Retirement planning: Pension or personal saving/investing?
with me and my wife coming from different countries, and us both living in a non-native country, we have very little clue where we will eventually settle down. The answer depends on where you reside currently, tax rules and ability to move funds. As well as where you plan to settle down and the tax rules there. From what I understand, once you eventually retire and take an annuity from your pension you are then taxed on it as income anyway? Yes and No. For example if you move from US to India, stay in India for 7 years. You then move your retirement funds from US to India the entire amount would be taxable in India. but would this 'freedom' would come with significant costs in terms of savings at retirement? The cost would be hard to predict. It depends on the tax treatments in the respective countries on the retirement kitty.  It also depends on whether the country you are staying in will allow complete withdrawal and transfer of retirement funds without penalty. You can never depend ONLY on pension. You must get financial education and invest your money. I recommend you to read The Intelligent Investor by Benjamin Graham...it's the bible of Warren Buffet. Besides, you don't need to be a Billionaire for retiring and be happy. I recommend you to get education in ETFs. I quote The Intelligent Investor by Benjamin Graham p. 131. According to Ibboston Associates, the leading financial research firm, if you had invested $12,000 in the Standard & Poor's 500-stock index at the beginning of september 1929, 10 years later you would have had only $7,223 left. But if you had started with a paltry $100 and simply invested another $100 every single month, then by August 1939, your money would have grown to $15,571! That's the power of disciplined buying-even in the face of the Great Depression and the worst bear market of all time. You are still young to make even bolder investments. But seriously you can never depend ONLY on pension. You won't regret learning how to invest your money, it doesn't matter if it's in the stock market, real state market, whatever market... Knowing what to do with your money is priceless. I hope this helps. Happy profits!
"None of what I say is advice directed to you. It is how I would continue to analyse the situation you have, were it mine. First off, I prefer to work in certainties more than possibilities.  Saying that, paying down the mortgage makes sense as I can calculate the amount I will save. I also believe that rate rises are coming in the future, based on the talk from the BofE, so any money I pay off now means guaranteed less interest to pay in the future. Also, the lower my loan-to-value ratio, the better/lower interest rates I can receive in the mortgage market. If I do not want to work until retirement age, it'd be nice to have as few bills as possible in the decade or so prior to retirement age. I could then do early-retirement or part-time work in the run-up to retirement. I could use my savings to fund life until retirement pays out. I'd be aiming to put 15% of my gross income into ""future investing"" - using ISAs to build up a savings pot, taking advantage of retirement products. That way all the money is not tied to a normal retirement age before it can accessed. And it's not touchable by future greedy Government taxation... Any income leftover above the 15%, I'd be throwing at the mortgage - taking advantage of the 10% overpay window, remortgaging as LTV comes down. In theory, overpaid mortgage equity is money that could still be accessed (provided house prices don't decline and remortgaging is a possibility). So, in short, I'd follow a plan along these lines of logic. 1) Make sure I have 4-6 months of living expenses as a Rainy Day Fund. Insulate myself from fluctuations in my financial situation. 2) Put away 15% of annual gross income towards ""future saving"". ISAs first, pension second. 3) Overpay the mortgage and look to remortgage as LTV drops. When LTV nears 60%, look to lock in to a longer-term fix. eg. 2 year fixes at 90% LTV, 5 year fixes at 60%. 4) Reassess steps 2 & 3 as life happens, circumstances change, work fluctuates, etc. 5) Once the mortgage is paid off, build as much wealth as possible - ISAs first, then non-tax efficient savings products. Aim for keeping expenses down and raising my savings % rate as much as possible. [Your analysis was thorough and shows you are thinking through consequences. Never forget to factor in the risk of carrying debt. Having no/low debt as you get older means there's more income left to build wealth. Ignore the American view of carrying debt for life and trusting investments to outperform the debt. You have to pay monthly to keep that debt around - and it ain't a pet!]" "Age. Current marginal rate. Total saved so far. Current rate of savings. Joint or single filer. These are among the variables that go into making this decision. Without this, my answer is a general response. In general, you have one marginal rate today. (Unless you happened to be straddling a bracket limit).  In retirement, you have your marginal rate, of course, but also every bracket up to that level. It can make sense to save today pretax to avoid 25%, knowing this money will be withdrawn at an average 10 % or so in retirement.  Edit to clarify to the one who offers comment below to the contrary.  The 2015 taxtable for single filer:  A single person has a combined $10,300 standard deduction and exemption. This means that if he has no other income in retirement, a withdrawal of $47,750 results in a tax bill of $5156. This is an average 10.8% on that withdrawal. It also means that one can save nearly $1.2M before hitting the 25% bracket in retirement. With the numbers I offered, the next $1 is taxed at 25%. In general, if a new worker starts by using Roth, and goes to traditional to avoid slipping into the 25% bracket, they will have a nice mix of pre and post tax money.  In the end, it's not a long term binary choice. Each year, you can decide which flavor or mix of flavors to use. You can convert from traditional to Roth each year to ""top off"" the 15% bracket, so you retirement withdrawals never push you into the 25% bracket.  Note - the math above tragically ignores The Phantom Tax Rate Zone caused by the taxation of Social Security benefits. For a young person, I don't know that I'd advise counting on this benefit, but if you believe in fairy dust, unicorns, and the like, you should be aware of how the government currently plans to tax you. This situation leans strongly toward the Roth. Until congress decides to use Roth withdrawals as a trigger to tax or reduce your benefits, in which case, just using a taxable account will be all that's left.  2 years ago, I wrote a blog post The 15% solution which walks the reader through the process of optimizing their savings from a tax standpoint. The choice of investments is another matter, this simply addresses the pre-tax post-tax issue." @JoeTaxpayer's answer outlines how to value it. Some other considerations: As I understand it, some public pensions may be tax-free if you still live in the state that is paying the pension. E.g. when a Massachusetts teacher receives pension, it is exempt from state taxes, but if that person moves to Vermont he will have to pay Vermont income tax on those payments. So if you plan to stay in the state post-retirement, this provides additional value. Pension payments aren't fully guaranteed by the PBGC. And not all pension plans are fully funded. Depending on the political and economic environment when you hit retirement, your retirement plan could suffer. (And if you aren't working, you may not have a union vote any more when the other working members are voting on contract amendments that affect pensions.) I'm not certain of all of the rules, but I hear news reports from time to time that formulas like what you've posted in the original question are changed through negotiation with the union. If you make an employment decision using the formula in year X and then the formula changes in year X+10, your expected pension payment will change. "Almost all companies in the US have changed from formal pension programs to 401k plans, and most companies that still have pension programs don't allow new employees to  enroll in the new program; only the previous participants who are vested in the pension plan will get benefits while new employees get enrolled in the 401k plan. If this is the case with  your prospective employer, then demanding that you be allowed to enroll in the pension plan is likely to be futile; in fact, the likely response may well be ""Here is our offer. Take it or leave it"" or ""We are withdrawing  the offer we made"" especially if you are in a field where there are plenty of other people who could do the job instead of you. So be sure that you understand what your worth is to the company and how much leverage you have before starting to make counter-offers. With regard to money that you might have vested in your current employer's pension plan, your options are to leave it there until you retire and start getting a pension (generally not advisable in these parlous times when the company might not even exist by then), roll it over into an IRA or into your new employer's 401k plan. This last is the only matter that concerns your prospective employer and where you might need to ask; the new employer's 401k plan might not be structured to accept rollovers. If the money in your current employer's retirement plan is in a pension plan, what is paid out for rolling over might be different (and smaller) than what has been credited to you thus far. For example, my (State Government) pension plan credited 8% interest per annum on the amounts I contributed but this was fake money because had I resigned and withdrawn the pension contributions (for the purpose of rolling over into an IRA or even just taking it as cash), I would have received only my contributions plus only 4.5% interest per annum. The 8% interest credited is available only for the purpose of the purchase of an immediate annuity upon retirement; it is not something that is portable to a new plan, and if I want a lump-sum payout upon retirement instead of a pension in the form of an annuity, it would be the 4.5% rate again..." Unfortunately, that's a call only you can make and whichever route you choose comes with advantages and disadvantages.  If you manage your money directly, you may significantly reduce costs (assuming that you don't frequently trade index funds or you use a brokerage like RobinHood) and take advantage of market returns if the indexes perform well.  On the other hand, if the market experiences some bad years, a professional might (and this is a huge might) have more self-discipline and prevent a panic sell, or know how to allocate accordingly both before and after a rise or fall (keep in mind, investors often get too greedy for their own good, like they tend to panic at the wrong time).  As an example of why this might is important: one family member of mine trusted a professional to do this and they failed; they bought in a rising market and sold in a falling market. To avoid the above example, if you do go with the professional service, the best course of action is to look at their track record; if they're new, you might be better on your own.  Since I assume this one or more professionals at the company, testing to see what they've recommended over the years might help you evaluate if they're offering you a good choice. Finally, depending on how much money you have, you could always do what Scott Adams did: he took a portion of his own money and managed it himself and tested how well he did vs. how well his professional team did (if I recall, I believe he came out ahead of his professional team).  With two decades left, that may help guide you the rest of the way, even through retirement. I would definitely recommend contributing to an IRA. You don't know for sure you'll get hired full-time and be eligible for the 401(k) with match, so you should save for retirement on your own. I would recommend Roth over Traditional IRA in your situation, because let's say you do get hired full-time. Since the company offers a retirement plan, your 2015 Traditional IRA contribution would no longer be deductible at your income level (assuming you're single), and non-deductible Traditional IRAs aren't a very good deal (see here and here). If there's a decent chance you would get hired, this factor would override the pre-tax versus post-tax debate for me. At your income level you could go either way on that anyway. A Solo 401(k) would be worth looking into if you wanted to increase your contribution limit beyond what IRAs offer, but given that it sounds like you're just starting out saving for retirement, and you may be eligible for a 401(k) soon, it's probably overkill at this point. "when you contribute to a 401k, you get to invest pre-tax money. that means part of it (e.g. 25%) is money you would otherwise have to pay in taxes (deferred money) and the rest (e.g. 75%) is money you could otherwise invest (base money).  growth in the 401k is essentially tax free because the taxes on the growth of the base money are paid for  by the growth in the deferred portion.  that is of course assuming the same marginal tax rate both now and when you withdraw the money. if your marginal tax rate is lower in retirement than it is now, you would save even more money using a traditional 401k or ira. an alternative is to invest in a roth account (401k or ira). in which case the money goes in after tax and the growth is untaxed.  this would be advantageous if you expect to have a higher marginal tax rate during retirement. moreover, it reduces tax risk, which could give you peace of mind considering u.s. marginal tax rates were over 90% in the 1940's. a roth could also be advantageous if you hit the contribution limits since the contributions are after-tax and therefore more valuable. lastly, contributions to a roth account can be withdrawn at any time tax and penalty free. however, the growth in a roth account is basically stuck there until you turn 60. unlike a traditional ira/401k where you can take early retirement with a SEPP plan. another alternative is to invest the money in a normal taxed account.  the advantage of this approach is that the money is available to you whenever you need it rather than waiting until you retire.  also, investment losses can be deducted from earned income (e.g. 15-25%), while gains can be taxed at the long term capital gains rate (e.g. 0-15%). the upshot being that even if you make money over the course of several years, you can actually realize negative taxes by taking gains and losses in different tax years. finally, when you decide to retire you might end up paying 0% taxes on your long term capital gains if your income is low enough (currently ~50k$/yr for a single person). the biggest limitation of this strategy is that losses are limited to 3k$ per year. also, this strategy works best when you invest in individual stocks rather than mutual funds, increasing volatility (aka risk). lastly, this makes filing your taxes more complicated since you need to report every purchase and sale and watch out for the ""wash sale"" rules. side note: you should contribute enough to get all the 401k matching your employer offers.  even if you cash out the whole account when you want the money, the matching (typically 50%-200%) should exceed the 10% early withdrawal penalty." "No one can really answer this for you.  It is a matter of personal preference and the details of your situation.  There are some really smart people on here, when placed in your exact situation, would do completely different things.  Personal finance is overall, personal. If it was me, I'd never borrow money in retirement.  If I had the cash, I'd use it to help fund the purchase.  If I didn't, I simply wouldn't.  For me wealth retention (in your case) is surprisingly more about behavior than math (even though I am a math guy).  You are simply creating a great deal of risk at a season in your life with a diminished ability to recover from negative events.  In my opinion you are inviting ""tales of woe"" to be part of your future if you borrow. Others would disagree with me.  They would point to the math and show how you would be much better off on borrowing instead of pulling out of investments provided a sufficient return on your nest egg.  They may even have a case as you might have to pay taxes on money pulled out magnifying the difference in net income on borrowing versus pulling out in a lump sum.  Here in the US, the money you pulled out would be taxed at the highest marginal rate.  To help with a down payment of 50K, you might have to pull out 66,500 to pay the taxes and have enough for the down payment. The third option is to not help with a down payment or to help them in a different way.  Perhaps giving them a few hundred per month for two years to help with their mortgage payment.  Maybe watch their kids some to reduce day care costs or help with home improvements so they can buy a lower price home.  Those are all viable options.  Perhaps the child is not ready to buy a home. Having said all that it really depends on your situation.  Say your sitting on 5 million in investments, your pensions is sufficient to have some disposable income, and they are asking for a relatively small amount.  Then pull the money out and don't be concerned.  You nest egg will quickly recover the money."