10% pay cut to go from contractor to govie? (Reston: 2013, home)

[Gzagenius]

I've been offered a position as a GS13 step 1 (they aren't entertaining higher pay). This is a not to exceed 2 year position and is a 10% pay cut from my current position as a contractor. Problem is that my current contract hasn't been renewed and if it does it'll only be for 1 year. I also don't know if the renewal, if won, will result in a pay cut for the contractors. I'm not sure what to do. I'm afraid that taking the pay cut as a govie is taking a step back, especially if I ever decide to go back to the contracting world after the 2 years. I don't know how likely it is that the job will roll into something permanent. I think if this was a permanent position I would be leaning towards taking it because I know that eventually I would work my way up and have stability, but I'm really on the fence because it isn't permanent. What are your thoughts?

[JfromReston]

Take it - I bet the govt position will turn into something permanent or at least be extended beyond what you would get with your current contract. Remember to consider the government pension in your calculations.

[airjay75]

Originally Posted by JfromReston

Take it - I bet the govt position will turn into something permanent or at least be extended beyond what you would get with your current contract. Remember to consider the government pension in your calculations.

Just noting for OP that I'm not sure how good of a deal the current FERS pension is, as new hires have to contribute 4.4% of their salary to receive the same benefit as those who only have to contribute 0.8%. The 4.4% (which is not pretax) combined with the 5% OP is going to want to contribute to the TSP to get the full match is a good hit that new hires have to take to fully fund their retirement.

[ChristineVA]

I recommend taking the government job also, especially since your contractor job isn't very stable.

One thing to keep in mind though--it will likely be more than a 10% pay cut. While JfromReston is correct on the pension and it's something to consider, new employees (since 2013) kick in toward that pension more so than older employees. I don't even kick in 1% of my pay towards it. I can't remember the amount that new employees contribute (it's either 3 or 5%). That will come off the top and you don't have a choice.

[kiplingif]

Originally Posted by airjay75

Just noting for OP that I'm not sure how good of a deal the current FERS pension is, as new hires have to contribute 4.4% of their salary to receive the same benefit as those who only have to contribute 0.8%. The 4.4% (which is not pretax) combined with the 5% OP is going to want to contribute to the TSP to get the full match is a good hit that new hires have to take to fully fund their retirement.

I started up in the in-between where I gotta pay 3.1% in. Could you expound more on the good versus bad retirement deal?

[JfromReston]

Originally Posted by kiplingif

I started up in the in-between where I gotta pay 3.1% in. Could you expound more on the good versus bad retirement deal?

Here is an article that details the current system and proposed changes.
Federal News Radio

[onevthoki]

Take the GS job. Always easier to get another position once you are in the system.

[Carlingtonian]

Originally Posted by JfromReston

Here is an article that details the current system and proposed changes.
Federal News Radio

Folks hired under CSRS (before 1984) had 7% taken out--but they got a pension they could never outlive. Those of us hired pre-2013 also pay a total of 7% when you include SSI contributions, but obviously, we don't get that lifetime benefit.

As to the OP's dilemma: 2 years is more than enough time to find another gov gig, and after 1 year, you have time in grade, so you could apply for a GS-14. At the very least, you'd get an automatic raise to step 2. OTOH, if you're certain you could get another, better-paying contractor job after 1 year, maybe the risk is worth it to you.

[airjay75]

Originally Posted by kiplingif

I started up in the in-between where I gotta pay 3.1% in. Could you expound more on the good versus bad retirement deal?

The FERS pension system is basically a system that, if you put in 30 years of service, you will get a 1/3 income replacement during retirement (calculated based on the average of your 3 highest years of service, although Congress keeps trying to cut that too and change it to the highest 5 years of service). The more you have to pay for that defined benefit, the worse of a deal it is, and the more one might like to contribute that money instead to your own retirement account like a TSP and be in control of it yourself.

This is an overly simplified example, but assume your salary is 100k and is going to remain so for the next 30 years. You have a choice - contribute 3.1% of your salary for those 30 years in order to get a pension of equal to 33,000 per year or contribute that money to the TSP (or 401k) and invest as you see fit. If you assume an annual investment return rate of 7% or so, I believe the math comes out to around $310,000 in that account after 30 years (contributing on a monthly basis - I just used a quick investment calculator I googled, so apologies if it's wrong). But, actually, because you can do the TSP pre-tax (but not the pension contributions), you can contribute more to your TSP currently with the same take home pay and also have the benefit of compounding on that additional amount contributed. Tax situations differ, but let's just assume you could contribute 4% of your salary to your TSP on a pre-tax basis and have the same take home pay as contributing 3.1% on a post-tax basis. Again, assuming a 7% rate of return, you'll have over $400k in that TSP if you contribute 4% every year. (To add even more complexity, because FERS contributions are post-tax, and because your FERS contributions make up only a portion of the total amount paid for your pension - government pays the rest - a portion of your FERS pension will not be taxable income, i.e., the portion you paid, but the other portion, the portion the government pays, will be taxable income in retirement.)

Of course, there are a lot of variables in this. My main point is, there comes a point where I'd rather just have the money myself to put into the TSP or other retirement account, and be in control of my own destiny. That balance point is going to be different for different people because everyone has a different risk tolerance and has differing levels of faith in the stock and bond markets. Personally, I put more faith in the stock and bond markets than I do our Congressional leaders - I don't trust them at all to not continue cutting back benefits for federal employees, and, at 4.4% contributions required for the FERS pension, I seriously question whether the FERS pension is a good deal anymore. Of course, you don't really have a choice if you go into federal employment, but, it is certainly something to consider for those considering switches to the public sector, particularly when many (myself included) have to take (or have taken) substantial cuts in salary when switching to the public sector.

[ChristineVA]

airjay75,

I totally agree with your assessment of the FERS pension now that the employee kick in is higher. I joined the government in 2008 so my pay in is low and the pension is worth it. That pension no longer seems worth it me now and the current employee contribution rate. Like you, I'd rather take that percentage and add it to my TSP contributions.