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ripper1
Old 03-26-2010, 08:52 PM   #21
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All I know is I worked hard as a laborer and then a plumber for the City of Chicago for 30 years. It was hot in the summer and sometimes very brutal in the winter. I will be 55 this summer when I retire. Based on a formula of years (30) and 2.4 I will get 72% of final average salary of my last 4 years. While I'll agree the money is decent I will also contribute 700 a month to my health insurance. The city is also telling us they will no longer contribute to health plan after 2013.
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Old 03-26-2010, 09:16 PM   #22
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I will be 55 this summer when I retire. Based on a formula of years (30) and 2.4 I will get 72% of final average salary of my last 4 years.
Question - do you start receiving that 72% at 55, or is that the age 65 amount and reduced at 55?


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While I'll agree the money is decent I will also contribute 700 a month to my health insurance.
Just for reference, many private company retirees are paying more than that for their HI. Those people wouldn't consider that an offset to your pension, but another benefit.

And none of that is meant to question whether you 'earned' or 'deserve' it or anything like that - I'm in no position to question that. Just trying to understand what those numbers mean, since you put them out there.

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Old 03-27-2010, 03:04 AM   #23
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(snip)As a society we can't afford to let people work for 40 years and than collect 20 years of pensions, not without requiring them to significantly increase their savings into the 30% range (Social Security is 15%)
So, I shouldn't be able to retire when my pension and other sources of income are enough to cover my expenses, but rather when I have satisfied some arbitrary savings requirement? What exactly are you suggesting?
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Old 03-27-2010, 04:30 AM   #24
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The pension crisis that is looming large and has been studied by numerous government and financial organizations world-wide.

Much of the issue is with public pensions that were too generous. I doubt that government orient pensions will default. It will be dealt with through a variety of tax increases on the general public. I suspect that there will wind up being a progressive tax on pensioners that have an AGI over a certain amount. This is how the SS problem will be dealt with also.

Local, State, and Fed government organizations are reducing the benefits and terms for future retirees... because they are feeling the pinch.
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Old 03-27-2010, 05:42 AM   #25
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So, I shouldn't be able to retire when my pension and other sources of income are enough to cover my expenses, but rather when I have satisfied some arbitrary savings requirement? What exactly are you suggesting?
No not at all.

I am suggesting that all future pension private and public be structured that you need to work 45 year from roughly 22 to 67 in order to retire without a significant reduction in your lifestyle say 90% of your take home pay. Assuming you are doing no other saving (i.e. the 47% of American that have under 10K saved for retirement).

If you are willing to accept a reduction in pension like we see in Social security between 62 and 67 than working 40 years is an option, meaning you collect ~20 year of pensions.

Right now most local, state, a few union pension systems, along with police, fire, and military are designed to provide basically full income after 25-30 years.
This was probably ok when folks didn't live much past 70, but we as a society can't afford it now. There should be some compensation for dangerous and demanding jobs e.g. Fire, military to allow an earlier retirement. But even for them retiring simply on their pension without saving at ~50 years is too generous IMO. Since a person is likely to collect 30 years of pension.

A simple way of looking at this retiring after working 45 years at 67 and collecting 15 years of pension means 3 workers for every retiree.
At 62 it is 2 workers per retiree
At 52 is is 1 worker per retiree.
American worker productivity compared to the rest of the world no longer supports such a system.

Note this doesn't apply to most members of the this board, because we have have LBYM for many years and are prodigious savers. We've traded a lower lifestyle for longer retirement. If you have other source of income, because of saving, side business, rental whatever, than you can retire whenever you want.
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Old 03-27-2010, 08:10 AM   #26
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So what's a new hire "ordinary" state employee to do now to get on the road to FIRE?
It seems to me that the possibility of a painless ER was one of the selling points of public employment in years past. It certainly was a factor for me. You made a trade-off with theoretically lower current income for a generous, early retirement. In the future that won't be an available trade off so it won't be a factor in the employment decision. Most public employers have moved to SS and some sort of reduced DBP. Their employees will save like most of us and will take delayed or reduced DBP coupled with SS and savings.
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Old 03-27-2010, 10:31 AM   #27
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Obviously, this paints with a very broad brush and doesn't take into account the relative levels of education or experience in both pools.
One thing I've noticed is that some public employee occupations are relatively undercompensated compared to the private sector. Science, engineering, IT, medicine come to mind right off the bat. They remain undercompensated even after factoring in benefits including retirement.

One thing that's harder to do is "normalize" the statistics for job demands, hours worked and that sort of thing. I could be wrong but I suspect the fear of layoffs in the private sector leads people to feel like they have to demonstrate their worth by working insane hours.

In any event I don't think it needs to be couched as public sector versus private sector, but we do need to get public sector employment costs in line with wage growth in the private sector, because it's not sustainable for public costs to rise faster than the private sector can support them with taxes. Public sector wages and benefits have been rising faster than in the private sector for over a decade now, and it's reaching the breaking point in this economy. There's only so much you can ask people who have had falling real wages, dropped pension plans, suspended 401K matches and bouts of unemployment to accept higher taxes to secure someone else's retirement when their own retirement is becoming more and more tenuous.

Having said all that, if a public sector job pays 20% less than in the private sector, I'd sooner give a 10-20% raise and a 401K to new hires than their current salary and a DB pension with retiree health insurance. At least we have fixed costs that are knowable that way. Given the value of job security I don't know that compensation needs to be *equal* to the private sector (certainly there's some "value" to increased security), but it can be made closer when folks in the private sector are earning a lot more.

And while I'm not specifically advocating it, I see "retirement security reform" coming down the road in 5-10 years or so as it becomes increasingly obvious that many of the boomers won't have the means to retire even at age 70 without pensions or much personal savings. (Not looking for a political discussion, but I see this building as a "crisis" in the making.)
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Old 03-27-2010, 10:45 AM   #28
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I'm in IT and I used to check the State of NH IT jobs quite frequently. They didn't pay well at all, but the pension was pretty good. But 4 or 5 years ago they changed how things were done, increased the minimum retirement age, required more years to full pension, etc.

I concluded it wasn't worth even considering an IT job for the state anymore.

With this economy, I'm sure they have no openings. I wonder how many will jump ship once the economy improves?
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Old 03-27-2010, 10:49 AM   #29
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Having said all that, if a public sector job pays 20% less than in the private sector, I'd sooner give a 10-20% raise and a 401K to new hires than their current salary and a DB pension with retiree health insurance. At least we have fixed costs that are knowable that way. Given the value of job security I don't know that compensation needs to be *equal* to the private sector (certainly there's some "value" to increased security), but it can be made closer when folks in the private sector are earning a lot more.
Also, we need to be mindful of the kind of workforce we want in government jobs. There's real benefit to having folks with a lot of experience and who have a vested interest in the success (and, yes, stability) of long-term public programs. Most mature democracies have benefited strongly by having a competent, stable, staid group of civil servants. A hard-charging Type-A person who wants to see quick improvements, wants to rapidly move up the ladder, and is willing to jump to a new company when the opportunity arises is not necessarily going to be the right fit for government work. Having folks jump constantly between govt and private sector employment can cause some ethical challenges that erode public confidence in government.
DB plan have been appropriate for fostering the type of culture needed in a government workforce. Maybe now they've gotten too expensive and we should be looking toward DC plans with long-term vesting or matches that accelerate in later years in order to encourage folks to stay.
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Old 03-27-2010, 11:33 AM   #30
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DB plan have been appropriate for fostering the type of culture needed in a government workforce. Maybe now they've gotten too expensive and we should be looking toward DC plans with long-term vesting or matches that accelerate in later years in order to encourage folks to stay.
Or maybe public sector retirement plans should start moving toward the FERS model used by the feds -- a modest but significant pension component, one with relatively sustainable benefit levels, with SS and a matched 401K component like the TSP.

If you look at all the purported literature about retirement planning, it's supposed to be a "three legged stool" -- but some state and local pension plans are generous enough to live on without any personal savings at all. The FERS model seems to come pretty close to the "three legged stool" approach with SS, DB pension and personal savings components, none of which are sufficient on their own but which are "enough" when combined.

The most important thing here, I think, to make sure that the promises are reasonable and sustainable, and not prone to extremely unpleasant surprises down the road for both pensioners and taxpayers. If a benefit level is something that will require 8-9% ROI in order to be solvent, it's probably too generous for its own good.
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Old 03-27-2010, 12:03 PM   #31
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No not at all.

I am suggesting that all future pension private and public be structured that you need to work 45 year from roughly 22 to 67 in order to retire without a significant reduction in your lifestyle say 90% of your take home pay. Assuming you are doing no other saving (i.e. the 47% of American that have under 10K saved for retirement).

If you are willing to accept a reduction in pension like we see in Social security between 62 and 67 than working 40 years is an option, meaning you collect ~20 year of pensions.

Right now most local, state, a few union pension systems, along with police, fire, and military are designed to provide basically full income after 25-30 years.
This was probably ok when folks didn't live much past 70, but we as a society can't afford it now. There should be some compensation for dangerous and demanding jobs e.g. Fire, military to allow an earlier retirement. But even for them retiring simply on their pension without saving at ~50 years is too generous IMO. Since a person is likely to collect 30 years of pension.

A simple way of looking at this retiring after working 45 years at 67 and collecting 15 years of pension means 3 workers for every retiree.
At 62 it is 2 workers per retiree
At 52 is is 1 worker per retiree.
American worker productivity compared to the rest of the world no longer supports such a system.

Note this doesn't apply to most members of the this board, because we have have LBYM for many years and are prodigious savers. We've traded a lower lifestyle for longer retirement. If you have other source of income, because of saving, side business, rental whatever, than you can retire whenever you want.
I agree with most of this except for that part that I highlighted in bold letters. The avg life expectancy for police and fire is significantly lower than the avg of the general population. I don't know the exact numbers but I see death announcements for retirees all the time and I'm constantly surprised at how soon these guys die after retiring. My personal opinion is that a lot of it is due to high stress for many years, shift work, and also the fact that a lot of cops and firemen don't take care of themselves. Cops seem to eat more junk and grease than the avg person does from what Ive seen.

All of this to say that the cops I see aren't collecting anywhere near as much over their retirement lifespan as they thought they would which may be one small part of the reason that my dept's pension is so healthy.
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Old 03-27-2010, 12:09 PM   #32
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I agree with most of this except for that part that I highlighted in bold letters. The avg life expectancy for police and fire is significantly lower than the avg of the general population. I don't know the exact numbers but I see death announcements for retirees all the time and I'm constantly surprised at how soon these guys die after retiring. My personal opinion is that a lot of it is due to high stress for many years, shift work, and also the fact that a lot of cops and firemen don't take care of themselves. Cops seem to eat more junk and grease than the avg person does from what Ive seen.
I tend to look at occupations like cops and firefighters in a separate discussion because of the nature of their jobs and because there is no private sector equivalent on which to base compensation. I don't think too many people could do those jobs for 40 years or more. Yes, in many cases they need some pension reform as well (especially where spiking is concerned IMO), but they have a different dynamic than (say) paper pushers in an office environment and what makes sense for a filing clerk or administrative assistant may not make sense for a police officer.
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Old 03-27-2010, 12:14 PM   #33
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What is "spiking"? Collecting as much overtime as possible in the last few years to jack up your pension? If so, my plan doesn't include ANY overtime in the calculations.
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Old 03-27-2010, 12:18 PM   #34
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What is "spiking"? Collecting as much overtime as possible in the last few years to jack up your pension? If so, my plan doesn't include ANY overtime in the calculations.
Yes, that's what it is. Some plans allow it -- so some may work a LOT of OT in their last year, or cash in all their unused leave toward final year compensation and things like that -- and these count for calculating their pension. In a few extreme cases, pensioners are able to get more from their pension than they ever received in base pay. It's probably no coincidence that some of the most threatened and insolvent plans allow it.
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Old 03-27-2010, 01:31 PM   #35
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Yes, that's what it is. Some plans allow it -- so some may work a LOT of OT in their last year, or cash in all their unused leave toward final year compensation and things like that -- and these count for calculating their pension. In a few extreme cases, pensioners are able to get more from their pension than they ever received in base pay. It's probably no coincidence that some of the most threatened and insolvent plans allow it.
Actually Zip, spiking is more, much more, that just using OT or leave pay to increase the final few years salary. In Illinois, it was fairly common for early out packages to include huge raises for each of the last few years once the employee signed an intent to retire after that period.

So, a School Supt making $300k (yes, they make that much here) might get a raise to $400k his/her final years. Then, the retirement formula would wind up cranking out a pension equal to or greater than the Supt's working salary.

What really hurt about this common practice is the fact that the acturial info used to calculate pension fund requirements DID NOT include the fact that, due to spiking, pensions would be much, much higher than the formulas indicated.

So, two problems here. Politicians underfunding calcuated pension fund requirements and making promises to "make it up next year" plus pension fund requirements being dramatically understated due to spiking. That is, actual pensions being much higher than the formulas would indicate they're going to be.

In hindsight, it should be no surpirse to Illinoisians that the public pension funds are in for huge problems and will require significant tax rate increases to bail out, despite the current reform legislation.

I've mentioned several times that our northern neighbor, Wisconsin, has a viable system. It's 100% funded and pensions vary with market performance but never dip below the original amount. Changes in payout are buffered/smoothed by a five year averaging algorithm. It's pretty clever.

An interesting side note is that as the politicians try to wrangle a way out of this, they find themselves between a rock and a hard place. If they move funds away from social programs toward pension funding, lower income constituents and their advocates scream bloody murder. If the move money away from pension funding toward social programs, unionized public employees stop supporting them and launch publicity campaigns against the politicians. So there is a back and forth "spread the pain" component hindering objective solutions based on sound financial and management theory.

If it wasn't so sad and scary, it'd be funny.......
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Old 03-27-2010, 02:01 PM   #36
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As you said, its no wonder plans like that are in trouble. Not too mention the fact that they are giving all public pension plans a bad name. I get offended somewhat when I hear people talking about public pension reform because my pension plan, while generous, is still pretty fair I think, but when I hear about some of these things like "spiking" there's no wonder why alot of them are in trouble and people are outraged.
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Old 03-27-2010, 02:23 PM   #37
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In my post above, I said that school dist superintendents earn $300k. Looking at top salaries in Illinois (they're on the public record), looks like I overstated things. Here's the top 200 wage earners in K- 12 public education in Illinois. Looks like Supt's would be in the low to mid-$200k range on average....... just scanning the numbers. Only a small handfull at $300k and up.

Sorry, didn't mean to mislead.

Click on the "top 200" choice for a sort of the top 200 salary earners.

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Old 03-27-2010, 06:19 PM   #38
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My personal opinion is that a lot of it is due to high stress for many years, shift work, and also the fact that a lot of cops and firemen don't take care of themselves. Cops seem to eat more junk and grease than the avg person does from what Ive seen.

All of this to say that the cops I see aren't collecting anywhere near as much over their retirement lifespan as they thought they would which may be one small part of the reason that my dept's pension is so healthy.
I suspect you are right. As I said some form of compensation seems appropriate for civil servants involved in particularly stressful and dangerous jobs. Ideally I like to see cops, fireman, and military after putting in their 25-30 yeaqrs spend say 5 years working in part-time (e.g 20 hours 3 months on 3 month off etc) doing training, community outreach, long term project etc, while collecting their pensions.

Or to put it another way a really don't have much of a problem of my taxes going to pay a 50 year old cop, firefighter, or marine's pension. A 50 year old former DMV supervisor collecting a full pension, while working for the transportation department for the federal government that pisses me off.
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Old 03-27-2010, 09:05 PM   #39
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Have you noticed how quick the lights go out in government buildings at the end of the day? (snip)

Ha
If you're talking about the lights in the Key Tower, they go out because they're on a timer. They automatically shut off at 6 PM and again at 7. I would assume the same is true of other City office buildings.
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Old 03-27-2010, 09:47 PM   #40
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OK, while there are some out there who have modest pensions after long service at below-market wages, there are vastly more who are going to collect fat pensions that the states cannot afford. I live in Illinois and the costs will bankrupt us if pensions don't change. It is a fact. I pay taxes by choice in this state. I can easily choose to domicile in a state which is responsible with its citizens' money. And I will if Illinois raises taxes without resolving the problem of unsustainable pensions.
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