Pension and 457b: Financial Planning for Retirement Options

Employer-provided pension and 457b should be strategically integrated into financial planning for optimal retirement savings and flexibility.

### Maximizing Retirement Benefits: Balancing Pension and 457b Contributions
* 💰  Pensions typically have both employer and employee contributions, with employers contributing **up to 20% of compensation** in some cases.
* 📊  If your pension allows for a lump sum payout, you can include the employer's contribution in your **25% savings target**, but be cautious about **relying solely on this benefit**.
* 🔄  457b plans offer flexibility with **no early withdrawal penalty**, making them ideal for **public service workers** and those planning to **retire early**.
* 💼  Having both a pension and a 457b can provide **additional liquidity and retirement options**, especially for those with **early retirement plans or second career aspirations**.
* ⏳  Pay attention to vesting schedules, as leaving a job before reaching the required vesting period can result in **forfeiting significant pension benefits**.
* 🔍 " If you make less than $200,000 a household and you do have access to the lump sum not only of your contributions but the employers, you can count that contribution into that **25%**." - Brian suggests including pension contributions in your savings target if you have access to a lump sum payout.
* 💼 " I think even people with pensions, at least in our experience working with clients who have had this background, even people with pensions like having the **freedom of liquidity outside of their pension** because it gives them the choice to have **more options earlier**."

[Music] Well, Brian with a y has a question. And it says, I'm currently 28. My work offers a pension, which is vested at 5 years and grows with service years. They also offer a 457b. How does this fit into the financial order of operations? Also, how should I attack these? Is this enough when it comes to investing? Well, now it's interesting the language that Brian used. He says, My employer offers a pension. I'm willing to bet that it's not voluntary. You know, like most pensions, they don't let you choose if you get to put money into it. If you don't put money if a pension exists, you're pretty much deemed, Hey, when you work here, your employer is going to put money to this pension, and then you're also going to be required to put money to the pension. Most times, it's not something you can opt out of. So the real question becomes, if I'm doing that too, and then I also have access to this really cool Plan called a 457, how do I think through that?

how does that factor into my 25%? How do I navigate making sure I'm saving in the way that I should be saving? Well, two things just to clarify, by the way, pensions. And I want to put this because we had somebody even on the book tour who brought a specific thing. I was like, man, we ought to clarify that for the future. Pensions have two components: your portion of the funding and then your employer, which is getting bigger and bigger as these obligations get bigger. The employers have increased what they're putting where it's not uncommon now to find out your employer's putting 10, 15, even we've heard as high as 20% of your compensation into the pension. But here's a caveat or an aster I want to put next this: if your pension or your employer is not offering you the option to see that you could potentially roll this money out if you wanted to, because a lot of times you can take a lump sum or you can do the pension. And by the way, we've told you, you

can't know what the decision is going to be until you actually get to that threshold hold of decision because they change it every year depending upon where interest rates are and how well funded the portfolio is. All these things go into to that big decision. But I want people to un heere me. If you make less than $200,000 a household and you do have access to the lump sum not only of your contributions but the employers, you can count that contribution into that 25%. Now we had somebody asked this a few a few few weeks ago. I still would encourage you even if you get to 25% like super easy peasy and you're like now let's go ahead and kick up our lifestyle, let's fund the Roth, and and just do some basic things just so you don't push all lifestyle into this decision versus you know just because you have a very generous funding of the pinion because there's a chance if it's this generous maybe it doesn't stay this generous forever. The second thing you

asked about 457. You know, 457s are great and they were designed where they have no early withdrawal penalty. So it doesn't matter what age you retire, you're going to be able to get access, access to these funds without paying that 10% penalty that most 401ks and 403bs have if you're under 55 or 59 a half depending upon how your exit was structured. Um, and these really work out for public service like firefighters, police officers, military, and things like that. And that's good because a lot of these careers, people will do 30 years, they'll leave the workforce much early because they have ear early entry points. Um, so that those things integrate well and I love the additional flexibility that both of these plans offer for you. I think even people with pensions, at least in our experience working with clients who have had this background, even people with pensions like having the freedom of liquidity outside of their pension because it gives them the choice to have more options earlier, maybe, you know, a

lot of folks they'll hit their pension. They'll hit their like fully tenur pension amount, and they'll exit, and they'll go find another job. They'll go do something else. Well, if you've been saving diligently and you have a liquid portfolio even built outside of that, maybe you actually do get to truly retire early, truly leave the workforce early, or it'll just create flexibility where you get to Define with the second half of your working career, with the 2.0 of your working career looks like. Last thing Brian, if you haven't been there 5 years, and you're four years or Beyond or three and a half years Beyond, pay attention to that vesting because what used to break my heart when I worked in County politics and government was that um police officers that I would see leave after they had worked for the force for over four years to go take a job across town for a different municipality, um, and they would be like wow, I wish they' have just stayed.

the additional 9 months because yes they made an extra $2 to $3,000 a year, but they've walked away from the vesting of that that tremendous pinion benefit. So tell everybody you work with if they, if they've been at that company long enough or that government entity, stay there a little longer and let's get those pension benefits vested um because that that's a key key date, that's huge.

Where Does the 457(b) Fit Into the 25% Investing Rate?

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The Money Guy Show

Understanding Pension and 457b in Financial Planning

Brian, 28, is navigating his employer's pension and 457b plan in his financial strategy.

Pensions typically involve both employer and employee contributions, with employers now contributing a significant portion.

It's important for Brian to consider the vesting period and growth of the pension, as well as the voluntary nature and investment options of the 457b plan in relation to his overall savings goals.

Maximizing Retirement Contributions and the Benefits of 457 Plans

It's important to consider various factors like income, access to lump sums, and the potential generosity of the pension plan when making retirement contribution decisions.

457 plans are advantageous for public service workers as they allow penalty-free access to funds, catering to early retirement needs.

The flexibility of both 401ks and 457 plans provides additional liquidity and more options for individuals, including those with pensions.

The Impact of Diligent Saving on Early Retirement

Diligent saving can provide the opportunity for early retirement or the flexibility to pursue a different career path.

Having a liquid portfolio built outside of a pension plan can contribute to the ability to leave the workforce early.

It's important to pay attention to vesting, as leaving a job before being fully vested can have financial implications.

The Importance of Vested Pension Benefits

Staying at a job longer to vest in pension benefits can lead to significant financial gain.

Walking away before vesting means missing out on a substantial retirement benefit.

It's crucial for employees to consider the long-term financial impact before changing jobs.