Mandatory Employee Contributions
Most public pension plans require employees to contribute 5–10% of salary every paycheck. A teacher earning $60,000 contributing 7% pays $4,200/year — $126,000 over 30 years — into the pension fund. Unlike a 401(k) where those contributions accumulate in your personal account, pension contributions are pooled. If you leave before vesting, you typically get a refund of contributions but no interest credit at market rates.
Employee pension contribution rates by career field
| Career Field | Typical Employee Contribution | Annual Cost on $65K Salary | 30-Year Total Contributed |
|---|---|---|---|
| K-12 Teachers | 5–9% | $3,250–$5,850 | $97,500–$175,500 |
| State/local government | 4–8% | $2,600–$5,200 | $78,000–$156,000 |
| Police/Firefighters | 7–12% | $4,550–$7,800 | $136,500–$234,000 |
| Federal employees (FERS) | 0.8–4.4% | $520–$2,860 | $15,600–$85,800 |
| Military | 0% (service obligation) | $0 cash | $0 direct — career is the cost |
Many teachers and government workers contribute significant sums over short careers and then leave before vesting. In some states, the refund includes only your principal contributions with minimal interest — well below what the same money invested at 7% would have grown to. A $40,000 refund vs. $95,000+ in invested value is a common outcome.
Survivor Benefit Reduction: The Income Tax of Pension Marriage
Electing a joint-and-survivor option for your spouse permanently reduces your own benefit by 8–20%. This is not a fee paid to the plan — it is an actuarial trade-off where you give up income to provide a guaranteed survivor benefit. For a $4,000/month pension, choosing 100% joint-and-survivor might reduce your benefit to $3,200/month for life. Over 20 years, that $800/month reduction totals $192,000 in foregone income — the 'cost' of the survivor benefit.
The COLA Gap: Inflation Eating Your Pension
Real purchasing power of $3,500/month pension at different COLA rates (3% assumed inflation)
| COLA Rate | $3,500/mo Value at Year 10 | Value at Year 20 | Value at Year 30 (3% inflation) |
|---|---|---|---|
| No COLA (0%) | $2,600 | $1,932 | $1,437 |
| 1% COLA | $2,886 | $2,397 | $1,991 |
| 2% COLA | $3,189 | $2,941 | $2,714 |
| 3% COLA (full inflation) | $3,500 | $3,500 | $3,500 |
| Full CPI (federal) | $3,500+ | $3,500+ | $3,500+ |
Model Your Pension’s Real Cost and Value
Calculate your net pension value after contributions, survivor benefit reductions, and inflation erosion — then compare to your retirement income needs.