### Evaluating Pension Contributions for Retirement Planning

Brian should plan for his pension while prioritizing additional savings for financial security.

### Understanding How to Factor Your Pension into Retirement Savings
* 💰 When considering your pension in your financial plan, it's crucial to understand whether it is **covered by the Pension Benefit Guarantee Corporation (PBGC)** to assess its reliability.
* 🔍 Research the funding status of your private sector pension, as many companies have historically **shed pension obligations during economic downturns**, impacting future retirees.
* 📊 It's advisable to determine if your pension allows for a **rollover option**, which could provide you with **more control and portability** over your retirement savings.
* 🧮 While planning for retirement, account for your pension as part of your income but also prioritize **building additional savings** to ensure **financial independence and flexibility**.
* 📈 Aim for a savings rate of **15% to 25%** beyond what you contribute to your pension to accumulate wealth and create **more options for your future**.
* ⚠ Be cautious not to rely solely on your pension, as changes in your employer's situation could affect your benefits, potentially leaving you **underprepared**.
* 🔒 If your pension contributions are eligible for rollover, consider counting them towards your overall savings, but remain **conservative with the employer's portion** due to its **promise-based nature**.
* 💡 Ultimately, balancing your pension with proactive savings strategies will **enhance your financial security and readiness for retirement**.

How should I count my pension towards my retirement savings amount? By dollar amount payout per month at retirement, or by dollar amount currently paid in? I'm currently, uh, healthy, I currently have a healthy private sector pension. So how should he factor this into his financial plan? So it sounds like Brian...

because I've heard you answer this question so many times. I love the way you answer it. It doesn't sound like he's asking about, uh, like how do I put it on my net worth statement, like how do I value my pension? He's asking specifically about when it comes to...

savings rate. If I have some money going into my pension, do I get to think about it? How do I think about it? How does that factor into my financial situation? Yeah, LJ, let me, this is a great question. Um, you said some key things there. He said...

first of all, it's a private sector pension, so that means that I've got to give you some homework. Um, you're going to need to find out very quickly, is this pension subject to the Pension Benefit Guarantee Corporation's coverage? Um, and that, why that's important, is that you...

have to be careful with private sector pensions, is that there's been a trend, and fortunately it hasn't happened anytime in the really in the last few years, but during the Great Recession a lot of big Fortune 500 companies just completely shed, shed their old...

pensions, um, because they realized that they were underwater. They got in a lot of trouble to the detriment of a lot of their employees and future retirees. Um, because that's why you got to know, is your pension going to be higher than the Pension Benefit Guarantee Corporation's...

protection because then I wouldn't really you have to be careful should you count that because um until you actually get to the point of actually getting to use it because there is a chance that private companies can shed these pension obligations I mean there's a reason that

Warren Buffett it's not just the government pensions that are underfunded there's a lot of private pensions that are also underfunded so I would homework is go see what if you're covered under the Pension Benefit Guarantee Corporation second thing is go see what disclosures

are out there about your pension to see how well funded it is because they do have to disclose that information and then I I think you're on the right track LJ and I'll let Bo kind of close it out with this is that with a private you

might have the option that you could roll it over and that's one of the things I'd go on log into the pension website see if they're going to have a you separated service is it going to allow a um option that you either keep

it as a pension or is there an option that you can actually roll over a lump sum because then that that gives you options to know that hey this is portable I actually control this there is money sitting out there waiting for me but then you have to think about and

this is the part I'll let Bo talk about pensions usually are just promises and that's why they don't typically go on the net worth statement unless you have that ability to turn them portable but you do use them when you get to retirement planning is because you have

to figure out what you need for living expenses in retirement and then you got to back into the math to figure out how much is coming from your assets, how much is coming from your cash flows, you have to work through that. Yeah, I I

think it's it's really interesting, a lot of especially young people, I see this and when I say young I don't mean like age young, I mean like early on in their careers, uh they'll have this false sense of confidence because they have a pension

oh well I work for this entity, I work for this institution and I know that when I get to retirement they're going to cover 60% of you know whatever I was making and well that sounds amazing in theory, I would be nervous

putting all my eggs in that basket because a lot of stuff can change. We already said it's a private pension, not a public pension, so the odds of it being there are lower than if it was like a pension backed by the full faith and credit of the US government. So you have to weigh that in. So what I tell people is yeah, okay, plan for the pension being there, but worst case scenario, you take on the burden of saving for your future self and you still try to get your savings rate pretty high. You get savings

rate to 15%, 20%, 25% above and beyond what you're putting into the pension, what you're going to do for yourself is you're going to accumulate more money sooner to provide yourself with more options sooner because ultimately what you're really doing when you build

towards Financial Independence is you're trying to solve for options and flexibility when can I get to do what I want to do the way that I want to do it on my terms if you say hey I'm not going to save anything say I'm going to work

at this place for 30 years there's going to be a pension and that's what I'm going to bank on and then all of a sudden you get 15 18 20 years in and maybe something changes in that industry with that company and there's a

reduction in force and you're laid off or you have to leave well while your pension benefit will still be there there's a big chance that if you didn't work for the full term it's going to be greatly reduced and you're going to have

missed out on all that time that you could've been could have been accumulating so what we tell folks is when you have a pension we love if it's the best of both worlds yes account for it think about it plan for it use it but also build wealth

outside of that future promise so that you have something to fall back on in case the circumstances change or if the circumstances don't change you just have more flexibility and you can do more of what you want to do earlier on in life well and also if look you're having to

do a funding formula like you have to do 6% and then your employer puts in 10% I would encourage you cuz a lot of times your contributions are eligible for rollover I have a pension that I was involved with the the contributions for

Sure, we're kind of protected, um I think you can count that 6% towards your 25%, but it's just I want you to be conservative on what you do with that employer portion of it just because it's a promise unless there's some

portability or some way that you can actually turn those assets into assets for your future and that requires all that research that I gave you on the front end

How To Retire With a Pension

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The Money Guy Show

How to factor a private sector pension into retirement savings

Question about counting pension towards retirement savings: by monthly payout or current contribution?

Clarification that the question is about savings rate, not net worth valuation.

Importance of considering private sector pension's risk and stability.

Risks associated with private sector pensions

Need to check Pension Benefit Guarantee Corporation (PBGC) coverage.

Risk of companies shedding pension obligations, especially during economic downturns.

Importance of knowing if pension exceeds PBGC protection.

Caution against fully relying on private pensions due to potential default.

Recommendation to check pension fund disclosures for financial health.

Strategies for managing private sector pensions

Explore rollover options for pension funds.

Check for options to keep the pension or roll over a lump sum.

Pensions are promises, not assets, unless portable; factor into retirement planning.

Calculate retirement living expenses, considering pension and other income sources.

Caution against over-reliance on pensions

Warning against false confidence in pensions, especially for younger workers.

Private pensions are riskier than government-backed ones.

Advice to maintain a high savings rate regardless of pension.

Accumulating more money provides more options and flexibility.

Risks of relying solely on a pension, including job loss or changes in company policy.

Reduced pension benefits if employment is not completed.

Importance of building wealth outside of pension for flexibility and security.

Account for pension but also build independent wealth.

Employer contributions and rollover options

Employer contributions might be eligible for rollover.

Consider employer contributions carefully; they are promises, not assets.

Be conservative with employer portion unless portability is available.

Research portability options for employer contributions.