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Stacking old fashioned pensions can be done!

By: Christopher Pascale

Defined benefit (DB) pension hacking

“The old economy with careers and benefits and pensions is gone.” –Chris Sacca

The quotes throughout this piece entail the common wisdom of the day. Old fashioned defined benefit (DB) pensions are becoming a thing of the past, wrapped up in jobs on the railroad, being a fireman, and entering military service.

Just getting a single one of these pensions is uncommon. They also keep getting cut. But the path I’m on will lead to my wife and I having somewhere between and 5 and 7 of them.

In this article, I’ll lay out the current DB pensions we are fortunate enough to have (since the ages of 28 and 26, respectively), the ones on the horizon, and some others we could pursue, but most likely will not. And while some of these options are not right for us, you may find yourself inspired to see about them for yourself.

We will explore the following:

  • Military retirement
  • Federal government retirement
  • State teachers’ pensions
  • State, county and town retirement
  • Pensions from volunteering as a firefighter or EMT

“When I was young, many people worked for a company with a pension plan that covered them.” -Robert Kiyosaki

Military Pensions

As mentioned through other pieces, my wife and I are both receiving veterans pensions from the VA. I won’t draw out the details, since I’ve done that here. If you’d like another reference, you can see here.

In brief, upon leaving the military I was deemed 60% disabled, and was later re-evaluated to 70%. As a result, being married with 4 kids, we received $1,918 every month of 2018, tax-free. My wife was injured while doing a workup for a deployment to Afghanistan. Matched with other injuries sustained during her time on active duty and the reserves, she was rated as 80%, and chose the tax-free VA pension over the taxable military retirement, which brought in $2,090 every month.

Yes, VA pensions are tax-free. We received $47,100 in 2018 that will not be claimed on our taxes. Some readers might see this and think, wow, these guys are totally FI right now, but we’re not even close. We chose to live in a high-cost area, locked ourselves into a $310,000 mortgage, and we live rather richly beyond that, which I’ll discuss in more detail in a future piece.

There’s not much more to say about this pension, so let’s discuss federal retirement.

“We’re (U.S. workers) woefully underprepared for retirement.” -Nicole Seghetti

Pensions for Federal Employees

Federal employees are taught that retirement is to be supported by a stool with 3 legs (Personal Savings, Company Pensions, and Social Security), and the outcome is viewed as rather bleak.

Government employees are told that we should rely on a combination of Social Security, a DB pension, and the Thrift Savings Plan, which is like a 401(k) that gets a match up to 5% of one’s income, if elected.

Focusing on the DB plan, I intend to leave the federal workforce at the age of 48 with 20 years of service, which will later (at age 60) bring me a pension equal to 20% of my high 3 years of salary.

So, by age 48 we’ll be receiving 2 DB pensions, and will have locked in a third.

My wife has returned to the federal workforce in 2018. She is 34, has a year of service already, and is going to buy the years she was on active duty. If she works until the age of 50, that will be 20 years of service, which will bring 20% of her high 3 which she can begin receiving at age 60.

Please note that federal DB pensions cannot be received in full until age 60, so while I plan to leave the federal workforce at 48, it will be 12 years before I’ll access it.

“As pensions die and as Social Security becomes ever less generous, Americans are going to have to get more creative in their retirement planning.” -Charles Sizemore

State Teachers’ Pension

In January, 2018, I began teaching at a community college. While it was only one 4-credit class, I’m not only engaging in a college hack for my kids (free tuition), as well as myself if I want to get a PhD, I’m also building toward a pension.

If I teach just one course each Fall and Spring for the next 15 years (until my kids graduate), I’ll qualify for the minimum pension at the age of 51. If I teach two courses (as I did in the recent Fall semester), I’ll vest at the age of 43. This doesn’t count the 403(b) I’m contributing toward, because it’s outside the scope of the DB topic.

Let’s assume I only teach one course a semester, and stop when the kids graduate. The rough number for annual income = $5,000

Currently, I’m just at a community college, but if I land a position at a 4-year school, the larger tuition savings will be an even bigger benefit than the small pension. However, even if I did land a position at another school, there would be nothing stopping me from still teaching a course a semester at the community college until I lock in the pension.

Employees must increasingly take ownership of managing their own contribution levels, investments and distributions.” -Alan Glickstein

State, County, Town Retirement

“Jermaine” worked with me at the IRS after retiring as a New York State Employee. One evening, we were talking about the change he made from a State to Federal career.

“Were you just looking for a change of scenery?” I asked, figuring he’d been tired of where he was.

“No,” he replied, “my son got into law school.”

I didn’t quite understand what he meant.

“When he got into law school I decided that I could better pay for it by taking the 50% pension, and getting another job. I applied to the village, county and here.”

Basically, Jermaine did a hack. Rather than work for 100% of his pay at the old job, he opted for 50% while adding a new income source that includes – believe it or not – another pension after just 5 years (a benefit offered to federal employees over 55).

While I don’t plan to have a job like this, it’s not impossible to think I might end up being local Geese Chaser or on my village’s school board, both of which offer pensions.

A current co-worker of mine has talked about leaving the IRS to work with the County not only for a change of scenery, but to draw his federal DB pension while building up a County one.

Nearly one quarter of Fortune 500 companies still offer a defined benefit (DB), or pension plan of some sort or another to new hires. That’s down from 60% who did so back in 1998.” -Hal M. Bundrick

Volunteer Firefighter & EMT Pensions

Where I live on Long Island, firehouses are mostly volunteer organizations. I’ve spoken to some firefighters about joining the force so as to be more involved in my community. While doing so I wasn’t shy to ask how the benefits worked.

For my town, there is a property tax reduction and a modest monthly pension for those who serve 20 years. Having been in graduate school and working 2 jobs at the time of inquiry, I declined, but my wife joined as an EMT. It was a valuable experience, but drawbacks included busy weekend nights on call for 24 hours, as well as potential bio hazards. On one occasion she was vomited on, and on another the patient was bleeding significantly. She wasn’t afraid for herself, but couldn’t bear the idea of bringing something into our home that would harm our young children.

Something you need to know about volunteering as a firefighter (and results may vary) is that you will give so much more than you should plan to receive. After my wife’s first week of calls she found great satisfaction with doing emergency medical work, but the shifts are all overnight or 24 hours.

“Is it worth it?” she asked me at the start.

I said something along the lines of making the community a better place. However, that wasn’t what she meant.

“If you receive the pension for 10 years, and then die,” I told her, “you’ll have made $2.00 per hour.”

I gave this 10-year figure because the work was hazardous and the hours hard. Therefore, her risk of mortality was increased. Having said that, dying isn’t the worst thing in the world if you have a completely fulfilled life. What’s the old saying? It’s not the years of life, but the life in the years?

She stayed on for a couple more months, and had done some good work, but couldn’t bear to think of 20+ years of sacrificing holidays, not coaching soccer, working overnight and full weekend days all while risking the potential hazards that came with being around so many sick people, some of whom required being carried.

And this is something that firefighters and EMTs will tell you: The benefits at the end don’t make it worth it. It’s about being in the community of the firehouse. For some, it’s honoring the traditions of their families. And for those who are already retired, it’s a great way to stay involved in a meaningful way while being of incredible service to others.

The number of people with defined benefits pensions has dwindled to one-fifth of what it was.” -André Spicer

Recapping the Piece

My personal path includes a minimum of 5 DB pensions:

  1. My veterans pension
  2. My wife’s veterans pension
  3. My federal employment pension
  4. My wife’s federal employment pension
  5. State teachers’ pension from time as an adjunct professor

There’s room for other DB sources, such as if my wife teaches, or if one or both of us decide to work in our local school district.

My estimates for these 5 DB pensions are that they will bring a total annual income of more than $100,000, nearly half of which will be tax-free.

Along with these are defined contribution (DC) plans, such as the Thrift Savings Plans available to all federal employees that come with a 5% match. As an adjunct professor, I’m enrolled in a 403(b) plan. If we get involved in other government positions, we’ll have additional plans, for which we’ll maximize all matches, at least.

The looming pensions crisis is bound to be the death of us all.” Tyler Durden for ZeroHedge.com

Too Much Government Reliance for Pensions

Smart people reading this will agree my plan is not perfect. After all, it’s dependent on the government functioning. And given how dysfunctional the government is, it’s like saying:

“I have a network of people who can drive me from one place to another. They’re generally incompetent and often drunk. But it’s better than no plan at all!”

But these are not my only assets. Along with these income sources, I’ll have the following (noted conservatively below with annual cash flow from a 4% withdrawal rate):

  • My Roth IRA
    • Value: $200,000
    • Cash Flow: $8,000
  • My Thrift Savings Plan
    • Value: $400,000
    • Cash Flow: $16,000
  • My 403(b)
    • Value: $250,000
    • Cash Flow: $10,000
  • My wife’s Thrift Savings Plan
    • Value: $400,000
    • Cash Flow: $16,000
  • Rental properties: 2-5 units
    • Value: $300,000
    • Cash Flow: $30,000
  • TOTAL INVESTMENT PORTFOLIO VALUE
    • $1,550,000
  • TOTAL INVESTMENT INCOME @ 60:
    • $80,000

The truth is that if the government goes so far to hell that basic DB pensions aren’t getting paid, then finding clean water might be of more urgent importance than getting paid and being rich.

However, let’s say all federal pensions go away, and the State of New York can’t pay teachers’ pensions, either, but it’s not the kind of world where we’re all eating grass soup – everything else is exactly like it is: Infrastructure is intact and we complain about our WiFi speed while wondering aloud why Netflix no longer lets us watch “Big Trouble in Little China.” In such a world, I’ll still have a yearly cash flow of $80,000 a year, which is more than $6,600 a month.

Plus, I can still work. I can sell my home, which will have been paid off since my 40’s, as discussed in Wife on F.I.R.E., or I can rent out my home and move to a modest rental, collecting the difference.

In the end, my worst case scenario in a sucky world that hasn’t gone completely mad is still going to be alright. And this hasn’t even accounted for Social Security income, which will possibly be around in some form.

Christopher Pascale is an author, accountant and adjunct professor from Long Island. He is the former CFO of Portfolios with Purpose. His finance writing has been featured on the AIPCA’s “Tax Matters” page, WealthyJoe.com, and others. He is also the author of a book of poetry, and a collection of funny true stories due to be released in 2019.