# How much is the government pension worth?



## right4you (Feb 9, 2017)

I have an opportunity to have a government CS3 position. I am debating whether or not I should keep on working in private sector or take this job. I am currently working as a consultant. The job is very well paid and interesting.

I still have to work for 17 years before I can retire at 65 years old. Let’s assume my salary (CS3) is 100k (at today’s value) when I retire and I can receive pension for 20 years, here is my calculation:

The total amount of pension that I will receive: 34k x 20 = 680k
Extra amount of money I have to make and save each year: 680k / 17 = 40k
Let’s assume the CS3 salary after all the deduction and tax is around 65k. The annual income after tax not working for government: 6.5k + 40k = 10.5k which is around 140k before tax.

I wonder whether my calculation makes sense. This will help me to make up my mind.


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## Eclectic12 (Oct 20, 2010)

right4you said:


> I have an opportunity to have a government CS3 position. I am debating whether or not I should keep on working in private sector or take this job ...


First question is whether the pension is a defined benefit one (it likely is).

Assuming for now that it is, then your calculation may not make sense as it is building in the assumption you will collect for twenty years then die. If you live 30 years then a lot more will be collected but I suspect most people will use the guaranteed minimum as well. For example, in my DB pension - if I drop dead in the first year of the pension, another nine years are paid out to the estate.

Is the rate of pension credit 2% a year across the full $100K as the projected $34K suggests it is.


Cheers


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## CalgaryPotato (Mar 7, 2015)

I don't know what the best way to figure out that math is. But you should be able to figure out exactly how much the government will be paying per year into your pension and just use that as part of your calculation. But don't forget there are other factors to use to decide whether to take a full time job with benefits vs. a contract position. 

Paid Holiday Days (ie: Christmas), paid vacation. (Between those 2 you are looking at 25+ paid days off per year, at 100K per year that is over $10,000 value right there). Paid health benefits, paid long term and short term disability coverage, paid life insurance. 

As you get older, and if you have a family, these can add up greatly over time.

I know for myself I've done the math and I would want at least 50% more per hour to switch to consulting.


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## right4you (Feb 9, 2017)

Eclectic12 said:


> First question is whether the pension is a defined benefit one (it likely is).
> 
> Assuming for now that it is, then your calculation may not make sense as it is building in the assumption you will collect for twenty years then die. If you live 30 years then a lot more will be collected but I suspect most people will use the guaranteed minimum as well. For example, in my DB pension - if I drop dead in the first year of the pension, another nine years are paid out to the estate.
> 
> ...


Here is the math for 30 years:
The total amount of pension that I will receive: 34k x 30 = 1020k
Extra amount of money I have to make and save each year: 1020k / 17 = 60k
Let’s assume the CS3 salary after all the deduction and tax is around 65k. The annual income after tax not working for government: 65k + 60k = 125k which is around 170k before tax.

Here is the math for 20 years:
The total amount of pension that I will receive: 34k x 20 = 68k
Extra amount of money I have to make and save each year: 68k / 17 = 40k
Let’s assume the CS3 salary after all the deduction and tax is around 65k. The annual income after tax not working for government: 65k + 40k = 105k which is around 140k before tax.

Here is the math for 10 years:
The total amount of pension that I will receive: 34k x 10 = 34k
Extra amount of money I have to make and save each year: 34k / 17 = 20k
Let’s assume the CS3 salary after all the deduction and tax is around 65k. The annual income after tax not working for government: 65k + 20k = 85k which is around 120k before tax.


One thing for sure the longer you live, the more worthwhile the pension. Does it make sense? Not sure about defined benefit or defined contribution though.


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## Saniokca (Sep 5, 2009)

Does your current job provide any kind of retirement program or just a salary?

You should also compare the health benefits - they are usually higher in the public sector...


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## right4you (Feb 9, 2017)

Saniokca said:


> Does your current job provide any kind of retirement program or just a salary?
> 
> You should also compare the health benefits - they are usually higher in the public sector...


Let's assume the benefits, like vacation, family / sick leave, medical / dental insurance, training etc is worth another $10k. It will need to be added to the final number if one does consultant which has non benefits. If one works as a permanent for private sector, the difference is much less since they also provide some benefits. Do the numbers look about right?


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## right4you (Feb 9, 2017)

CalgaryPotato said:


> I don't know what the best way to figure out that math is. But you should be able to figure out exactly how much the government will be paying per year into your pension and just use that as part of your calculation. But don't forget there are other factors to use to decide whether to take a full time job with benefits vs. a contract position.
> 
> Paid Holiday Days (ie: Christmas), paid vacation. (Between those 2 you are looking at 25+ paid days off per year, at 100K per year that is over $10,000 value right there). Paid health benefits, paid long term and short term disability coverage, paid life insurance.
> 
> ...


My rate is way more than 50% to do consultant. This makes me to think about keep on do consulting. I know I may have gotten lucky this time. But giving up a well paid and interesting job is a very difficult decision for me.


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## Parkuser (Mar 12, 2014)

right4you said:


> My rate is way more than 50% to do consultant. This makes me to think about keep on do consulting. I know I may have gotten lucky this time. But giving up a well paid and interesting job is a very difficult decision for me.


I don't know if it matters to you, federal PS pension is sort of indexed for inflation (once you start receiving it); here are example numbers: 2015 - 1.7%, 2016 - 1.3%, 2017 - 1.3%.


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## right4you (Feb 9, 2017)

Parkuser said:


> I don't know if it matters to you, federal PS pension is sort of indexed for inflation (once you start receiving it); here are example numbers: 2015 - 1.7%, 2016 - 1.3%, 2017 - 1.3%.


Yes this is an important fact in the long run.


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## lonewolf :) (Sep 13, 2016)

right4you said:


> Here is the math for 30 years:
> The total amount of pension that I will receive: 34k x 30 = 1020k
> Extra amount of money I have to make and save each year: 1020k / 17 = 60k
> Let’s assume the CS3 salary after all the deduction and tax is around 65k. The annual income after tax not working for government: 65k + 60k = 125k which is around 170k before tax.
> ...


 Would get some deferred annuity quotes & compare amounts you would get after x amount of years to the pension amount if making same contributions.


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## My Own Advisor (Sep 24, 2012)

right4you said:


> Yes this is an important fact in the long run.


A pension is excellent for retirement, especially the gold-plated pension = 2% x years of service x average of best 5 years earnings pension.

An indexed gold-plated pension is even better!!!

Here is some quick math on what you'd have to save on your own to equal such a great gift.

For simple math best average 5 years = $120K after your 17 years is up; assumed total of 20 years in the plan.
$120k x .02 x 17 = $48,000 per year in_ future dollars._

That's like earning 4.8% yield on a $1 M portfolio - assuming you saved and allowed your portfolio to grow that much. Assuming you have $50,000 invested, you'd need to save $25,000 per year every year for 17 years getting 7% return to have $1 M.

Pensions are huge enablers to a well-funded retirement.....


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## right4you (Feb 9, 2017)

Looks like the indexed gold-plated pension is still available. Time to work for government according to most people's opinion.


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## Italicum (Feb 10, 2017)

ok, this thread finally got me to register an account on this forum. For several years I have been an observer, benefitting from the experience and knowledge generously shared by contributors. I congratulate them (you) for posting constructively, respectfully and without envy. My Own Advisor's is the perfect example of this type of tone on this site.

I feel I can contribute some thoughts in this thread, since several years ago more than once I found myself at Right4you's same crossroad (consulting and with the opportunity to obtain a government CS position).

Just considering the financial aspects, my approach was somewhat different, in that I did not so much attempt to compare, dollar for dollar (yes, that too was important) the total amount of the pension (e.g. the 34k x 20 = 680 at 65 used in the first post) vs the amount I would be able to accumulate (savings + growth) up to the same age (65). Rather, the question I posed myself was: do I feel confident I can save and grow my savings enough to live on the passive income (I am a dividend investor very much like many on this site) at retirement? I use the loose term 'enough' very deliberately, since it allows for expectations that can be adjusted (but that's another story altogether). 

Key to my approach was looking at the financial aspects from an inter-generational perspective, considering my wish to leave an estate to my children. From this perspective, I believe consulting is the clear winner since, contrary to a government pension, with some luck and planning most of the passive income you create for yourself will become your children's income (having some of those savings in a corporation helps). This is what tipped the scale strongly toward consulting for me. I often think that I have been taking some of the costs of consulting (e.g. lack of job security, as the onus is squarely on us to remain marketable, lack of pension security) but it is they whom will be the main beneficiaries. 

In the end, I am happy with my choice. I have so far lived a relatively comfortable life, will have enough passive income to live on at retirement (unless both the stock and real estate markets experience an epic crash) and will help remove the sharp financial edges that life might present my children. I almost feel apologetic for writing a happy ending but wish to provide an example that consulting can be a very viable choice, depending on circumstances and personal profile. 

Having said all of this, Right4you may not have children or have no desire to leave anything behind and I will have provided pretty much zero ideas to him


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## Davis (Nov 11, 2014)

Keep in mind that part of your deductions from civil service pay will be the 7-8% of salary you contribute to the pension plan, which the government (the employer) matches. These contributions will reduce your RRSP contribution room. In consulting, you won't get the matching, but you get to invest a lot more money as you see fit. You could make a better return than I'd implied by the pension plan, but it is also a great comfort to have part of your retirement coming from a fixed, indexed income stream like a pension.

I worked in government, left for the big money of consulting, but hated the work so I took a big pay cut to return to government. The extra money did not compensate for the lack of professional fulfillment I had in consulting. But not all government jobs are the same, and not all consulting work is the same, and people are looking for different things from careers. 

Be sure to take into account your personal satisfaction. It's not all about money. The government pension won't look so good if you can't hack the bureaucracy of the bureaucracy.


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## Saniokca (Sep 5, 2009)

One other thing - DB pensions are not worth much if you leave the job at younger age. Most of the increase in their value happens in later years. In today's world - how confident can you really be that you'll stay in that sector until retirement?


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