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- Thread starter SoapyCy
- Start date
The slight irony is that it's a pension plan investing basically in mutual funds. The old pension plans were quite often basic profit sharing. What holds IPERS up is the funds being paid in by the new employees gives a cash flow when the market crashes, plus being able to get money from the legislature to bail it out.
I have went through year by year on my wife's. If she would have opted out when she started, which was an option that they don't tell you, taken the money she put in (not including the employers) she would be near a wash with what she will get in IPERS. That's some pretty crappy returns seeing how there is around a 150% employer match now.
This is the correct way to do the math, thank you!
But did you remember to reduce the $33k by the immediate tax penalty? If it is 10% penalty, plus maybe another 20% income tax, then its more like $24k, and the return has to be higher. I am too lazy to do the math myself this morning.
Some of its personal responsibility. Some of it is personal preferences. Preferring a traditional pention does not mean you are irresponsible.
Crazy...I wonder why they made that change. Its 5 years down here in Missouri, and Im just waiting that out before looking to head back to Iowa. 7 years would suck!
They want those in employment 7 years & less to roll it out of IPERS if they change employment. Also, one is not fully vested at 7 years like you used to be after 4. You become incrementally vested at 7. The portion is the % calculated when your years of service are divided by 30. This all came down year-end 2012 to true things up after ‘08 financial crash. Prior to ‘12 your vested amount was the State’s entire match of your contributions to that point.
If mechanisms are put in place to make it appear better to cash out/roll over then one must look at why that is so. But the main issue is what do you do with $’s already in. If you leave in 33K for 20 years & earn 4% you have $72.3K at age 55. Then life expectancy at 55 should you reach that is another 31 years. Using 4% again over 372 months & that comes out to $338K.
So to me, you would have to grow the $33K to $338K in 20 years, which comes out to a 12.3% rate of return, to nvest then @ 4% for a 31 year pay-out to equal what leaving it in would provide. History had supported average equity market return of 10% or just beyond for a while, but with more recent history of 90’s dot-com bust & ‘08 calamity, most would suggest to use an average less than 10%. So, how good or lucky of an investor do you plan to be?
**Disclaimer - big variable is the 4% & I used that just to use a ‘conservative’ figure. Also, this is a very simplified example. Have some familiarity with subject manner but by no means expert. Those smarter who dissect & shoot down my view please do so. Would appreciate more education on the matter.
If your goal was to accumulate as much as possible up until death and pass on to next generation I would agree. In order to get those returns you would have to have that invested the whole duration and never make any withdrawals.
If you are looking for retirement income, we could adjust those numbers to see what it
I'm going to add some numbers below simply because this assumes the main goal is to accumulate as much as possible up until death and not use it for retirement income. If you want it for retirement income you will be withdrawing some of these funds at some point.
AGE 55 Retirement
($33K @3% Int) $33,000 x 1.03 x 20 year = $59,601
($33K @4% Int) $33,000 x 1.04 x 20 years = $72,307
($33K @7%) $33,000 x 1.07 x 20 years = $127,699
AGE 62 Retirement
($33K @3% Int) $33,000 x 1.03 x 27 year = $73,302
($33K @4% Int) $33,000 x 1.04 x 27 years = $95,151
($33K @7%) $33,000 x 1.07 x 27 years = $205,057
You could leave it invested and follow the 4% rule which would allow your balance to hopefully stay the same or continue to rise while still getting to withdraw some cash.
To me, this is why the minimal risk of IPERS makes it a better plan to leave it in.
