Public Pay Might Be Higher Than You Think (Once You Do the Math)

Public Pay Might Be Higher Than You Think (Once You Do the Math)
 

In this issue:

• Latest in Retirement Savings & Personal Finance: High 401(k) Savings Rate, The Big Beautiful Bill’s Deficit Increase & Who Are Affected by the BBB
• Public Pay Might Be Higher Than You Think (Once You Do the Math)
• Tools & Tips: Retirement Pension Value Calculator
• Market Overview

Latest in Retirement Savings & Personal Finance: High 401(k) Savings Rate, The Big Beautiful Bill’s Deficit Increase & Who Are Affected by the BBB

High 401(k0 Savings Rates!

Looks like Americans are finally getting close to the so-called “recommended” retirement savings rate. In the first quarter of 2025, people in Fidelity-managed 401(k) plans were saving about 14.3% of their income on average (that includes both their own contributions and what their employers chipped in). Just a bit shy of the 15% that advisors often throw out as the magic number for retirement security.

That 14.3% figure is actually a record high. Ten years ago, it was more like 12.5%. So some progress there.

And participation’s gone up too. Around half of private sector workers are now in some kind of 401(k)-style plan. That used to be closer to 40% back in 2010. Still not great, but better.

Of course, averages don’t tell the whole story.

The wealth gap shows up here too, as you’d expect. Richer households tend to have solid retirement savings. But when you zoom in on the middle, it gets worrying—about half of middle-income workers don’t have any retirement account at all. Not even a basic 401(k).

So yeah, numbers are improving. But the cracks are still pretty visible if you look a bit closer.

The ‘Big Beautiful Bill’ Deficit Increase

So in 2024, the U.S. spent $1.1 trillion just on interest for its national debt. That’s more than defense spending now. Let that sit for a second.

And there’s more coming.

There’s this new tax and spending proposal (‘Big Beautiful Bill‘) floating around. If it goes through, the deficit could grow by another $2.4 trillion over the next ten years. Not from war or crisis. Just baked into the plan. That would also mean an extra $550 billion in interest payments alone.

If we stay on this path, by 2035, we could be looking at $1.8 trillion a year just to service the debt.

Which raises the usual questions: what happens to the rest of the budget? What happens when we want to cut taxes or fund something new? At some point, the math pushes back.

Who Are Affected by the ‘Big Beautiful Bill’

Amid the many headlines, it’s worth narrowing in on who’s actually affected by these proposed changes. And to be clear, this is about legal residents and U.S. citizens—not undocumented immigrants.

Middle-income individuals (above 300% FPL)

They could lose access to enhanced ACA subsidies, leading to higher premiums and more administrative requirements. For Medicaid, this group may face higher out-of-pocket costs or risk losing coverage if income levels fluctuate.

Low- and moderate-income adults

Some may lose coverage if they can’t meet new Medicaid requirements, including work rules and more frequent eligibility checks.

Families with children

Coverage for parents and caregivers may be at risk if work requirements aren’t met. The process itself may also become more burdensome.

Seniors and people with disabilities

Increased paperwork and eligibility hurdles could result in coverage loss for some, even if they still qualify.

In short, the proposed changes could reduce access to health coverage by phasing out enhanced ACA subsidies, shortening enrollment windows, and tightening Medicaid eligibility. The most affected groups are likely to be middle-income individuals above the subsidy threshold, lower-income adults, and families navigating stricter requirements. We understand the administration’s desire to reduce fraud and spending, but it’s also important to clearly understand where the spending cut is.

Public Pay Might Be Higher Than You Think (Once You Do the Math)

There’s always this casual idea floating around that public sector jobs pay less. Maybe that’s true if you only look at the headline salary. But if you stop there, you’re missing the part that actually matters in the long run.

The pension.

It’s not just some vague promise of a retirement bonus. In many cases, it’s a very real, very valuable part of compensation. Actually, once you include it, the whole salary picture starts to look different.

Let’s walk through this.

For one, a public pension usually gives you a fixed stream of income, calculated from your final salary and years of service. So it’s not a maybe. It’s a contractual income floor in retirement. Private sector folks? They mostly rely on savings or 401(k), and hope the market cooperates. That’s a very different equation.

Even more, many pensions come with cost-of-living adjustments. COLAs, they’re called. So if inflation eats away at purchasing power, these pensions rise along with it. That’s rare in private retirement. Most private portfolios might beat inflation if you’re lucky, but that depends on investment performance and timing. Not guaranteed.

So how do you even compare?

Well, economists and planners often use something called a discount rate to translate that future pension income into today’s dollars. Basically saying: how much would someone need to pay you today, upfront, to equal the value of that pension over time? Once you do that math, it’s often not small.

And this is where things get interesting. If you’re comparing two jobs, and one has no pension, then its salary would need to be maybe 30% to 50% higher, or sometimes even more to just match the total lifetime benefit of the one that does. See the following Retirement Pension Value Calculator example. 

Also worth mentioning, public pensions tend to be very stable. Government-backed, predictable, paid out monthly like clockwork. No stock market crashes. No wondering if you’ve saved enough.

That kind of reliability in old age? It’s hard to put a price on. But if you do, it’s usually a big one.

So the next time someone shrugs off a government job because “the salary is lower,” maybe ask them what numbers they’re looking at. Because when you count the pension, the total package might be a lot more than it looks on paper.

Tools & Tips: Retirement Pension Value Calculator

The Retirement Pension Value Calculator provides an estimate of what your pension benefits are worth in today’s dollars by accounting for factors like salary growth, job length, inflation adjustments, and discount rates. It allows you to derive the “equivalent” starting salary you would need from a job without a pension to match the retirement value provided by a pension plan. This comparison can be especially useful if you’re deciding between a government or public sector job with a pension versus a private sector role without one. Note: this tool does not take into account employer matches in private retirement savings plans, like a 401(k), which could also impact long-term retirement savings.

The following shows the input parameters and outputs of the calculator: 

Understand the inputs: 

• Pension Multiplier: your employer uses this to calculate your pension. It’s usually based on your final salaries. 
• Cost of living adjustment (COLA): the ‘inflation’ adjustment factor your employer uses to adjust your pension to keep up with the inflation after you retire. The calculator assumes 25 retirement years when calculating pension value. 
• Discount rate: the commonly used rate to discount your future pension value back to present value. Discount rate is usually within 5% to 7%. It accounts for the time value of money and the opportunity cost of receiving funds later rather than now.

In the above example, a $100,000 public job with the pension of the input parameters would be equivalent to a $146,502 private job without pension. Most likely, for most public pensions, you will see a 1.3x to 1.5x equivalent private job salary for a public job with pension values. However, this calculator is not entirely an apples-to-apples comparison, as you might need to take your 401(k) employer match into account.

Market Overview

 U.S. stocks wobbled last week as the Israel-Iran conflict disrupted the recent wave of optimism. In general, stocks are back in an uptrend, but whether that holds will depend on how the conflict and other major tariff resolutions play out.

The following table shows the major asset price returns and their trend scores, as of last Friday: 

More detailed returns and trend scores can be found on MyPlanIQ.com Market Overview.