Are pensions offered in high finance and consulting?

Hey guys, just something I was thinking of.

Do any of the BB, EB, MBB or Top PE firms offer Pensions for their senior guys when they retire? I know that the Big 4 offer it to their Partners and it's a really good deal (something like 50% of the average of their 3 best years). Just out of curiousity, have you guys ever heard of any bank or consulting or PE firm offering pensions?

 

I don't know if they do them anymore. When my parents were in banking, they'd do a pension known colloquially as "the golden handshake" - which meant that in return for decades at the bank, you'd get paid 50% of your final year's salary into perpetuity, and then even some to your spouse after your death.

That doesn't exist anymore from what I hear, and most people aren't staying long enough to get it anyway.

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They do exist at some banks still, but it's rare and from what I've seen they are cash balance pension plans versus defined benefit plans. Cash balance pension plans work more like a 401k/profit sharing plan where the employer is typically setting aside a certain percent of your annual comp (3-5%) every year and paying interest on the accrued account balance. Every quarter/year, you get an interest payment on the account balance and another 3-5% of your comp added to the pool, growing your account balance two ways. If you stay long enough you become "vested" in the plan even if you leave. The main difference between this and a traditional 401k is that it's not money you elect to defer out of your paycheck, it is an added comp perk. Once you retire, you can generally choose to have a lump sum payment for your plan balance or an annuity payment similar to a traditional pension plan. This is still a nice perk and can add up to a meaningful amount of money if you spend a career at the same place given the compounding interest, but it generally isn't the 1x or 0.5x "best year" calculation you mentioned above.

 
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If you're in finance, you should be able to do some basic modelling to determine what you want to save.

That being said, if you're at a BB or EB IB, you're probably not getting a pension, but you will be 401k eligible. Pensions are based off base salary anyways. A good rule of thumb for young, high earners is to start by is to max your 401k contributions from your paycheck and bank the bonus; budget to live off the rest. Do a little modeling out for 5 years, don't miss any taxes, and see if you're comfortable with the figures in your 401k, outside savings and spending figures. Don't bother going out longer than that, no way to know where you'll be in 5-10 years and it's just crazy inaccurate. Adjust your savings higher if you want based on the model; I'd suggest not going lower unless you absolutely have to in early years (i.e. your loans and rent exhaust the remaining budget - however, in this case, you might want to think about a more modest apartment).

Don't kick the can on savings. I saw a powerful graphic once from the CFP institute that showed, that with a modest returns estimate, someone who saved $10k per year from 18-28 and then stopped saving (but stayed invested) would have more at 65 than someone who invested 10k per year from 29-65. Obviously this depends on the discount rate but it evens out at around 6%.

Another way to look at it - every dollar you save at 22 is (1+r)^30 that you get at a retirement age of 62. At 6%, thats almost 6 times cash on cash. At 8%, it's 10 times.

 

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