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I’m trying to decide how much a fixed pension with COLA is worth. I’ve worked in IT for 10 years as a database administrator. A few years ago, working full time, I pursued a master’s degree in public administration with the goal of working in the federal government. It’s been three years since I graduated, and after sending out several hundred online applications to the federal government and attending job fairs I’m through with wasting my time.

During this time, and after getting my degree, we sold our house out of state and I went to work for a small non-profit in the northern Virginia area doing their DB and web work. At the same time I’ve been applying for local government jobs. I was just offered one with a local municipality; however the homes in DC are astronomically priced so I’m left with a 28 mile, 90 minute commute and no public transit easily available. We currently rent as the homes are very costly in outlying towns. The position is also a 15% cut in pay. (I’m taking into account that they pay for 100% of medical with that 15% figure)

This city job has a generous, COLA pension which is 3% inflation and partial up to 5% inflation. After 5 years I get 12.5% of my highest three years, going to 50% of my pay after 20 years. Because I’m taking a hit in the job title as well as starting at the range midpoint, after 8 years I won’t quality for any more raises unless I move into a new position with the city. Additionally, I get 4 hour blocks of overtime if called into the office for emergencies, unlike now where I work 50 hours with no OT.

The city job also pays into social security so I would collect all of that after my working career.

My understanding is that federal pensions are about half of this but I can’t find information. All of my web searches refer to non-COLA pensions in the private sector.

We might be able to get by financially in this position, but it will mean renting for the foreseeable future, maybe until retirement. One advantage I see is security, as I’ve been downsized 3 times in 10 years, each time taking 4 or 5 months to secure a new job. I’m 46 now and although we sock away retirement we never seem to get anywhere with our investments. Only after starting some steady investments with a few of the Fool newsletters, from the money we made on the house, are we seeing any gains.

At the same time I’ve been offered a position in south Dakota which will enable us to buy a house with 75% down or even a decent house cash. The position would pay about the same I make now with a 70% match on the 401K. It involves travel with some unpaid overtime. We like the Midwest and cold weather so the location isn’t an issue. We also like Northern Virginia for the cultural activities.

The third option is to take ANOTHER position I’ve been offered working with an IT contractor just a mile from my house. It’s a slight raise but I could spend the time looking for a federal job. Friends of mine who work in government say that there are more agencies moving out to West Virginia.

My question for everyone out here then has to do with comparisons. Even with the Midwest job paying more, is the pension with the city in an astronomically expensive area a better deal? If I took the city job, would working just 5 years with the COLA pension be a good deal for me?
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Look here for Fed retirement benefits. http://www.opm.gov/retire/html/library/fers.asp

In general, you get 1% of your average top 3 earning years x years of service once you reach Minimum Retirement Age in addition to the TSP (401k) with 5% matching. As a FIREe, I don't count the pension at all because I expect to pull the plug between the ages of 38-43 and my MRA is 57 (like I can put up with it for 34 years... a 34 year career isn't Retiring Early!).

As to breaking into a Fed job in the IT field, try getting hired by a gov't support contractor (working in Gov't spaces alongside gov't employees) and do a good job, impress the right people and they'll know how to work the system to get you a job. (write a job announcement to your specific qualifications, etc. -It doesn't always work out -someone else could be better qualified for "your" job but it increases your odds) Networking still helps. However, in my experience contractors tend to get paid more (albeit with possibly lower benefits?? and less job satisfaction should their employer lose the contract).

As to a city job, municipal jobs can be very iffy as far as job security goes. Revenues go down and employees are let go (often based off of seniority). I've looked at working for the city but would take a pay cut and lose a lot of security. No thanks!

Good Luck.

FoolNBlue
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I think you need to sit down and work through a number of different financial scenarios to make a decision, even if they are somewhat off base.

The real advantage to a government pension is that the state is footing the risk- and they have a lot of guns and manpower to enforce taxation in the future even if your other investments go south. That is to say, it introduces another uncorrelated asset class into your retirement picture, which is very good.

How good? That is a tough question. If it is an inflation indexed pension, then I would estimate it to be worth 20-25x the annual income, at least. So lets say it was worth $10,000 a year for life. This would be worth around $200-$250,000 of assets in the bank. However, I have to think it is in reality worth a bit more than this, possibly up to $500,000 in the bank simply because it won't "deplete" if you live to be 100 and have unusual financial turbulence in the next fifty years, which could wipe out other investment classes. (An annuity from a private held company could go bust if their underlying investments tank- but a government pension, as I mentioned, is free from this worry).

I think of higher priority than this is access to a reasonable cost health care plan. Why do I think this is more important? Because I have a friend who literally must pay $36,000 a year for health care. This would blow through your asset base fast, so you would be better of hedging against this possibility with a job which gave you access to a health care plan with guaranteed rates. If a normal health care plan ran you $10,000 a year and you suddenly have to come up with $26,000 a year looked at in the same light this is a potential cost of an asset base of $650,000.

So those are some things to consider. Personally I think a 90 minute commute blows and I'd rather be poor or work an extra 5 years than commute on that hell track. Plus it seems if a major terrorist attack were to occur they would probably attack DC, so that is another knock against it.
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yttire
So those are some things to consider. Personally I think a 90 minute commute blows and I'd rather be poor or work an extra 5 years than commute on that hell track. Plus it seems if a major terrorist attack were to occur they would probably attack DC, so that is another knock against it.

I agree! DC would be a miserable existence, as far as I'm concerned. It it were me, I'd seriously consider the South Dakota position. I took one trip there 2 years ago and loved it. You are hours away from the best wilderness/national parks/recreational places in the world.

I was laid off last year and offered several high paying software development contracts in the DC area. After looking at the lifestyle and COL, it was a no-brainer to turn down.

I'm 46 as well. During my lay-off last year, I took a good hard look at what I wanted out of my life and working 50-60 hour weeks with a long commute was no longer something I wanted to deal with.

I found a job closer to home with a much more laid back work atmosphere. I've only had to drive in to work on a Saturday once in the last 1 1/2 years I've been there. The job pays about 10k less than my last one but I have a lot more free time and their vacation/personal time is unbelievably generous.

decath
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At the same time I’ve been offered a position in south Dakota which will enable us to buy a house with 75% down or even a decent house cash. The position would pay about the same I make now with a 70% match on the 401K. It involves travel with some unpaid overtime. We like the Midwest and cold weather so the location isn’t an issue.

For me personally, choosing this option would be a no-brainer.

A 70% 401K match is great! If I were you I would contribute at least the minimum needed to take advantage of that match in its entirety.

This option also affords you the opportunity to build equity in a home, another advantage during retirement (not paying rent or mortgage).

I don't know why you want to put down so much cash on the house though, since a mortgage will give you some tax benefits, and with interest rates still low, you could probably earn more from your investments than you're paying in interest on your mortgage. Think very carefully before you do that, and really take a sharp pencil to the after-tax numbers.

Have you any idea what commuting 3 hours a day by car can do to your energy level and psyche? If I had to do that for five years, I'd be a zombie!

That's my take,

2old
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I don't know why you want to put down so much cash on the house though, since a mortgage will give you some tax benefits, and with interest rates still low, you could probably earn more from your investments than you're paying in interest on your mortgage.

As for the tax benefit alone...

At most you'll save 45 cents (35 cents national income tax, 10 cents state income tax) out of every dollar spent on interest. That's helpful if you have no good alternative to paying the interest - but it still leaves you 55 cents in the hole.

And if you aren't in the top tax bracket, or if the state income tax rate is lower, or to the extent that your OTHER deductions are less than the standard allowance, you'll save less than that. Lots of people who are eager to preserve their tax benefits are saving less than 15 cents out of each dollar.

Now with the "you could probably earn more from your investments", that's a separate consideration, probably valid but harder to evaluate. (At the minimum, do take a fixed-rate loan with enough down that PMI is not required.)
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I was laid off last year and offered several high paying software development contracts in the DC area. After looking at the lifestyle and COL, it was a no-brainer to turn down.

I'm 46 as well. During my lay-off last year, I took a good hard look at what I wanted out of my life and working 50-60 hour weeks with a long commute was no longer something I wanted to deal with.


I too was laid off nearly a year ago. As luck would have it, on the last day of summer I was offered the best job I came across and it's located two miles from my house!

I'm amazed how well everything fell into place.

-muray
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... I’m trying to decide how much a fixed pension with COLA is worth....

This is a bit late, but this is pretty easy, just google "annuity calculator" and price an inflation adjusted annuity that matches your expected pension details. It won't be exact, but it should be close enough to give you a good ballpark estimate.

Greg
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