Optimize Your Career Path – Public Service vs Private Sector

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When I ditched my consulting job at a highly visible, well known, environmental services firm to work in the public sector I received a lot of odd glances. Public sector jobs don’t have the best reputation. Fortunately, since I’m seeking financial independence, I’m used to getting weird looks. This article will help you navigate the decision between public and private service jobs.

Today’s post likely won’t help any of my international readers (sorry!) since I’m talking about US based retirement options. I think it is worthwhile to focus on why people shouldn’t rule out public service jobs, but also not box themselves into them. If you are willing to change jobs a couple times in your career, you can simplify your FI strategies and speed up your path. Most people qualify for some type of public service career, and if you are not a crazy high earner they may be a good choice for you.


For some reason, people frequently look down on public service jobs. They imagine all public service jobs to be: All jobs have good aspects and bad aspects

  • Robotic
  • Not innovative
  • Lacking opportunity
  • Low paying

While I’ve run into aspects or coworkers that fit the stereotype, those things are present in most private firm jobs too. Most careers are what you make of them. If you go on coast mode, you won’t be challenged or have opportunities for career growth. If you don’t negotiate and ask for raises in the private sector, they aren’t just going to hand over extra money. Training opportunities are abundant in the public sector compared to consulting, where the focus is on billable hours.

The benefit of public service jobs most people recognize is that they come with better benefits (mostly true). If you have some high cost medical years (i.e. having a baby, dealing with chronic pain, etc.) jumping into the public sector may make sense. They also come with very generous leave options and are adjusting to offer more flexibility and stay competitive with other employers.

In my short career I’ve worked at a major university, in private consulting, and in state government. I’ve faced red tape in all three locations, been challenged by all of the jobs, and have had opportunities to advance my career. I’ve learned a few things along the way, but I’m still stumbling through this whole finding a job you love thing.

Negotiating a Public Service Job

When I was offered my most recent job, serendipitously, I realized I had made my career choices in the right order. The state government job initially offered me less than I had made in my first year in consulting. I started the negotiation, and was met with:

“Send us your most current paycheck and we can beat your salary.”

Based on the union and government rules (in my state at least) they won’t negotiate salaries without seeing your current pay. So I emailed over my latest pay stub and they boosted my hourly rate to the next step. While I was hoping to have the opportunity to actually negotiate, this worked out fine in the end. I know lots of coworkers who were so desperate to leave their past job that they didn’t negotiate. But I urge you to at least try to negotiate! There is almost always more money on the table and you deserve it!

Tip: Start in the private sector to earn a higher salary, then public jobs will match and beat it!

Government jobs use pay scales and people in similar positions all make roughly the same amount of money. Within the pay scales, there are annual step wage increases. This is great when you are on the lower end of the pay scale, since in addition to the annual union negotiated cost-of-living raise you also get an annual experience raise. The steps are about 7%/year plus 2-3% for cost of living. However, once you reach the top of the pay scale you will only receive the cost of living raise. Then it’s time to find a new position internally or jump ship.

In addition to my salary, I tried to negotiate, free parking, additional time off, etc. But they wouldn’t budge. In talking to other newly hired people there isn’t much you can negotiate with a public service jobs other than your initial salary and start date.

However, because I tried negotiating extra time off, I was directed to a form where I could submit any university employment hours and receive credit for their service hours. Those hours help to boost seniority and increase the vacation hours earned.

Tip: Any hours worked at a public university count towards public service hours. When in college consider getting a job with the university (washing dishes counts) if you plan to work in government in the future.

Where’s the money? Public or Private Service?

There are financial benefits unique to both public and private service jobs. When seeking FIRE normal financial rules don’t apply, so there are some great tax optimization strategies to implement. While the health savings account may be the ultimate retirement account, the 457b is a close second.

Who has access to a 457b? Well, here are some potential employers who will offer a 457:

  • Public Universities
  • State Governments
  • Public School Systems/Teachers
  • County/City/Local Governments
  • Non-Profits

Now, there are governmental and governmental 457s, and there are distinct differences between them. The governmental type acts as an extra 401k or 403(b). The non-governmental carry greater risk, and can disappear if your employer’s creditors come looking for money.

If you are interested in learning the simple (I’m serious, it actually is simple) ins and outs of investing I highly recommend you check out the Simple Path to Wealth by JL Collins.

Public Employment Financial Perks

Saving money and optimizing savings strategies
Research your retirement options

Public servants have access to both 401k and 457b retirement plans. You can contribute to both each year, which equals $36,000 of pre-tax investment options. If you are not yet aware a 457b behaves very similarly to a 401k. For 2017 you can contribute $18,000 pre-tax, then you pay taxes when you withdraw the money. Unlike a 401k there is no penalty for withdrawing the money at any age. You can withdraw money penalty free after employment severance. When I stumbled upon the 457b it seemed like a financial unicorn that nobody talked about. I think there’s even room to argue it is better than the HSA due to the higher contribution limit.

However, not all 457s are created equal, and some may have some major downsides. You are limited to investing your money in the funds your employer offers. Fortunately, I have access to a variety of very low fee index funds. Also, to retain the early withdrawal penalty free status of a 457 you are not able to roll it over to Vanguard or similar brokerages when you terminate your employment. This means you may be stuck with those high fees for many years. One caveat to this is if you transfer to a new employer with a 457 option. You can typically roll the 457 into the new employers plan, which may have better investment options. Since state government is such a large employer the investment fund fees I have access to are significantly lower than my private service 401k options were. Non-governmental 457 accounts are riskier than governmental 457s since they are subject to creditor seizure if your employer defaults on loans/goes under. Be aware of your specific employers plan and risks.

Public service jobs also, typically, come with a lot more time off. Since, time is money, think about how much that extra time is worth to you. For example, I now get double the amount of paid days off annually. Also, there may be added financial perks like cheaper health, dental, and vision insurance. The regular hours also give me the time to work on other hustles or passion projects (i.e. this blog, thanks readers!).

Finally, since most public service jobs no longer come with a pension, the unions have negotiated some pretty sweet employee 401k matching deals. In Michigan if the employee contributes 5% of their salary, the State will match with a 9% contribution. It does take 4 years to vest in that match (doh!), so don’t forget to ask that during negotiation.

Private Employment Financial Perks

Private service jobs frequently allow for higher salaries and rapid career growth. If you become skilled at negotiating (just try it!) and prove your worth to your company your salary can grow faster than it would in the public sector.

Private service jobs are more likely to offer a high deductible health plan, thus giving you access to a health savings account (HSA). Depending on fees and such this is the best retirement vehicle. But there’s a case to be made for cashing these out early.

Employee stock purchase plans (ESPPs) are a great perk for post-tax investing, and allow you to buy company stock at discounted prices. Read the rules carefully, and then you can sell the matured stock funds and transfer the money into a low fee index fund. If you believe in your company, plan on being employed for the whole year (or whatever their terms of participation are), then these offer free money.

How to Optimize and Hack the Public/Private Service Career

I’ve realized that there is an optimal FI career path, now that I’ve navigated negotiating both state government and private service career paths. (Recognize that I did not say the optimum, there are many optimal options based on what is important to you. You can optimize money, location, position, time, but you need to recognize and balance your values. This is one of the options.) You can efficiently enjoy the perks of public and private service during your working journey!

Case Study:

So now, let’s get into the weeds with a case study:


  • 60% gross savings rate and a 12.5 year career (see MMM article to adjust for your savings rate – and, wow, what a fun assumption)
  • New college graduate, zero years of work experience
  • For simplification = zero debt (Not my story)
  • Offered private service job for $22/hour with straight time overtime
  • Offered similar public service job for $19.57/hour, 40 hours/week

The new college grad would likely take the higher paying job to get out of debt quickly and earn more money. Getting a higher salary for your first job, helps to set you up for future negotiations. See the pay scale below that we will use for this scenario. The new employee would be looking at H21-001 Grade 9.

Public Employee Pay Scale

Year 1 (Private sector):

  • Salary: $45,760 private (vs. $40,705 public)
  • Since they chose the private job, they qualify for overtime pay and earn an extra $5,000 (avg. 44.4 hours/wk)
  • Total Earned: $50,760
  • Savings rate = 60% = $30,450 ($18,000 in 401k, $5,500 IRA, $6,950 emergency fund)
  • End of year raise 5% = $23.10/hour

They aren’t earning enough money to max out the 401k and 457, so they are not missing out too substantially. They needed to build up their emergency fund anyways. Plus, with the private job they get the benefit of working overtime and earning extra income. After the first year they recognize they could make more money moving to a similar public service job. They got a 5% raise before switching jobs, which is nice, but not as nice as the step raises. They worked their one year privately, and now stand to benefit from a public service job.

Year 2 (Public sector):

Now, they interview and are offered a public service position. Since they have one year of work experience they qualify for the Grade 10 salary. The government beats their salary, so their new hourly pay is $24.29.

  • Salary: $50,523
  • Savings rate = 60% = $30,314 ($18,000 in 457, $5,500 IRA, $6,814 401k)

Now they can enjoy their free time and make the same salary with overtime they earned last year, or they can start a side hustle.

Instead of fully funding their 401k they choose to fund the 457b first since they plan on retiring early. They were able to stash away almost $7,000 extra pre-tax, reducing their taxable income, and saving them $1,000 in federal taxes (assuming 15% tax rate). After the first year of working, they negotiate to move up to Grade 11. They continue in the public service until they top out on the Grade 11 pay scale. To help clarify the pay scales here’s their hourly salary (assuming no cost of living increase).

  • Year 3 = $26.17/hour
  • Year 4 = $27.72/hour
  • Year 5 = $29.40/hour
  • Year 6 = $31.17/hour
  • Year 7 = $32.98/hour

By year 5 they are able to max out their 401k and 457 (not the IRA), assuming they didn’t up their savings rate. Also, by year 6 they start applying for other jobs, realizing they’d like to earn more money. They’ve now maxed out their 457 for six years! And it’s growing in low fee index funds. They’ve also paid less in taxes starting in year 2, since they had extra access to pre-tax savings accounts. Based on their salary, even had they stayed in the private sector they would have remained in the 15% tax bracket. Using 2017 tax rates, their first $9,325 would be taxed at 10%, their remaining taxable income (after deductions) up to $37,951 would be taxed at 15%. (If you don’t quite understand the crazy US tax system, this article may help.) This table shows their federal tax savings from this scenario working in the public compared to private sector:

Year Hourly Wage Annual Salary Pre-Tax Investments Public Job (457, 401k & IRA) Pre-Tax Investments Private Job (401k & IRA) Federal Tax Savings from Having a Public Job
1 $22.00 $50,760 $23,500
$23,500 $0
2 $24.29 $50,523 $30,314 $23,500 $1,022
3 $26.17 $54,434 $32,660 $23,500 $1,374
4 $27.72 $57,658 $34,595 $23,500 $1,664
5 $29.40 $61,152 $36,691 $23,500 $1,979
6 $31.17 $64,834 $38,900 $23,500 $2,310
7 $32.98 $68,598 $41,159 $23,500 $2,649

Once they reach or near the top of the pay scale it is time to move back into the private sector. With the job hunt and negotiation they should be able to garner a significant raise. The raise should at least exceed their annual tax savings shown in the last column of the table above. Then they can crush it in the public sector and keep working hard for the last 5.5 years of their working career. Since they paid roughly $11,000 less in federal taxes in years 2-7, that 5.5 years will be a couple of months shorter. If their income was higher or they live in a state with a high state tax rate, the tax savings would be even more substantial.

TL; DR Summary

Okay, so that got a little long and meandered. Basically, to hack the public and private sector job world there are a few major recommendations:

  1. Accept the highest paying job you would enjoy post graduation
  2. Move into the public sector after working for 1 year to maximize step raises and access to the 457
  3. Once you top out on the pay scale move internally to garner a higher wage or find a private sector job. Make sure that job pays more than the tax savings you received from having access to a 457.
  4. Coast to the finish line (ahem, or keep working hard and pushing yourself to get bigger raises and speed up the path to FI)

The 457b is freaking amazing, and utilizing it can lower your taxes substantially. But be wary of high expense ratios and fees that may exist within your 457b plan. A 457b can be rolled into an IRA (like a 401k) after you switch jobs, but then you lose the zero penalty early withdrawal perk.

To learn more about investing your savings, check out the book that taught us everything we know!

If you would like more information about 457s here are some articles that cover the topic:

Have any of you benefited from working in the public sector? Any questions?

12 comments on “Optimize Your Career Path – Public Service vs Private Sector”

  1. I haven’t worked in the private sector, but I’ve seen the benefits for those that have, particularly those who have retired from public sector jobs. (Pensions!) And there’s the student loan forgiveness aspect, too, although that may fade away under the new administration.

    That said, I know in my state, new employees get a far less lucrative position than those who have come before them, and pension payments have not kept up with inflation. I’d suggest looking at the stability of your employer, whether you go into the private or public sector.

    1. Reply

      Oh, yes, most of my coworkers still get employer sponsored health insurance after they retire. Unfortunately, us new people can’t expect that. And yes! Stability is worth a lot too, there are some government jobs that disappear when administrations change, so be wary when considering one of those.

  2. This is a great analysis. It’s right on point for me, I am currently looking around and you answered many of my questions.

    1. Reply

      Awesome! Glad I could help!

  3. This is an interesting approach. I like your method of using private sector experience to boost your career in the public sector! I didn’t know that the government wouldn’t want to negotiate without actual proof of your past salary. I guess it really pays to plan your career.

    1. Reply

      Yeah, it was a little awkward when they wouldn’t budge on negotiating until I showed them a paystub (especially since I front load my 401k, so my take home pay was like $20), but it worked out well for me!

  4. Reply

    Nice post – lots of interesting points to consider.

    I’ve worked only in the private sector for my 10 years after college, but I didn’t realize a few of the items you mentioned. Switching between public / non-public opens a number of different potential opportunities.

    Thanks for sharing!

    – Mike

    1. Reply

      Thanks for reading!

  5. Reply

    I’ve gone from 2x private news media (err, so basically non profit) jobs to 2x public sector jobs and just moved into my first corporate job. Amazing benefits from my commercial employer, a million times better than anywhere else. In the public sector we really didn’t get anything beyond the minimum (bar a couple extra days leave a year at one place), in my current job we get generous super contributions and some paid parental leave not to mention tons of insurance. Oh and the opportunity to get bonuses, and presumably bigger raises. No contest for me.

    Pay wise, well anything was a step up from journalism 🙂 I would say my public sector jobs paid decently, I got market rates but there is more scope to earn more in private sector.

    1. Reply

      Awesome that you found a job with such generous benefits! They definitely exist in the private sector and are are so valuable!

  6. I like this strategy. The benefits of a government job are fantastic and possibly even underrated. Being able to make that jump while getting a raise and not a pay cut is impressive. Well done!

    1. Reply

      Thank you! I love my government benefits for now!

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