When my husband started his career as an employee of the State of Minnesota (he’s a community college instructor), he was given two options for a retirement plan.
One option was a teacher pension fund (which guarantees a set dollar amount each year when you retire based on your years of experience and salary when you retire) and the other option was an individualized retirement plan (very much like a 401k) in which there is a 4 percent match from his employer.
We sat down and talked about all of the pros and cons of each option, but in the end chose the individual retirement plan rather than the pension plan. Our reasoning was that my husband had many years until retirement (he was just 25 at the time) and because he had time on his side, the likelihood that he would have more money at retirement was a big draw for us. (Of course, recent markets have slowed our progress a bit!)
Our other main reason for choosing the individualized retirement plan was that we would have complete control over it from the moment he started putting money into it. We wanted to be able to make changes to our investments, and (as in the case of when I left my career at the same college to be home with my family), to be able to take that money with us if he should switch careers.
I was also pretty uncomfortable with the pension plan for the sole reason that I don’t trust my state legislators to handle my money. Since my husband works for the State of Minnesota (which oversees the pension fund), I wasn’t interested in letting our financial future being determined by politicians. If we’re going to do dumb things with our retirement money, I’d rather we do them ourselves, thank you.
And then I read State Pensions Face Steep Shortfalls from FiLife which highlights the exact problem I was concerned about. Many states are facing serious problems in financing their pension programs and either tax payers will have to pay up (not popular) or pensions will have to be cut (also not popular).
The same day that I shared this post with my husband, he got a certified letter saying that since he was now tenured, he had a one-time option to switch from his current plan to the pension plan.
We had a little chuckle about the timing of it, and filed the letter away.
We’re happy to stay with what we have.