The Pension Couch: Replacing Pension Income

Back in Action

I’m back with another edition of the Pension Couch. I produce Pension Couch articles from edited and sanitized exchanges with readers who ask me defined benefit (DB) pension questions. It’s a way for me to create posts with useful pension-related information without the additional work required to write one from scratch. In this edition, I answer a reader’s “what if” question about replacing lost pension income by taking a higher-paying non-pensionable job. As a question, it fits well with this blog’s stay-or-go Golden Albatross theme. Therefore, I believe it’s worth your time.

This article’s request came from a reader who I called Kai. He specifically asked how much he’d need to save and invest at a new non-pensionable job to replace lost annual pension income from his current pensionable job… if he decided to leave six years earlier than planned. On the face of it, that’s a straightforward question. The answer, however, required modeling his retirement savings and investment options and then determining if they could replace the potential lost pension income.

Readers ask me some form of the “replacing pension income” question a lot, which tells me two things. First, many readers have contemplated leaving their often lower-salaried pensionable jobs for higher salaried non-pensionable jobs. Second, many readers also understand these scenarios involve trade-offs connected to their pension’s ultimate value in retirement. But, as just mentioned, mathematically modeling these “what if” questions can be complicated. Fortunately, in this article, I demonstrate how to determine if replacing pension income is feasible without resorting to complex math formulas. Instead, I use a free website and free retirement planning software, which you can easily replicate, should you need to answer the same question. Continue reading →

The Pension Series (Part 30): Pension Maximization

Posted on 25-April-22 by Grumpus

Pension Maximization

Helping pensionable workers determine the value of their defined benefit (DB) pension to make well-informed Golden Albatross decisions is the raison d’être for this website. Thus, I write most of my articles for pensionable workers trying to determine whether staying for their DB pension is worth it. However, those aren’t the only articles I write. Although much smaller in number, I also publish articles for pensionable workers who decide to stay. If a unifying theme to those articles exists, it’s pension maximization.

What’s pension maximization? In practical terms, pension maximization ensures your pension’s positive impact in retirement is as significant as possible. You maximize your pension by taking active steps during your pensionable career. My Gap Number, Roth vs. Traditional, buying back years, and pension geoarbitrage articles provide examples of actionable steps pensioners can take. That said, unlike my Golden Albatross-themed articles, I never laid out a framework for pension maximization. In other words, after a worker decides to stay, I never answered the simple “now what?” question.

The remainder of this article, and its follow-on, layout my framework for answering “now what?” I call this framework Grumpus Maximization.

Yes, it’s a somewhat cheesy metaphor. But, Grumpus Maximization is a catchphrase designed to stick, much like the Golden Albatross. Who knows? It might even aid future marketing attempts like printing t-shirts with “Got Pension?” on the front and “Get Maximized @ grumpusmaximus.com” on the back …

That’s not helping, is it? Fine, I’ll sidebar the marketing discussion for now. Continue reading →

The Pension Series (Part 28): The Golden Albatross Vs. Age, Tenure, and Gender

Posted on 16-September-21 by Grumpus

To justify studying Golden Albatross (i.e., stay-or-go) pensionable job decisions for my master’s program, I made an argument. I’m not talking about a Facebook or Twitter argument where everyone types in CAPITAL LETTERS and no one changes their mind. I’m talking about an academic argument. That’s right, I moved beyond my typical ranting via the interwebs and masqueraded as a social scientist for a few months. Let me tell ya, white lab coats for hairy knuckle draggers are hard to come by!

I’ll let you guess which one is me.

My thesis argued that human resources (HR) managers needed to know which pension design elements made their pensionable workers most likely to stay. Reasons they might need to know this included if pension plan re-design was required after a fiscal crisis — like the dot-com crash in the early 2000s. Since the main reason for offering a pension is to create worker retention, I reasoned that pensionable employers would want to avoid cutting design elements that most attracted workers towards staying.

Of course, the argument was hypothetical. I have neither the ear of HR managers anywhere nor the nerve to advocate cutting design elements from pensions. I simply made the argument to convince my advisor and those (un)lucky enough to grade my thesis. However, after collecting and analyzing the results from my pension survey, I was ready to declare ‘Don’t mess with healthcare!’ to any HR manager that would listen.

If you’ve read Pension Series Part 27, then you know why. Survey participants ranked ‘pension subsidized healthcare’ as the design element that made them consider staying at their job the most during their Golden Albatross decision. In fact, the final weighted score for healthcare was ten percentage points higher than the second-place design element, ‘immediate annuity.’ Therefore, the results appeared to support a ‘keep your money grubbing hands off of healthcare’ declaration.

That said, I’m glad I didn’t declare this straight away. As you’re about to find out, age, tenure, and gender are far more powerful elements during a Golden Albatross decision than any singular pension design element — even one as popular as healthcare. Continue reading →

The Pension Series (Part 25): Pension Design

Posted on 13-June-21 by Grumpus

Defined benefit pensions are not created equal.

I wish they were, mainly because it would make my job of explaining pensions easier, but that simply isn’t the case. Most pensions are designed differently than each other. In some cases, pension design varies significantly, in others only slightly. However, in almost all cases, these variations in pension design produce unique plans.

This fundamental truth is key to understanding the potentially decisive role of a defined benefit pension (DBP) in a pensioner’s retirement outcome. This truth is also vital for understanding a DBP’s influence during an employee’s decision to depart a pensionable job before reaching retirement eligibility. Academics and economists call this departure decision a voluntary turnover decision. However, I call it a Golden Albatross moment for those in a pensionable job. Future pensioners and current pensionable employees must understand their pension design in both the retirement and Golden Albatross scenarios. They can do this by examining their pension’s design elements. Continue reading →