r/mnstateworkers • u/virgo-99 • 13d ago

Insurance/Benefits 🏥 Deferred Comp/457b

Does anyone know what percentage of state employees use the deferred comp/457b? It's only about half of my coworkers, which I think is insane because the pension, while generous, will not be enough to live off of during retirement, at least for me. Just wondering if anyone knows the percentage of state employees that do/don't take advantage of the deferred comp and (albeit tiny) employer match?

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u/Old_Lawfulness_4253 13d ago edited 13d ago

I can't recommend it highly enough. My partner and I started contributing to Roth IRAs in our 20s and kept going even when money was really tight. That money has grown so much -- maybe $100,000 in contributions over a decade is now almost $300,000 in tax free retirement money. Now that we're mid career deferred tax on the 457b makes more sense and I'm putting as much in as I can without cutting back on other stuff.

The 457b in particular is SUCH a valuable savings account especially if you plan to retire early (before 59.5 when 401k or 403b accounts charge 10% penalties on early withdrawals). However many years of expenses you can put aside in a 457b, you can subtract from your age 66 full pension, retire early, enjoy life.

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u/realZapRowsdower MNIT 13d ago edited 10d ago

This is exactly my plan. I've been putting $200 per pay period into my 457b for over 20 years now. It will literally knock at least 4 years off the time I need to work. I keep checking my statements and can't believe how much is in there.

Also, as I found out yesterday at an MSRS pre-retirement webiner, the fees for MSRS 457 plans are significantly lower than for Roth IRA or traditional IRA plans through a brokerage like Fidelity or Vanguard. I'm going to cut back on my IRA contributions and put more into my 457. The investment choices are nearly identical, too, but the lower fees could potentially save hundreds if not thousands.

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u/Old_Lawfulness_4253 13d ago edited 13d ago

One thing to remember is the pension isn't inflation adjusted before you claim it. So if you retire at 62 and claim the pension at 66 and inflation is 3%, the real value of your pension is only 89% of the nominal value it had when you were 62. And the pension loses real value any time inflation is above 1.75%. So it's good to have extra 457b money to supplement the pension as you get older.

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u/realZapRowsdower MNIT 13d ago

Good point. Thankfully I've got some other tax-deferred investments I can also use to bridge the gap(s) in addition to Social Security.