Last month Matt and Rachel asked for a meeting. Matt was offered a job, and he was weighing whether to accept it or not. The new job would have a little less flexibility and lower pay but came with a higher pension. Some probing revealed that the most attractive thing about the new job would be the perceived enhanced longer-term security.
As always, we ran the numbers. We first pointed out that their financial plan was already quite robust and that they were currently well-positioned for retirement. We were also able to point out that if he took the lower salary, he would have to reduce the amount of money that he was putting away into long-term savings, which was okay if the pension made up for it later. But, from a planning standpoint, it was a wash.
From there we were able to illustrate what it would look like if he kept his current position, then took the dollar amount of the proposed pay cut, and invested that amount long term. The long-term projected outcomes of this scenario handily outstripped the lower pay/higher pension scenario.
Armed with this information, Matt and Rachel decided to turn down the job offer and keep his higher pay and flexibility. They also decided to save a little bit more each month, though not the full amount of the proposed pay cut.
Does this mean that you should make the same decision? I don’t know, and this situation was very specific to Matt and Rachel. However, one decision you should make is to always run the numbers. Even situations that seem intuitive can have far different outcomes than what we expect.
And if your financial professional won’t or can’t run the numbers, I can refer you to dozens that will.
Securities and advisory services offered through LPL Financial, a registered investment advisor, Member
FINRA/ SIPC.
This is a hypothetical situation based on real life examples. Names and circumstances have been changed. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investments or strategies may be appropriate for you, consult your advisor prior to investing.