Farrah kick over?

I did an analysis that assumed a few things.
1. You will work for the state till you are 65.
2. You will be 35 in 2007 (just a guess)
3. You will get an average of 3% raise ever year
4. Your salary in 2007 is 85,000
5. You save the full 6.5% of your salary
6. You retire at 65
7. You make an average of 10% on your money till you retire. After you retire you make 3%
8. to live after you retire requires what you would get with the traditional retirement plan plus 50k a year.


According to these variables I have you breaking even at age 79. So if you think you might live past 79 its better to take the traditional retirement plan and sock 6.5% of your salary away each year. I have an excel file I can email you if you would like.

[MikeWaters]

I dont' understand your last paragraph.

If I have the traditional (i.e. non-pension), I do better if I live past 79, given your assumptions? I don't understand point #8 either.

[Mormon Red Death]

I dont' understand your last paragraph.

If I have the traditional (i.e. non-pension), I do better if I live past 79, given your assumptions? I don't understand point #8 either.

Basically, what I was saying on the last paragraph is that according to the variables I outlined (below) its better to have the traditional pension if you think you will live past 79. As for #8 I just assumed that whatever the pension gave you plus 50k is what disbursement you would need if you took the IRA route. FYI as variable 7 increase the better it is fro the IRA route. If you make 11% average on your money 82 years old is the break even point. 12% make the breakeven 86 etc.....

Basically the more you think you will make in the stockmarket and what age you think you need to be covered to will determine which option you should choose. One more caveat if you think it is highly unlikely that you will work for the state for less than five years then the IRA route is the best. Boardmail me your email and I will send you the excel file so you can play with the numbers.

Assumptions
1. You will work for the state till you are 65.
2. You will be 35 in 2007 (just a guess)
3. You will get an average of 3% raise ever year
4. Your salary in 2007 is 85,000
5. You save the full 6.5% of your salary
6. You retire at 65
7. You make an average of 10% on your money till you retire. After you retire you make 3%
8. to live after you retire requires what you would get with the traditional retirement plan plus 50k a year.

[MikeWaters]

if you have the pension plan, they still take out 6.5% of yoru salary.

[Mormon Red Death]

if you have the pension plan, they still take out 6.5% of yoru salary.

You get that money back right?