| Leave defined benefit plan for defined contribution plan? |
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a2zee
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Joined: 11 Feb 2013
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| Leave defined benefit plan for defined contribution plan? |
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I work in NY state and have been participating for the last 3.5 years in the state's retirement system (NYSERS) as a tier 4 employee, contributing 3% of my salary annually. It will be another 1.5 years before vesting occurs, and another 6.5 years before I don't have to make the employee contribution of 3%.
Because of a job change within the state I now have the option to move from NYSERS to a defined contribution plan (TIAA-CREF SUNY ORP). Vesting will be immediate, with my employer contributing 8%-equivalent of my salary, but my employee contribution will be 5.75% of salary.
There's a 60-40 chance that I will not continue at my job beyond the next 1.5-2 years, in which case there is a high likelihood that I will leave NY state.
Given this scenario, is it advisable to leave NYSERS for the defined contribution plan?
I am single, 38 year-old, earn ~80k, and without dependents or any significant financial obligation or need.
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Mon Feb 11, 2013 10:43 pm |
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smk
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Joined: 12 Dec 2012
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i am not 100% sure of the details, but it looks like you need to figure which is more important, retirement or your current ability to support yourself. to figure this out, you might want to take the present value of 80k for the next 30 years for supporting yourself. for retirement, you might take present value of the same 80k, but say only for 20 years you might live after your retire. 20 years is less than 30 years. also, since your retirement is 30 years away, the present value of that 20 years of income might be discounted by about 60% (assuming a 3% rate).
what this tells you is something you probably know intuitively. your ability to support yourself is far more important at age 38 than your retirement plan. it is a shame to walk away to a pension before vesting, but it would be more of a shame to lose your job and not be able to find another. i hope that helps you balance the decision.
Steve Kanney, CFA
http://www.integratedfinancialny.com/index.html
Any comments made are designed to help you make your own decisions and do not consititute investment advice.
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Thu Feb 14, 2013 3:14 pm |
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gilbertholdings
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this is a little late, but in case you still check the thread...
if you're really sure you won't stay there for more than a few years, i'd switch to the defined contribution plan. the small amount you'd potentially get from defined benefit probably isn't worth the forms if you stay there such a short time period. but, considering how unstable the markets can get, if you can stay at the job and keep the defined benefit, then the pension is a great asset that i wouldn't take lightly. it's nice to have defined income for the rest of your life...
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Fri Mar 08, 2013 6:51 pm |
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