zerooze t1_j4dfrw5 wrote on January 14, 2023 at 10:56 PM

Reply to comment by doccopham178 in PA State/Gov’t Workers: What is it like? Any tips for me? by doccopham178

This is horrible advice. I started working for the federal government when I was 24, and my father gave me advice about investing. I am now 51, and my 401k is over 600k, (it was more a year ago). The compound interest calculators have been spot on, and when I retire it should be worth 1.5 million. If I withdraw 4% per year in retirement, with a good mix of investments that should not reduce the balance and give me 6000 per month in addition to my SS and pension. Put it in a good stock index fund AND DON'T TOUCH IT. Use cost averaging and downturns will actually be profitable for you. During the last recession, I lost 40% of the value of my 401k, but because I didn't touch it and kept investing in it, when the market came back to where it started, I had double what I had before the recession. Talk to a financial advisor, now. What makes this work is TIME. I wouldn't have what I have if I'd waited until I was I my 30s. The key is starting young, I can't stress this enough. When you get a raise, put half toward your investments to grow it over time without hurting your wallet.

TyeDyeAmish t1_j4emoi7 wrote on January 15, 2023 at 4:06 AM

Or the market tanks & you have nothing & spend your retirement scrubbing toilets at McDonalds. Pensions are a million times better.

zerooze t1_j4f1m9b wrote on January 15, 2023 at 6:22 AM

If you invest in individual stocks, yes you can lose it all. If you invest in an index fund (mine is the same companies as the S&P), it will fluctuate, but it won't disappear. Pension funds are invested in stocks, so if the whole market crashed, pensions would disappear too, along with the world economy.

Recessions scare people, but they are the best time to buy because stock prices are low. Most people are idiots who buy when the market is high and then get scared and sell when it's low, but if you put in consistently, like with every paycheck, you average out the price of the stocks you buy.

A little education goes a long way. I recommend Clark Howard for financial tips, he's brilliant.

DelcoMan t1_j4vxt5a wrote on January 18, 2023 at 5:13 PM

Yeah this isn't accurate.

The PA pension fund isn't invested just in "stocks" there are a wide mix of investments (bonds, real estate, various hedge funds) designed to be profitable even in a market downturn. Not that profitability matters because it's a defined benefit program meaning your payout does not change no matter how much money is actually in the fund.

The way the pension works is also MUCH different than your 401k because the pension cannot be exhausted no matter how old you live to be. Your 401k is only worth what's in there and drawing down the principal (say, for a significant health incident, or needing to make withdrawals in a down market year) will deplete it.

The state pension system allows the recipient not only to receive a yearly tax exempt salary (which was the average of your three highest years when I was still there) for the rest of their lives, but also has the option to pass that yearly payment on to a dependent, though with a slight reduction in payout. So you could retire at 65, receive payouts until 90, then your child would ALSO begin receiving that payout until they die of old age.

Is that possible with your 401k? Not really. You'd have to get phenomenally lucky with your investment to guarantee that kind of draw for 100 years straight.

And for what it's worth, states are sovereign entities (unlike municipalities or territories) and cannot declare bankruptcy ever, per the US Constitution. No matter how bad the state's finances are, they are legally bound to pay that pension out as agreed to, because discharging the debt in bankruptcy isn't legally possible.

The US would have to dissolve as an entity or rewrite the constitution before that happened. Market crashes can and do happen. Total collapse of the United States not so much.

No one in their right mind would take a 401k over a defined benefit program like a state pension for that reason. Though for what it's worth state employees have access to a "hybrid" 401k program that mixes features of the legacy pension program, not a true 401k. The only advantage is that it's cheaper for the state to administer because a 401k style program pays out way less money than a pension does.

Source: former state HR manager for the Commonwealth, current private sector HR executive.