I’m 56 years old and I have two job offers that I need to decide between within the next day. (Each only gave me 48 hours to make a decision.). Offer #1 is with a high-tech company that offers $26,000 more in salary than offer #2, as well as $267,000 in RSUs (restricted stock options) and a 401k with NO match. Offer #2 offers a 401K with 50% match on 4% of my income, plus a pension where the pay is equal to 5% of my eligible monthly income (5% of my gross eligible monthly income would be around $466). Interest credits in the pension are applied monthly to the opening balance and are based on the U.S. 30-year Treasury Rate in effect as of August of the preceding year. I’ll be actively invested in the pension after three years.(I don’t know if the pension payouts will be indexed to inflation; that’s a question the HR dept. is trying to get an answer to for me.)
I am pretty much discounting the RSUs with Offer #1 as, to me, that is too unpredictable, and I can’t really count on it as there are so many conditions attached to it (Plus RSUs are taxed at a higher rate than capital gains on stocks, so my gains, if any, would be greatly reduced).
I am an avid saver. I currently save between 40% and 45% of my take-home pay, depending upon my expenses for the month. So…. at my age, would a pension really be worth it? Or, would I be better to take the higher paying job and save the extra and invest it? My first instinct was to go with the (much) lower paying job for the pension, but when I consider my age, I am wondering if that is the wisest move.
Any info would be appreciated, as I am on a tight timeline to make a decision.
Congratulations on the offers! You have two very good options to choose from, so I can understand why it is a difficult decision to make. However, it is an important decision.
Honestly, the truth of the matter is that based off of the situation that you have described, either job will be just fine because you have done a great job with savings and are likely well on your way to be financially stable in retirement. I know that isn’t helping you though… so let’s talk through some things that you can consider and then I will make some assumptions and give you an answer based off those.
Let’s dive in.
I agree with disregarding the RSU’s, while in theory, they make a benefits package seem very impressive — you are exactly right in your thought process regarding the lack of predictability.
The biggest question that you have to ask yourself in this situation is what is more important to you — stability or flexibility? Let me explain.
Offer #1 gives you a lot of flexibility. You will be earning $26,000 a year more than Offer #2, which you can save/spend however you want. They don’t match 401k contributions, so there isn’t a real incentive to contribute, except for the higher contribution limits in comparison to what you can contribute to an IRA, especially if you are comfortable investing on your own. So, you essentially are being given a blank slate to save for retirement however you see fit to compliment (or add to) the retirement accounts that you currently have in place and depending on your investment strategy and the market return, you likely have the ability to outperform Offer #2’s pension.
Offer #2 gives you a lot of stability. No, you won’t be earning as much but they are offering you to very stable options in the way of retirement planning. The pension and the 401k with matching contributions. While the pension, at $466, is not going to be enough for you to plan your entire retirement around, it will be a stream of guaranteed retirement income that can supplement your other savings. They offer a 401k match, up to $186.40 a month – based on the numbers you gave for eligible income regarding the pension, which means that you have an incentive to contribute to their 401k in addition to the higher contribution limits. With the pension and the 401k match, that is an additional $7,824 a year in benefits – while still not making up the $26,000 salary difference, it does close the gap a little bit.
Let’s think about some other questions that are relevant:
– How prepared you feel for retirement?
– Do you feel like you need (or would benefit from) a steady income stream, in addition to Social Security?
– Are you comfortable with the normal stock market fluctuations that will occur as long as you have money in the market? Think about the last 30 days, how have you felt monitoring your investment performance?
So here is where I am going to make some assumptions based on the information that you gave me, so hopefully, I will fall somewhere in the vicinity of what your financial situation looks like or I may not even be close…let’s see:
You have done a great job with your finances up to this point. Since you are saving 40-45% of your income, you likely have very little to no debt and a sizable amount of savings – emergency, retirement, general, etc. I am going to assume that the retirement account availability (or the lack thereof) between the two job offers isn’t really a huge issue for you. Not because you don’t want to or need to continue to save for retirement but because you are in a position where you aren’t going to have to solely depend on income from either of these employer’s options to be financially successful in retirement. If this is the case, then you will likely be just fine accepting Offer #1 and using the $26,000 to save as much as you can in the 401k that is offered or to fund your own retirement account or a combination of both.
If I am wrong about my assumptions or you just aren’t comfortable with stock market fluctuations or you don’t like managing your own investment accounts, then considering Offer #2 will likely be more beneficial for you.
I wish you the absolute best as you transition into your new job!
(This is a sample email exchange with our Your Money Line Financial Concierge Team. To learn more check us out here.)
Peter Dunn a.k.a. Pete the Planner® is an award-winning financial mind and a former comedian. He’s a USA TODAY columnist, author of ten books, and is the host of the popular radio show and podcast, The Pete the Planner Show. Pete is considered one of the foremost experts on financial wellness in the world, but he’s just as likely to talk your ear off about bass fishing.