Should I Leave My Job for a Pension?

Summary

Podcast Summary: "Should I Leave My Job for a Pension?"
Jill on Money with Jill Schlesinger
Release Date: May 21, 2025

In this enlightening episode of Jill on Money with Jill Schlesinger, host Jill Schlesinger, CFP®, delves into the nuanced considerations of leaving a current job in favor of securing a pension. Through a series of listener-submitted questions, Jill, alongside co-host Mark T. McGowan, navigates complex financial scenarios, offering actionable advice and expert insights.

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1. Cheryl’s Dilemma: Funding Mother’s Care

Timestamp: [02:30]

Cheryl writes in seeking guidance as the power of attorney for her 83-year-old mother, who is preparing to move into a retirement community. Cheryl outlines her mother's financial landscape:

• Assets:

  • $210,000 from selling her home.
  • $357,000 in traditional IRAs generating $2,800 monthly from Social Security.
  • $800,000 in a taxable stock portfolio yielding approximately $5,000 quarterly in dividends.
  • A small Roth IRA intended as an inheritance.

• Expenses:

  • $4,500 monthly for care, while only $2,800 is currently available from Social Security.

Discussion Highlights:

• Jill’s Analysis: She notes, “Cheryl’s plan to utilize the traditional IRAs and the home sale proceeds appears feasible” (04:15).
• Mark’s Input: Emphasizes tax implications, stating, “You can't really minimize the tax liability on that,” advising Cheryl to consider the tax bracket differences between her mother and beneficiaries (06:00).

Key Takeaways:

• Evaluate the necessity of additional income sources to cover care costs.
• Consider tax-efficient strategies to preserve assets for inheritance.
• Assess the potential benefits of leveraging the taxable stock portfolio's dividends versus required minimum distributions (RMDs) from retirement accounts.

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2. Robert’s Retirement Plan and Tax Concerns

Timestamp: [07:45]

Robert, aged 60, inquires about his retirement strategy, presenting the following financial details:

• Assets:

  • 401(k) from a previous job: $90,000.
  • Deferred compensation: $270,000 to be paid out in June 2028.
  • IRA: $1.1 million; his wife’s IRA: $200,000.
  • Investment account: $100,000.
  • Savings: $30,000 in the bank.
  • Home valued at $1.5 million with a mortgage balance of $280,000 at a 2.75% fixed rate.

• Income:

  • Continued employment: $200,000 annually.
  • Wife’s income: $100,000 annually for the next 5-7 years.

Robert’s Questions:

• Tax implications in retirement.
• Capital gains on potential home sale.
• Utilizing home equity to purchase a vacation property.

Discussion Highlights:

• Jill’s Response: She advises, “If you sell your home, you can exclude half a million dollars of capital gains under current regulations,” but cautions about potential taxes if the home’s value increases significantly (09:20).
• Mark’s Advice: Suggests consolidating retirement accounts to manage RMDs effectively and emphasizes the importance of having a sustainable withdrawal strategy (10:05).

Key Takeaways:

• Understand the capital gains exclusions available for primary residences.
• Develop a comprehensive plan to manage RMDs and tax liabilities.
• Explore leveraging home equity responsibly to fund additional investments, such as a vacation home.

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3. Graziella’s Variable Annuity Conundrum

Timestamp: [11:40]

Graziella, a recent retiree, voices concerns about her variable annuity, which carries high administrative fees. She is contemplating whether to convert it to another annuity, as suggested by her financial advisor, but is hesitant.

Discussion Highlights:

• Mark’s Quick Assessment: “Ding, ding, ding, ding” (11:40), indicating Graziella is on the right track with her decision.
• Jill’s Guidance: She differentiates between retirement and non-retirement annuities, advising that annuitizing can eliminate high fees but may result in tax liabilities on accumulated gains (12:30).

Key Takeaways:

• Evaluate the type of annuity (retirement vs. non-retirement) before making conversions.
• Consider the tax implications of annuitizing versus maintaining the current annuity structure.
• Assess whether the annuity aligns with long-term financial goals and retirement plans.

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4. Joe’s Retirement Readiness Assessment

Timestamp: [14:00]

Joe, a 58-year-old single individual from Northern California, seeks reassurance about his retirement preparations:

• Financial Status:

  • Brokerage account: $115,000.
  • Roth IRA: $135,000.
  • 401(k): $450,000.
  • Savings: $50,000 in the bank.
  • No debt, mortgage paid off.

• Income & Expenses:

  • Annual income: $75,000.
  • Monthly expenses: $3,000.

Discussion Highlights:

• Jill’s Encouragement: She affirms, “You are indeed on the right track,” highlighting Joe's substantial savings and lack of debt as positive indicators (15:10).
• Mark’s Addition: Mentions the importance of understanding Social Security benefits and ensuring that retirement income sources are diversified (15:30).

Key Takeaways:

• Maintain diversified investment accounts to ensure a stable income stream post-retirement.
• Continually assess and adjust savings to meet future retirement needs.
• Utilize Social Security strategically to maximize benefits during retirement.

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5. Brad’s Job Offer: Private Sector vs. Federal Government

Timestamp: [16:50]

Brad, aged 38, wrestles with a job offer transition from the private sector to a federal government position:

• Current Position:

  • Private sector job: Approximately $100,000 annually.
  • 401(k) benefits.

• Federal Offer:

  • Salary: $75,000 - $80,000 annually (a 25% pay cut).
  • Thrift Savings Plan (TSP) and pension benefits.

Discussion Highlights:

• Jill’s Considerations: She emphasizes the need to assess whether the lower salary can sustain Brad’s lifestyle and long-term financial goals (17:15).
• Mark’s Perspective: Highlights the importance of evaluating the pension details and job stability within the federal sector, noting potential risks with government positions becoming vulnerable during budget cuts (18:00).

Key Takeaways:

• Weigh the immediate financial impact of a salary reduction against long-term benefits like pensions and job security.
• Analyze the stability and growth prospects within the federal job offer.
• Consider personal career goals and the value placed on retirement benefits versus current income.

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6. Marcus’s Pension and Annuity Options

Timestamp: [19:30]

Marcus, soon to be 43, faces decisions regarding his state pension and a private-sector job following injuries that make his current state job untenable. He outlines his options:

• Options:

  1. Option 1: 12-payment annuity at $3,600 monthly with a 3% Cost of Living Adjustment (COLA).
  2. Option 2: Lump sum of $188,000 plus partial payment of $2,685 monthly with a 3% COLA.
  3. Option 3: Adjust the lump sum to $123,000 and increase monthly pension payments to $3,000.

• Additional Plans: Rolling over any lump sum into an IRA.

Discussion Highlights:

• Jill’s Inquiries: She probes about spousal benefits and long-term financial security, raising concerns about survivorship if Marcus were to pass away early (20:15).
• Mark’s Analysis: Suggests a preference for the annuity option, assuming it includes survivor benefits, but urges caution and thorough understanding of the contract details (21:00).

Key Takeaways:

• Prioritize options that offer financial security for both the individual and their spouse.
• Carefully consider the implications of each annuity option, including survivor benefits and flexibility.
• Align pension and annuity choices with overall retirement and financial planning strategies.

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Conclusion and Final Remarks

Throughout the episode, Jill and Mark provide personalized financial advice, emphasizing the importance of:

• Comprehensive Financial Planning: Assessing all assets, income sources, and potential liabilities.
• Tax Efficiency: Strategizing withdrawals and asset management to minimize tax burdens.
• Risk Assessment: Evaluating job stability, investment risks, and the implications of financial decisions on long-term goals.
• Personalized Solutions: Tailoring advice to individual circumstances, ensuring that each listener's unique needs are addressed.

Notable Quote:

“Change your work, change your wealth, change your life.” – Jill Schlesinger (23:45)

Jill encourages listeners to engage further by submitting questions or joining live sessions, fostering a community of informed and proactive individuals striving for financial well-being.

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For More Information:

• Visit jillonmoney.com to submit questions or subscribe to Jill on Money Live.
• Subscribe to Jill on Money on your preferred podcast platform or join their sister podcast, Money Watch, available on the Odyssey app.

Transcript

[Jill Schlesinger]

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With five times membership rewards, points on flights and prepaid hotels booked through amextravel.com, you can earn more points to help grow your business. And with access to more than 1400 lounges globally through the American Express Global Lounge collection, including the Centurion Lounge. Can I get you a refill? You can stay fresh wherever your business travel takes you. That's the powerful backing of American Express. Terms apply. Learn [e-mail] AmExBusiness welcome to the Jill on Money Show. It's Wednesday, May 21st and we are here trying to help you navigate your financial journey. Lots of different ways to get there. You know when I hit the Waze or Google Maps, a lot of different place ways to get to my destination. I don't know if you ever use these apps, Mark, but I always find it's funny where it's like they take you on like this crazy route to save you two minutes. I'm like, yeah, I go straight through. I'm good. That's kind of my personality. But you know what, there are long and winding roads to get to wherever you want to get and maybe that's a better route for you. If you need some assistance, consider us ways for your financial life. Just go to jillonmoney.com, click the contact us button, write us a note and if you'd like to join us on the air live, check the box and we would be delighted to get you on. While you're on the website, check out our subscription service. It's called Jill on Money Live. That is the whopping $45 investment for the next 12 months where you will have access to four live webinars, the entire back catalog of webinars, as well as bonus audio and video content. And our next webinar is coming up, Mike Quincy of Consumer Reports. He is a car and truck expert. He will be joining us Thursday evening, June 5, 7 Eastern Time. I have so many questions for Mike and I'm so happy he agreed to join us because the, listen, the car auto truck market, it's nuts right now. So I know that he's going to help hold our hands and get us through this. So please, please consider subscribing to Jill on Money Live so you can catch that yourself. All right, let's do some emails. This is from Cheryl who writes, I am the power of attorney for my 83 year old mother. I am preparing her to move into a retirement community. She will likely sell her home this summer. She will net $210,000. She also has about $357,000 in traditional IRAs and receives $2,800 a month from Social Security. Her care will be 4535amonth. Got that guys? 4,500 but only 2800 coming in. Okay, but wait. She also has $800,000 in a taxable stock portfolio and it generates about $5,000 per quarter in dividends. She also has a small Roth ira, both of which she does not want to touch. She wants to preserve that as an inheritance. Okay. The plan she says she wants is to fund her care using the traditional IRAs and a safe investment of the proceeds of the home. Okay. It seems so again, Cheryl goes on to write it seems like she can afford it. But let me know if you think otherwise. I am trying to understand how to minimize her federal and state tax liability on the withdrawals from the Iraq as well as the stock portfolio. So what we know is, I mean it's funny, her care will cost 45, 35. I wonder if there are other, there must be other costs though, don't you think? That seems like a, I mean that might just be for the facility. That would be seventeen hundred dollars a month. I'm guessing that they need like another thousand dollars a month in income. And so she has five. She said five grand a quarter, right? Is that what her. Yes, five grand a quarter. So she's got 20 grand. From there. She doesn't want to sell anything in the stock portfolio because gang, if she does not sell that and that is inherited, the kids will, the beneficiaries will get a step up in cost basis. So she'll have this money in her house, her 210,000, we can use that. We could just ladder that in CDs, frankly, just make it really boring. And then she should pull out whatever her required minimum distribution is from her retirement account and that's it. I mean, I think that that's fine. I think she's got that 350 grand is in that account. It's going to be perfect. And you can't really minimize the tax liability on that. You just can't. I mean, one thing would be maybe what I might do is take a look at that taxable stock portfolio and make sure that everything in that portfolio is what she wants to own. Because, I mean, I get that you like the dividends, but I'm just wondering. It'd be nice not to have those dividends because that's just taxable income to her, right? That 20 grand that's coming out in dividends. It would be nice if we didn't have that. And then you could really use just the IRA account to get your taxable income. But I don't know, may not be worth it. I guess the only other thing to consider would be, are the children in a higher tax bracket or a lower tax bracket than Mom? Because there is a case to be made that if mom is in a. Let's just pretend that mom is in the 22% tax bracket, right? Probably about. And maybe we should be taking more money out of the retirement account and pop her into the 24% bracket because you and your siblings are in, like the 37% bracket. That can happen. Sometimes it's better to accelerate the older generation's money out of those accounts simply because they're going to be in a lower tax bracket than you will be. So just want to, like, think about that. And maybe if you want to get back in touch with us and talk about what everyone's situation is in terms of the beneficiaries, we can help guide you. Okay. Robert is asking about a retirement plan. He says, I'm 60 years old, I live in Washington. My wife is 53. We have a 401k from my old job, $90,000, as well as a $270,000 lump sum deferred comp that will pay out in June of 2028. Okay, that sounds good. So far, so good. Also an IRA with $1.1 million, and my wife has a $200,000 IRA. We also have an investment account with about 100 grand and keep $30,000 in the bank. We live in our home. It's valued at $1.5 million with don't cry mark, a 2.75% 30 year fixed rate mortgage. The balance is $280,000. So Robert's going to keep working for another couple years making $200,000 a year. His wife will work for five or seven more years at $100,000 a year. Question, should we be concerned about taxes later in life and capital gains on a home sale? If we were to sell and move for retirement, can the equity help purchase a vacation house? All right, let me just go back for a second. The taxes that you're going to pay is. It sure is something that you should be concerned with. On the other hand, I'm wondering, like you say, that you're continuing to put money into your ira. Maybe you should stop doing that. I mean, for your wife, she's a little bit younger, but you're 60, you're going to keep putting money away. I might build up my investment account a little bit. And then we would think about if you're going to retire in a couple years to look at your $1.1 million IRA as well as that lump sum deferred comp payout and the old 401K. We put those all together, right? 1.2, $1.5 million. And. And we would start to think about, Robert, whether or not you should be pulling money out of that traditional account, which you will ultimately combine in order to live on it and then just let your wife do her thing. I mean, I think that, that it's fine. I'm not sure. Again, I'm not sure. You guys need to be putting a lot more money into your ira. But she's younger, we can do that. So I think that that's the concern about taxes later in life, which is that pile of untaxed retirement money will be taxed ultimately. I mean, you didn't tell us how much money you need to live on, but, you know, I presume we're going to be sort of fine if we start tapping this money. Now, the question about capital gains on your home sale. Well, I don't know what you were able to purchase this house for, but remember, the money that you put into this house, the original purchase plus any improvements, not like decorating, but like, oh, we put a new bathroom in, or we did this with something like that, you can really legitimately claim will raise your cost basis when you sell your home, or if you sell your home, you will be able to, as a couple, exclude half a million dollars of your accumulation from Capital gains. But, you know, if all of a sudden your house is now worth $2 million and your cost basis was a half a million, you're going to pay capital gains. And there's no way to really change that on your personal residence. Okay, so, yeah, the equity, if you sold it, could you purchase a vacation home? Maybe. We'd have to see if that works for you. I think that what the main point here is that you have a lot of money that has a tax liability associated with it. The IRA, the traditional IRA, the deferred comp, the old 401k, plus the equity in your home. And you should have a plan to manage that. Okay. All right. Oh, I've been yakkin boy, Mark. Okay. Graziella writes, I love your podcast, dear Jill and Mark. Okay, so Mark, pay attention. I love your podcast. I just retired last year and I have a variable annuity which I started to collect. She mean, I wonder if she means that she is receiving. She annuitized it and is receiving payments. She says this annuity has a high administrative fee. How do I lower it? The financial advisor who sold it to me, he wants to convert it to another annuity and I decline. Did I make the right decision, Mark? Ready? One, two, three. Yes.

[Mark T. McGowan]

Ding, ding, ding, ding.

[Jill Schlesinger]

She's 67 years old. Her RMDs are not coming till 73. Should my withdrawal from the investment be counted as RMDs? Okay, wait a second. So look, if the variable annuity is a retirement variable annuity, like it's an IRA from an old employer, that then, yeah, you can use that to cover required minimum distributions. She also has a 403B and a Roth IRA, and she kind of wants to know what to do. Okay, so here's the thing, Graziella. Let's kind of look at things in three big buckets. You've got the annuity, you've got the 403B, which is a traditional account and a Roth IRA. You can invest the Roth IRA however you want. The 403B has to if you're going to change that. If you were going to roll it over, you would roll it to an IRA rollover. And the only way that I don't even think we would convert it. He didn't mention any money on the sidelines. And the other part of this is that the annuity, it really depends on whether the annuity is a retirement annuity or a non retirement annuity. One way to get rid of annuities with high fees is to annuitize them. And just like, get the money out. The other way is to just pull the money out, but then you'll be taxed on all the accumulation. So we'd really need to know the details of this contract before giving you more guidance. Okay, I hope that helps. Okay, next up. Hi, Jill. My name is Joe from Northern California. I love your show. I love you right back, Joe. I'm 58 years old, single, and I plan to retire at age 65 when I'm eligible for Medicare. My mortgage is paid off. I don't have any significant debt, by the way, Joe, you sounding like a very eligible bachelor with money and a mortgage that's paid off and no debt. I'm happy about that. Okay. I make 75 grand a year. My monthly expenses are $3,000 a month. Oh, my God. Okay, he's got a brokerage account with 115 grand, a Roth with 135,000, a 401k with 450,000. 50 grand in the bank. My two nephews are the beneficiaries of my accounts. Am I on the right track to retirement, Joe? You are indeed. I don't know what your Social Security is going to be, but if you're going to be working till you're age 65 and you're going to collect your Social Security at age 67 or 70, you got plenty of money saved. And, boy, do you have lucky nephews. Sounds good to me. Brad writes he has been wrestling with a recent job offer that's been presented to him. Okay, here's what he got. I love these I love job choice questions. I really do. Because it makes me think, like, what would I need to get my new job? Okay. So Brad says, I work in the private sector doing H vac work. I make about 90, let's just call it 100 grand a year. And he has a 401k. He has been offered a federal government position. So I guess the federal government is actually hiring. He would do the exact same thing. He'd make less money, 75 or 80 grand a year. Right. So he'd take a haircut of about 25% in the government. He would have a thrift savings plan, but he'd also have a pension. He said, I'd like some help on this decision because it would be. It would mean taking a big pay cut. I'm 38. Continue to work. Will continue to work for 20 years, but I'd like to retire early as well. Okay. Okay. So I. I don't know, like, so much about your living situation right now, so, for example, could you support yourself on that 75 or 80 grand a year? That's your first question. Right. And the second question is if you can. Do you feel comfortable making this bet work? I mean, it used to be I would say go work for the federal government. What's going to happen now? You can get cut and the last person in is usually the first person out. So I want to make sure that what you've been offered is a job that we think has legs to it, you know, more than a couple of years. I'm not sure about all the other things going on in your life. My guess is that this would be worth it to you simply because of the pension. Right. But there's some risk. There's. I mean, Mark, can you believe we're talking about risk with a government job?

[Mark T. McGowan]

Yes.

[Jill Schlesinger]

I mean, we never used to think that. Right. It's really different. So I want to hear more about this guy. Do you want to take the government job or not?

[Mark T. McGowan]

I need to know more. You know, I mean, it's good that he wants to work in this job for the next 20 years. So he, you know, he would obviously if he doesn't get blown out, he would have that pension. I'd like to know what the pension details are. I'd like to know how much money he has saved already.

[Jill Schlesinger]

Yeah.

[Mark T. McGowan]

How much he spends.

[Jill Schlesinger]

We got it. We need more info. Get in touch with us. Marcus says he's been watching and listening to us for about a year. And he says, I think I have a unique question. Okay, let's see. Marcus is going to turn 43 later this year. He's married, he's got two kids. One, one just graduated from high school, the other is in sixth grade. He says, I have a good job with a state pension, but due to some injuries, not a long term option. I've got enough time in the pension plan to pull retirement and start collecting now. Meanwhile, I have another job in the private sector that I've lined up and it could replace my income from that previous state job. The big question I'm trying to answer is the options around the annuity. Okay, pay attention, Mark. You love these options. Option one is a 12 payment annuity, which is $3,600 a month with a 3% COLA. Option two, a lump sum, $188,000 with a partial payment, 2685amonth with a 3% Cola. And option three is I can adjust the lump sum to be lower and my monthly to be higher. For example, $123,000 lump sum and $3,000 a month as the pension. Any lump sum, I would plan on rolling over into an ira. Okay, so good options. Good options. He's got. He's married with two kids. Okay. My first question, Marcus, is, are these options, do they have a spousal benefit? I'm just wondering, because without a spousal benefit, it's a little bit riskier, right? Because then it's like I take the. I take the annuity, and then what happens if, like, three years later, you drop dead? What happens to the payments? That's one question to ask. And number two is, what other money have you saved? I mean, it doesn't sound like you actually need the annuity right now. So, oddly enough, I am actually leaning towards a lump sum because of his age. But I want to know more about this because I don't know about these injuries. I don't know if you'd want to have some consistent payment. And I really want to know more about whether these payments would continue to your wife if you predecease her. So I'm the opposite. You want the money.

[Mark T. McGowan]

Yeah. The lump sum, it's not compelling enough for me to give up the. The partial annuity. I would. If you're telling me he's 43 and he can turn on 3, 600amonth now for the rest. Rest of his life, and his wife gets survivor benefit.

[Jill Schlesinger]

Yeah, but what if she doesn't get survivor benefit?

[Mark T. McGowan]

That's the big key. I'm just gonna. I'm. I don't know. I'm making the assumption that there's some sort of survivor benefit. I would take the annuity.

[Jill Schlesinger]

I don't know. I don't know. There's something about having control of your money when you're very young.

[Mark T. McGowan]

It's not a ton of money, though. It's a nice chunk of money, but it's not life.

[Jill Schlesinger]

Maybe it is to him.

[Mark T. McGowan]

Yeah. We need to know.

[Jill Schlesinger]

Yeah. All right, well, we'll find out. See, this is good. This is why you have two different opinions. And there are many ways to get there. So follow up with us. We want to bring you on the program, that's for sure. Okay. If you've got a question, just go to jillonmoney.com, click the contact us button. Let us know if you'd be willing to come on the air live by checking the box. Guys, come on the air live. Do you see all these questions we answer in the last couple of times we've done email episodes? We're like, we need more information. We need more information. We need more information. That's what it really means. So come on the air. We'll change your name. Okay. We'll change where you're from. We'll make it all very seamless for you. Can you do that? We're very nice people, sort of. Mostly. At least on the air with you guys, we are. Okay. Get in touch with us again. Jill on money.com that is our website. Just bookmark the website. I know that you're going to come back. You can subscribe to this program, Jill on Money on the Odyssey app. And you can also subscribe to our sister podcast called Money Watch, which airs on the weekends, also on the Odyssey app, or wherever you get your favorite podcast. Leave us a rating and review. Wherever you listen, try to do something nice for someone else today. Change your work, change your wealth, change your life. Thank you for listening and we'll talk to you tomorrow. When investing your money starts to feel like a second job, Betterment steps in with a little work life balance. It's the automated investing and savings app that handles the work so you don't have to. While they build and manage your portfolio, you build and manage your weekend plans. While they make it easy to invest for what matters, you just get to enjoy what matters. Their automated tools simplify the complex and put your money to work optimizing day after day and again and again. So go ahead, take your time to rest and recharge. Because while your money doesn't need a work life balance, you do make your money hustle with Betterment. Get [e-mail] that's B E T T E R M E N T.com investing involves risk performance, not guaranteed. Buying a home in California can certainly feel intimidating. We hear from listeners all the time throughout the and they want to know, where can they even start? Many of them find that turning to a Realtor changed everything. Realtors can help buyers understand what they can afford. They can explain all of the steps that are involved in purchasing a home. And they can walk you through every detail, from making an offer to closing the deal. Working with a Realtor can help you feel less alone or unsure about the process and that peace of mind that is the power of having a Realtor by your side. Whether you're ready to move or just starting to dream, don't go it alone. Don't let what you don't know stop you from starting your next chapter. Find your [e-mail] that's championsofhome.com.