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You wrote: "Following a recent job change, my new employer is offering me two options:

1. A defined benefit plan which appears to offer a guaranteed benefit at retirement (if I stay for ten years), BUT it
includes health insurance (assuming that the plan continues to offer health insurance when I retire)

2. A defined contribution plan that allows me to invest a portion of my income pre-tax into a selection of mutual funds.

The health insurance issue has me worried. The cost of health coverage if I have to get it on my own could be a lot, and it
could be a lot more by the time I retire (could be 30 years).

I would appreciate your thoughts."

I reply: Also, re the "promised health insurance," in many companies you have to work up to 25 years to have the same health benedits as active employees at the same cost once you retire. And, you may have to work a minimum number of years to even qualify. After retirement, if you have health insurance, it usually plays off of Medicare and still does not give you 100% cost benefits. In addition, even with health insurance, the company can raise the deductable, increase the cost, place a reduced cap on the max payout, reduce benefits, switch you to an HMO-only option, etc. at will. Just some thoughts.

Re the defined benefit: It normally is based on years of service combined, say 1.4% per year. (You are normally vested after say 5 years, which means if you leave within that period, you get nothing.) Thus, if you worked there 25 years and retired, your benefit would be 25 X 1.4% or 35% of average of hi-three years of salary. This would be reduced by 8% (92% X 35% X average of hi three year avg salary) if you chose 50% benefit (upon your death) to your wife; or by about 18% (82% X 35% X hi three year avg) if you were to chose 100% benefit to your wife. Please also remember that the benefits are also usually reduced (by about 2% per year) if you retire below 60. Lastly, the benefit is fixed at that level for ever -- NEVER increased for inflation. By contrast if you worked for a municipal institution or the government, and retired your benefits are normally increased with inflation, like SS. I work for the USGov and my USG retirement will be, upon retirement under the FERS plan, increased each year at inflation less 1% (if inflation is 3.5%, my increase will be 2.5%). Doesn't sound like much but in 10 years, it would mean a 25% increase.

On the last item, the company doesn't have to stay with the defined benefit plan, even if this was part of the "going in" package. They can (like IBM) switch plans around, to suit their benefit.

Just some thoughts. Good luck!!!!
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