big disappointment in ohio public pension!

[youbet]

Don't forget, when one doesn't get social security, it is because one did not contribute. That means no SS taxes were withheld either. One could have invested that amount over 25-35 years.

One also did not receive the 6.2% employer contribution. Here in Illinois, there has been discussion, as part of the pension funding solution process, that employees be made part of the SS system. But the state and local employers say they can't afford their 6.2% share. And it was not determined if the employees 6.2% contribution would be totally separate from or part of the 9.4% they already contribute.

It's a lot more complicated than simply saying employees have had 6.2% more to invest. And it does seem like not being part of SS has not been a good deal for employees. It seems like putting Illinois public employees on SS could be part of the funding solution,

 

[vttlarry]

You bet: the cola limit applies to all retirees. I supported higher contributions even when I was still working. I will be the first to admit it is a very good pension for 5.5%.

The average pension for the general plan is $1,104 per month. 62% of all pensioners receive less than $1,000 per month.

 

[youbet]

You bet: the cola limit applies to all retirees.

OK, there is one precedent for reducing the already earned benefits of retirees for SS, public and private DBP and DCP retirement benefits.

I supported higher contributions even when I was still working.

But, of course, and as you say, you simply invested the money you didn't have to contribute.

I will be the first to admit it is a very good pension for 5.5%.

Yes it is sweet. You have it made in the shade vttlarry. Glad to hear it's working out so well for ya!

Did you and your employer also contribute to SS?

 

[NW-Bound]

I do not have any pension, public or private. While I rely mainly on my 401k's and IRAs, I also have SS. So, out of curiosity, due to this thread I decided to compare OPERS to SS to see for myself.

A direct comparison is not possible because the eligibilities and contributions are not the same. However, I think that a rough-order-of-magnitude comparison is possible by making some simplistic assumptions.

The sources are OPERS and SSA Web sites. I might have misinterpreted some info, however. If so, please be indulgent and correct me.

Let's put aside early retirement, and use the age of 62, and the final salary of $50K, and 30 years of service.

For OPERS, at 2.2% per year, that brings the benefit to 66% of final salary, and the benefit is 66% X $50K = $33K.

OPERS contribution is 10% employee + 14% employer = 24%.

For SS, the simple calculator assumes a typical salary for 44 years of work since the age of 18. It shows a benefit of $1035/month or $12.4K.

SS contribution is 6.2% employee + 6.2% employer = 12.4%.

If we scaled up the SS contribution, then the SS benefit would have been $24,039. So, OPERS pays more than SS.

But, but, but if we consider a spouse who never works, then he/she would received 1/2 of the working spouse. Assume that the couple is of the same age, then that brings the SS benefit to $36K, which is a bit better than OPERS.

Another but, but, but...

If the worker is highly compensated, say at $100K salary, then he would get $66K with OPERS. The SS recipient would get only $19,236, or $28,854 when including non-working spouse. Scaled up to the higher OPERS contribution, the amounts are $37K and $55.8K respectively.

Note that SS benefits do not scale up with contributions, unlike pensions or 401k's, meaning a guy making $100K does not get double the benefit of a guy making $50K (i.e. the $19,236 vs. the $12,400).

So, my conclusion is that OPERS is generally a better deal than SS, even if we ignore the eligibility below the age of 62 and the medical benefits. And that is even after the cut back.

 

[youbet]

Is OPERS cola'd in the same way SS is?

OPERS is ER friendly, SS is not. By choosing a retirement age of 62, you biased in OPERS favor. (Probably a good idea given that this is the FIRE board) but I think the results would swing towards SS if you consider retirement at FRA, a non-working or low earning spouse, and the value of the insurance aspect of SS.

I guess it would be a really tough job to do a meaningful comparison. And I'm not a huge fan of the current structure of SS as it seems to be trying to be too many things to too many people. But I think making the statement that "OPERS is generally a better deal than SS" is ridiculous unless you add the qualifiers.

BTW, congrats on having the IRA, 401k and SS! Sounds like you have it made!

 

[NW-Bound]

OPERS gets some COLA, I think, but I do not know how that compares to SS.

Yes, I suspect that you are right that many public pensions are ER friendly.

In fact, they may be too ER friendly, hence are running out of money as people live longer. And meanwhile they keep talking about raising the FRA for SS too.

 

[Spanky]

So, my conclusion is that OPERS is generally a better deal than SS, even if we ignore the eligibility below the age of 62 and the medical benefits. And that is even after the cut back.

A very good conclusion - practically any public pension system is a lot more generous than SS despite all the recent proposals of cutbacks in public pensions.

Thanks for doing the math. My math indicates that funding for vttlarry's pension will be in the red in year 46 (10 years after his retirement) based on the following assumptions:
employee contribution: 5.5%
employer contribution: 0%
investment return rate: 8% (optimistic)
years of service: 35
payout = 1.7% * high 5 average salary (MN formula)
starting salary = $1 @5% increase yearly

If employer matches the contribution rate of 5%, the probability of running funding is much lower based on a constant 8% return (not likely by any imagination).

 

[youbet]

OPERS gets some COLA, I think, but I do not know how that compares to SS.

Well, I guess we'd have to know that. But it's Sunday afternoon, I'm watching the ball game on TV and trying to talk DW into getting me a beer. Not a good time for Googling and researching!

Yes, I suspect that you are right that many public pensions are ER friendly.

In fact, they may be too friendly, hence are running out of money as people live longer.

Well, obviously there are some serious disconnects between the inputs and the outputs.

And meanwhile they also keep talking about raising the FRA for SS.

That needs to be done. And, importantly, those already receiving SS need to have their benefit reduced to a level where current FICA taxes are adequate to keep the system going.

 

[youbet]

A very good conclusion - practically any public pension system is a lot more generous than SS despite all the recent proposals of cutbacks in public pensions.

Thanks for doing the math. My math indicates that funding for vttlarry's pension will be in the red in year 46 (10 years after his retirement) based on the following assumptions:
employee contribution: 5.5%
employer contribution: 0%
investment return rate: 8% (optimistic)
years of service: 35
payout = 1.7% * high 5 average salary (MN formula)
starting salary = $1 @5% increase yearly

If employer matches the contribution rate of 5%, the probability of running funding is much lower based on a constant 8% return (not likely by any imagination).

My but we're reaching deep inside and pulling out big handfuls this afternoon..........

 

[NW-Bound]

..those already receiving SS need to have their benefit reduced to a level where current FICA taxes are adequate to keep the system going.

Eh, you are talking about people who never miss casting a vote, while youngsters like my own children and their cousins have no ideas what we are talking about here.

And they are all college graduates or postgraduates. And I suspect some might have been too busy to go vote even.

PS. I am not watching any ball game (never have in my life). So, a guy recovering from a major surgery needs to occupy himself with something.

 

[youbet]

Eh, you are talking about people who never miss casting a vote, while youngsters like my own children and their cousins have no ideas what we are talking about here.

And they are all college graduates or postgraduates. And I suspect some might have been too busy to go vote even.

PS. I am not watching any ball game (never have in my life). So, a guy recovering from a major surgery needs to occupy himself with something.

Well, if the kiddo's don't get smart and vote SS reductions for geezers, they'll regret it just like taxpayers in Ohio and Illinois regret allowing their politicians to create the public pension systems they did and now can't afford.

Sorry to hear you're recovering from surgery NW-Bound. But gosh, with IRA's, 401k's, SS and Medicare (?) gov't programs to manage, you'll put the time to good use! Those 401k's and IRA's are sweet, no? Gov't help with retirement and you have most of the control!

 

[NW-Bound]

I think it is most likely the kiddos will not get smart, and will regret it just like people have.

Don't know about managing anything but my own finance, but all I can do is to not spend it all and to leave some for my own kiddos to compensate for their current ignorance, and hope it will not get confiscated.

 

[youbet]

I think it is most likely the kiddos will not get smart, and will regret it just like people have.

I'm afraid you're right. It's too bad for them.

I joined my son (in his late 30's) and a few of his work buddies at the local Tilted Kilt for a few brewski's a while back. It was really, really interesting listening to them. They (all young tech professionals) were whining about the fact that current geezer retirement benefits are generally being preserved but they are making sacrifices. Yet, in the end, they seemed to agree that the geezers needed to be protected and they just wished the toll would be stated and fixed at some level so they could get on with working, working and working some more to pay it. Too bad. In their shoes I'd be less respectful of and concerned for geezers and want geezer SS cut (a lot) and the line drawn on FICA tax levels and ceilings.

The youngsters are very naïve and we're the benefactors.

 

[Spanky]

I have always preached to my two daughters that they must save at least a certain percentage of their income and LBYM as you cannot rely on SS or any pension plan.

 

[NW-Bound]

Well, obviously there are some serious disconnects between the inputs and the outputs.

Well, I think the universal cause for financial problems is that there is not enough input, and too much output!

Those 401k's and IRA's are sweet, no? Gov't help with retirement and you have most of the control!

Let's put public pensions aside. My 401k's and IRAs are nowhere as sweet as the old private pensions. The latter are all unsustainable. How else private companies are all getting away from DB plans? And the only help from the gummint is that they will tax me later than earlier, but that's not any different than with pension contributions, no?

Given the trouble with both private and public pensions nowadays, of course I am glad now that I have some control. However, some keep talking about taking it away too. We'll see.

By the way, my brother in law worked for a generous company that provided both pension (at no cost to employees) and matching 401k. And of course he has SS and some IRA too. Now that's really nice, eh?

I could have had the above at the same company, but I hated that megacorp and had to quit. My loss!

 

[youbet]

Given the trouble with both private and public pensions nowadays, of course I am glad now that I have some control. However, some keep talking about taking it away too. We'll see!

With the move towards cutting the value of already earned pension credits and the actual pensions of already retired folks, I think the combination of SS and deferred tax plans is the way to go. Yes, there was a time when once you earned some pension credits, the employer was on the hook to uphold their end unless they went bankrupt. Today, not so much. With state govt's it might take as little as saying that it's getting painful financially to continue paying but never actually have to go under court controlled bankruptcy to get out of the deal.

IMHO, the sooner all pensions go to the 401k format the better. Employees need full control (and assume the investment risk) of their retirement each day as they earn it. Any matching employers (public or private) want to do to attract and retain employees must become the employees' daily as they work. Instant vesting.

 

[vttlarry]

You bet: yes, we both contributed to SS.

 

[haha]

IMHO, the sooner all pensions go to the 401k format the better.

Certainly better for the taxpayer, and probably better toward a less corrupt urban politics.

Ha

 

[youbet]

You bet: yes, we both contributed to SS.

That's excellent. One of the major mistakes Illinois employees made was not insisting on being in SS. Now that they are changing their tune, the employers are balking saying they can't afford the 6.2% matching contribution.

The pension you mentioned + SS vs the amount you contributed to each sounds very, very attractive. Congratulations!

 

[Sue J]

The OPERS COLA is 3% fixed based on your first year of retirement. It's not compounded. That's what it was before the recent changes. Current retirees keep the 3% COLA. The change is to a COLA based on an index, not to exceed 3%. I think one of the transition groups has the 3% for 5 years and then changes to the indexed rate.

DH retired in 2010 so he will keep the 3% fixed COLA.

 

[ERD50]

The OPERS COLA is 3% fixed based on your first year of retirement. It's not compounded. ...

I was curious about the difference between compounded and not, and I was surprised - the delta was less that I would have thought.

My simple spreadsheet, assuming the 3% would happen every year (unlikely, for a capped COLA), shows that for every $100, over 30 years:

A non-compounded 3% pays $4,305 in total.
A compounded 3% pays $4,758 in total.

To deliver that same $4,758, a non-compounded 3% would need to start @ $110.50 rather than $100.00.

And for reference, a non-COLA $100 over 30 years would pay the simple multiple, $3,000. And would need to be $158.58 to match the compounded 3%, or $143.50 to match the non-compounded 3%.

Originally Posted by ERD50 View Post
There were two other options. Increase revenue (taxes), or cut spending (in other areas, or wages, employment, benefits). Or combo. ...
-ERD50

This can be done to only a minor degree. Large increases in tax rates can actually result in less tax revenue over the long term. Employers can move to more tax friendly states creating unemployment. That's why you see many of the northern states lowering tax rates, even in these tough times, to attract industry. Also, if tax increases were excessive, I think taxpayers would protest excessive taxes for benefits most of them do not have themselves!

That was part of my point. If tax rates were increased in real time, the debate could have taken place. We would have seen any effect on business. It may have brought about changes back when relatively small changes could have had a larger effect.

Cutting spending in other areas also sounds simple, but is not so easy in practice.

That may be, but math is math. If the money isn't there, they need to raise revenues (which doesn't necessarily mean raise taxes, but most likely does), or cut spending. Municipalities and States cannot print money. I'm not saying any of it is easy.

-ERD50

 

[TuborgP]

When asked previously if my pension Cola was simple or compounded I responded simple it is really compounded. I was thinking phased on COLAs over a year period.

 

[TuborgP]

When asked previously if my pension Cola was simple or compounded I responded simple it is really compounded. I was thinking phased on COLAs over a year period.

The combined COLA for the wife and I is over 10 K in the five and half years since we retired over our original pension amount.

 

[Bestwifeever]

Thanks for another lively discussion, everyone.

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