I am looking at potentially accepting a lower paying position that includes a pension and “retiree health benefits for individuals and family” after 10 years of service.
Before age 65, they offer a choice of three PPO plans.
After age 65, they offer a Medicare Advantage & Prescription Drug Plan.
Does anyone know how one could value these benefits? I am trying to compare the overall compensation package. I think the pension is pretty straight forward as it is just annuity payments.
The retiree benefits seem confusing to me.
For example, I suspect that healthcare is broken in a death spiral and the US will significantly raise taxes and adopt socialized medicine. In that scenario would these “retiree benefits” ultimately be worth $0?
A data point on my current W2 box 12 says that my employer paid $7800 in 2018 for my family health insurance.
Given that I have a family of 4 how would you value a benefit like that?
Even in a single payer or “medicare for all” type system, I would still imagine there will be some sort of upgraded insurance over that basic everyone gets, like Medicare Advantage. However, whether your retiree benefits will include that is anyone’s guess. How many years are you from 65?
I’d be more concerned with insolvency than medicare for all. I wouldn’t value any future retiree health benefits more than the paper they are written on unless they were coming from the federal gov’t, a somewhat healthy state or municipal government, or maybe a few dozen extremely stable private companies. Does your potential employer fit into one of these categories.
Well, I would need to know a bit more on the detail.
Generally speaking, that’s huge. We have people here that choose to retire in their 50s or early 60s and the one overwhelming cost is the inability to get reasonable health insurance plan.
Btw. your $7500 value is badly misleading. That’s with everyone in your company in different age group averaged as well as getting the very favorable group rate.
Say if you want to retire at 55 today, the monthly rate on your own would be more like $1k+ and that’s with ACA forcing age balancing. Without ACA it would be 3 or 4k a month and that’s with $10k deductible.
Note, I’m going by memory here so my number may be off. You can do your own research by getting some quotes.
How old are you?
What age do you expect to retire?
Will your kids be out of the house when you’re retirement age?
Is the retiree health plan paid 100% by the prospective employer?
How good are their health plans? (cut rate HMO is worth a fraction of what a good Cadillac PPO is)
Would you have high % chance of remaining at this employer until retirement?
I’m 35 and would consider retiring in about 10 years. I’m at a net worth around 1 mil right now.
Kids should be out of the house by then.
Not sure if it is 100% paid by the employer, I can ask that in the interviews.
I would assume the plans are top notch.
I would stay there for the 10 years before I would consider leaving.
Without outright stating the employer this place controls the money supply, so default\layoffs seem improbable.
jerosen is asking good questions. Employers have a nasty habit of offering benefits that suddenly start disappearing. My last employer offered a health benefit for retirement which they phased out a few years before a lot of people started retiring. Heck, they “offered” car washes and massages as benefits too. At market rates.
Even if the retiree benefits are contractual, it only applies to the current contract. Dont be surprised when future employees sacrifice the retirees when negotiating a new contract.
I don’t know. I’m still in the late stage interviewing process so it is a bit pre-emptive to start asking those types of questions but I think it is worth reviewing.
So the question is how to figure the value of the benefit. There are a lot of uncertain variables here so all you can do is take some logical assumptions.
You could look at a possible scenario that you’ll work from age 35 to age 55 and then take an early retirement and get 100% free medical care from the retiree medical benefit in your early retirement.
You’d be getting health insurance free from the age of 55 to 65. If you are 55 today and buy health insurance out of pocket for you and a spouse that will cost $12,000 minimum (in my city). You could also then take a wild guess that health insurance premiums would increase 5% every year. Working with these assumptions you could project the nominal insurance premiums you’d pay when you are 55 to 65. But thats money you’d be saving 20-30 years in the future. To figure the benefit of that today you could figure out how much you’d have to save annually for the next 20 years in order to save up enough money to cover that future cost. I figure roughly speaking you’d have to put $6,000 in the bank annually and then increase that 3% annually and get 7% returns on your investments for 20 years in order to pile up enough money to buy health insurance for 2 people for 10 years starting in 20 years.
Thats one rough estimate of how much the retiree health might be worth : $6,000 a year
But that might be best case scenario and its full of assumptions and risks … you work 20 years, insurance rates go up 5% annually for the next 30 years, you retire early at 55, they pay 100% of the insurance, you don’t get divorced, you live that long, your employer doesn’t cancel the benefit, your employer doesn’t go bankrupt, the US healthcare system doesn’t change radically in some way in the next 20 years, etc.
You value it at zero. It isnt a benefit, it’s a potential bonus you might get 20 years from now.
Unless the funds are being escrowed, or a designated annuity is being purchased and insured, you cant value something with so many unknown variables that far in the future. Let alone use that value as the basis for making decisions today.
For governments the OPEB liability is often unfunded. If the OP’s company is publicly traded, or a government entity, I’d definitely look into those annual reports and balance sheets to see what the funding ratio is. My retirement system’s funding ratio for the main pension is a healthy 81% but for OPEB is below 3%. Ouch. This is why I’ve always believed that California will go to single payer. To be fair, there’s nothing forcing my employer from offering the same retiree healthcare in the future - they could offer access to county hospitals and the indigent health system instead.
As a person planning to go to FI you probably would also keep your income at the level where you could receive subsidies - the amount a family of four could keep subsidies is around $100,000 (400% FPL). You would only pay 9.86% for a Silver plan to cover all four of you. You might even be ambitious and stay within the area to get a Silver 93 plan, which depending on your current investment mix is quite feasible. If you went that route I would redirect most of your retirement contributions to a Roth 401k/457/IRA and maybe savings bonds (which allow you to defer interest for 30 years). In that case the post employment health care is not worth that much to you.
At my employer I have to work 25 years to get the retiree health insurance; I’m more than halfway there so it is certainly an incentive for staying. They credit 4% of the premium every year with a minimum service of 10 years, but Kaiser is $2000 a month for a family so basically every year of staying is worth $80 a month (and you can’t collect this benefit until 50 anyway).
