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A lot of retired teachers are in effect millionaires...
Old 12-10-2012, 01:47 PM   #1
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A lot of retired teachers are in effect millionaires...

I believe the subject of a yearly retirement of $40,000 or more may equal a million dollars invested may have come up in a thread or two. Here's an interesting article explaining it.

That still does not sit quite well with me, even using that logic. That means there's a lot of millionaires out there. Opinions?

Here's the article. Read on:
Articles: Millionaires, Billionaires, and Teachers
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Old 12-10-2012, 01:52 PM   #2
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Originally Posted by Redbugdave View Post
Opinions?
I smell another attack on unions in general, teachers in particular.

Everyone knows that teachers have such a great job that they should do it for free.
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Old 12-10-2012, 02:01 PM   #3
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As someone with no pension or company paid-for/subsidized health insurance (but with numerous retired teacher friends) I don't think there's any arguing with these numbers. Being able to retire (in many cases in one's late 50's) with that kind of income is pretty remarkable for folks whose annual earnings during their working years are typically nothing to write home about.

OTOH, the often tenuous-to-disastrous state of funding of many of these teacher's pension programs is rightly a source of considerable anxiety to those dependent on them. Projected returns on investments have been unrealistic for a long time and given the statie of the national economy the idea that the States are going to bail them out seems dubious.
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Old 12-10-2012, 02:02 PM   #4
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They are not technically millionaires. But I find cash flow to be a more valuable measure in the distribution phase. Most people would not count a pension or social security in net worth but they both generate cash flow none the less.

My pension plus SS when I get it would be over the 40K mark myself. A lot of teachers won't get SS or will get it reduced due to windfall reductions.
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Old 12-10-2012, 02:02 PM   #5
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I'd say the $40K pension is more like an annuity that pays that amount vs. having $1M in the bank. I think an annuity paying that amount costs a lot less than $1M.
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Old 12-10-2012, 02:10 PM   #6
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I'd say the $40K pension is more like an annuity that pays that amount vs. having $1M in the bank. I think an annuity paying that amount costs a lot less than $1M.
A single life annuity at age 55 for 40K a year is about 750K according to immediate annuities.com
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Old 12-10-2012, 02:38 PM   #7
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Oh, Please..... Can we not get started on this again.

Read the entire article. It is not about teacher pay versus Joe the self-employed guy. It is about taxing income from investments, and what if any difference there is between pension income and investment income.

Quote:
In short, a whole lot of retired workers are millionaires, especially when you include 401k's, Social Security and any other benefits such as health insurance subsidies on top of these pensions. And much of that comes as inflation-adjusted, virtually risk-free monthly checks.
He's talking about many if not most of us who participate on this site. Not just teacher's or even just public employees.

Note: The author has been careful to pick groups that support the conclusion he wants us to reach. Illinois, which is one of the worst offenders when it comes to unaffordable public pensions, versus a self employed person. Comparing any paid employee to a self-employed person is very iffy since there are many difference in both opportunities and problems.
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Old 12-10-2012, 02:50 PM   #8
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A single life annuity at age 55 for 40K a year is about 750K according to immediate annuities.com
and the article indicates that many Illinois teacher pensions are COLAed, so the $1m valuation might be on the light side if a fixed payout is worth $750k.

I agree that the point should not be to vilify teachers - over their careers they made a conscious decision to accept more modest pay and the promise of a generous pension for what they might have made in more lucrative private sector occupations.

I like the point that economically a retired teacher with a $40k pensions isn't that different from a successful self employed person from the private sector who retires with a $1m nestegg. Neither should be vilified - both should be celebrated as having achieved the American Dream in different ways.

That said, the premise of the article is a bit stupid and seems to be a veiled attempt to get readers excited about teachers' pensions. While the President uses the terms millionaires and billionaires very loosely, his tax increases are targeted with singles with TI>$200k and couples with TI>$250k, which IMO is a whole different strata of economics compared to teachers and a moderately successful self employed person.
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Old 12-10-2012, 03:02 PM   #9
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It's not just teachers, either. I am a federal employee and my pension will put me there. As well as the retired GM auto workers, retired police, firefighters, IBM, Michelin, city, county workers, etc. Anyone with a retirement of $40,000 or more. I guess someone with just SS is a 1/3 millionaire?
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Old 12-10-2012, 03:04 PM   #10
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and the article indicates that many Illinois teacher pensions are COLAed, so the $1m valuation might be on the light side if a fixed payout is worth $750k.
Yes, COLA will probably double the amount required.

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I agree that the point should not be to vilify teachers - over their careers they made a conscious decision to accept more modest pay and the promise of a generous pension for what they might have made in more lucrative private sector occupations.
I think it's tough to say if the pay is 'modest' or not. Since their pay is protected/negotiated by unions, and not really a free market system, we don't really know if it is modest or not. Open it up, and let's see. Math and science teachers might be able to get higher pay?

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I like the point that economically a retired teacher with a $40k pensions isn't that different from a successful self employed person from the private sector who retires with a $1m nestegg. ...
I think that's the main take-away. To put a $40K COLA pension in perspective. Some people here seem to think that taking note of that should be taboo?

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Old 12-10-2012, 03:16 PM   #11
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I don't think the point of the author is to rehash the "4%"rule nor to discuss the potential value of annuities. I think his one point is that folks with roughly equivalent retirement life-style potentials may be treated differently for political reasons. We could argue all day about that (but that would only bring on the pig). True enough, the details of how the numbers get there are quibbling points (always lots of fun on our forum), but I'm assuming his actual point is more or less off limits. Of course, YMMV.
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Old 12-10-2012, 03:20 PM   #12
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I read the article as trying to show that there are a lot of 'millionaires' complaining about the rich not paying enough.... but shows that they might rightly be called millionairs themselves....

However, I think the article misses the point that the pension is considered regular taxable income... so that $40,000 pension is just like $40,000 salary with no tax breaks...

If so, then why should Joe get tax breaks on his cap gains and dividends (I do not know of any on interest)....


I disagree with this, but think the author missed it big time...
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Old 12-10-2012, 03:34 PM   #13
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However, I think the article misses the point that the pension is considered regular taxable income... so that $40,000 pension is just like $40,000 salary with no tax breaks....
In a number of states, public pensions, including those of teachers, are exempted from state income tax.
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Old 12-10-2012, 03:45 PM   #14
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...If so, then why should Joe get tax breaks on his cap gains and dividends (I do not know of any on interest)....
IMO Joe should get a preferential rate on dividends and capital gains because those distributions are generally the result of corporate income that has already been taxed and is now being distributed as dividends or was retained and increased the value of the company contributing to the capital gain.

The income has already been previously taxed and the remainder is then monetized by the shareholder and taxed again. So if the company pays 20% in corporate income taxes and the shareholder pays another 15% on the remainder, then for the $1 of corporate earnings the government has collected 32 cents [(1.00 * 20%) +(1.00-.20)*15%]

IMHO 1/3 is plenty - if the government can't operate on that then it needs to cut spending.
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Old 12-10-2012, 03:54 PM   #15
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Also, capital gains tax should only be applied to inflation adjusted gains as explained in this video:

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Old 12-10-2012, 03:55 PM   #16
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I don't think there is any way to evaluate these senarios. Example: when you state that someone can retire on a teachers salary, or a government employee that retires or in my case, a GM ertiree, you have to state the variables, like at what age do you retire, does the pension include health care, COLA, benefits to the survivor, etc, etc. Also, like in the case of all GM salaried employees, we contributed monthly to the defined benefit plan so it wasn't all GM money. Lets say I got half the $40K a year retirement, but I got it at age 51 (34 years service) and my wife would get half of that amount for the rest of her life when I die. Would that be a good retirement? If I would have worked until age 60 or 62 I might have reveived $40K per year, but I probably wouldn't have lived long enough to see it. Those days were tough. Here I am in my 25th year of retirement and I think I got a good deal. No regrets ever. How many people get to retire at 51?

My brother retired at age 65. In the teaching end of the business. High up. He probably gets $85K a year. He deserves it, he earned it, tough job. I don't know how he did it but he earned it. There is no way to compare his retirement to mine. He worked 14 years longer and was in a much higher pressure job than me.

So go ahead and compare all you want. There is no way. I couldn't have taken even another year of work. Especially when my wife was going through cancer. She is a survivor, but at the time we thought she might not have another year. At that time in our lives, money meant nothing.
Right now we feel like millionairs.
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Old 12-10-2012, 04:10 PM   #17
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In a number of states, public pensions, including those of teachers, are exempted from state income tax.

Good point... but I live in Texas without state income tax.....
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Old 12-10-2012, 04:13 PM   #18
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IMO Joe should get a preferential rate on dividends and capital gains because those distributions are generally the result of corporate income that has already been taxed and is now being distributed as dividends or was retained and increased the value of the company contributing to the capital gain.

The income has already been previously taxed and the remainder is then monetized by the shareholder and taxed again. So if the company pays 20% in corporate income taxes and the shareholder pays another 15% on the remainder, then for the $1 of corporate earnings the government has collected 32 cents [(1.00 * 20%) +(1.00-.20)*15%]

IMHO 1/3 is plenty - if the government can't operate on that then it needs to cut spending.

You left out the part where I said I did not agree with that statement... I was just putting down an argument point...
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Old 12-10-2012, 04:13 PM   #19
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I am a retired police officer. My pension is 66k annually, with a small COLA after age 62. My pension was valued at over 1 million. Certainly not complaining but I don't feel like a millionaire.
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Old 12-10-2012, 04:20 PM   #20
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That was a very good video Azphx. Good points. Interesting angles on taxation...
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