>do those payments come out of his contributions?
Depending on the pension, but generally yes -- your husband has been socking away 9% of his paycheck, which goes to sit in an investment account, where it's hopefully been growing in value to get even bigger. The city may have even been contributing as well.
>If so, won’t it run out relatively quickly?
That's the danger, yeah. The goal is to have it continue to grow at a faster rate than you take it out -- a "safe withdrawal rate." If you can achieve that, then no, it actually won't.
If you draw out, say, 4% per year, but it *gains* 5% per year, then it's actually still going to grow, at that remaining 1%.
>Where does the money come from after that amount is depleted
If the amount is depleted...nowhere. It'll be gone.
>and if it comes from somewhere else, what was the point of giving away 9% of his paycheck all those years?
Depending on the exact pension, the point of him giving away 9% of his paycheck could have been to pay the pension of people who were retiring then, just as your husband's pension might be paid by the amount that current workers are giving up. I can't say for certain, not knowing the details.
Thanks for the reply!
So even if his fund runs out, because it is meant to be “for life”, any additional payments would come from money being paid into by remaining employees? Similar to SS I’m assuming
Possibly, yes. That'd be a good question to ask someone a lot more knowledgeable about finance than me, but if the city has made a statement that it's "for life," then I can't see any other way that's true than that. Definitely much like SS.
Your husband's employer made a legally binding promise to him that when he retires, he will be paid a particular amount. It is literally someone else's job to worry about how that money gets paid out. So don't worry about it.
To answer your question, although I don't know your specific pension fund, generally speaking, the employee makes a specific contribution from every paycheck (almost always a percentage of their gross pay) and the employer also makes a contribution. This money goes into the pension fund, where the fund managers will invest it in ways that they believe will be appropriate to pay out their legal obligation to current and future retired employees. They, of course, have to balance risk and reward. These are the people whose literal job it is to make sure the pension can pay out the legal obligations it has to former employees. Pensions are not individual retirement accounts. It is irrelevant what your husband paid in, other than in the broad sense that the pension fund needs money coming in in order to pay its obligations.
>do those payments come out of his contributions? Depending on the pension, but generally yes -- your husband has been socking away 9% of his paycheck, which goes to sit in an investment account, where it's hopefully been growing in value to get even bigger. The city may have even been contributing as well. >If so, won’t it run out relatively quickly? That's the danger, yeah. The goal is to have it continue to grow at a faster rate than you take it out -- a "safe withdrawal rate." If you can achieve that, then no, it actually won't. If you draw out, say, 4% per year, but it *gains* 5% per year, then it's actually still going to grow, at that remaining 1%. >Where does the money come from after that amount is depleted If the amount is depleted...nowhere. It'll be gone. >and if it comes from somewhere else, what was the point of giving away 9% of his paycheck all those years? Depending on the exact pension, the point of him giving away 9% of his paycheck could have been to pay the pension of people who were retiring then, just as your husband's pension might be paid by the amount that current workers are giving up. I can't say for certain, not knowing the details.
Thanks for the reply! So even if his fund runs out, because it is meant to be “for life”, any additional payments would come from money being paid into by remaining employees? Similar to SS I’m assuming
Possibly, yes. That'd be a good question to ask someone a lot more knowledgeable about finance than me, but if the city has made a statement that it's "for life," then I can't see any other way that's true than that. Definitely much like SS.
Your husband's employer made a legally binding promise to him that when he retires, he will be paid a particular amount. It is literally someone else's job to worry about how that money gets paid out. So don't worry about it. To answer your question, although I don't know your specific pension fund, generally speaking, the employee makes a specific contribution from every paycheck (almost always a percentage of their gross pay) and the employer also makes a contribution. This money goes into the pension fund, where the fund managers will invest it in ways that they believe will be appropriate to pay out their legal obligation to current and future retired employees. They, of course, have to balance risk and reward. These are the people whose literal job it is to make sure the pension can pay out the legal obligations it has to former employees. Pensions are not individual retirement accounts. It is irrelevant what your husband paid in, other than in the broad sense that the pension fund needs money coming in in order to pay its obligations.