Risk Factor for Public Pensions?

[utrecht]

Quote:

Originally Posted by Chuckanut A quick question for those of you who worked in a public pension system that did NOT pay into the Federal Social Security system. Was or is there any requirement that the dollars not paid into SS (both employee and employer) be put into the pension system so as to make up for missing SS benefits?

I'm not sure I understand your question, but I think you're asking if our pensions were free? I contributed 8.5% to my pension. I believe SS taxes are something like 6% right? So the answer could be No, or I could say I contributed 2.5% to the pension plus another 6% to the pension to make up for missing SS benefits and the answer would be Yes.

[Texas Proud]

Quote:

Originally Posted by Jpg1717 We do not need to look up the cost of a private annuity. I do not need an annuity . I have a pension. I thought this was an online early retirement community? Why are some people criticizing their fellow members of this community whom chose to reach early retirement by putting their lives on the line,protecting their fellow citizens for 30 years,and retiring with a pension?

It is not criticizing on calculating the PV of a pension... a pension is like an annuity, and people who have annuities calculate a PV in order to do their AA....

I know when my oldest sister retired and we planned their investments we put a $1.2 million value on that pension... so all of her money (except an emergency fund) is invested in stock... she is not 100% invested in stock for her overall AA, but less than 20%....

[34rlsa]

I really like this forum and I have learned quite a bit from its contributors.

But sometimes I feel... if your not 100% self funded to meet your retirement income goals you're not truly a member of the community.

[Texas Proud]

Quote:

Originally Posted by 34rlsa I really like this forum and I have learned quite a bit from its contributors. But sometimes I feel... if your not 100% self funded to meet your retirement income goals you're not truly a member of the community.

I am sorry you feel that way... I think there is a pretty good number of people here that have pensions... sometimes I think there are more people with pensions than without... there are military, LEO, teachers and other civil servants and even a good number of people that have pensions from a private company....

I wonder if there is a poll showing who has vs who does not have a pension....


Also remember that most people talk about a pension being a defined benefit... but I actually have a cash balance (which started as a defined benefit.... still do not know how they changed it to what it is).... so I will not have a fixed monthly check unless I buy the annuity they offer... and that is not that much money... so even though I have a pension, I do not feel like I do....

[ziggy29]

Quote:

Originally Posted by ERD50 Most public pensions are COLA'd to some degree. Many here would tell you to not withdraw more than 3.5% from a portfolio if you might need it to last for a long retirement. That means that a $35,000 pension would require a million dollars to invest. So yes, it is reasonable to describe anyone with a COLA'd pension of $35,000 or more as 'millionaires'.

Apples and oranges to a degree. That 3.5% rule or 4% rule or whatever is designed to give you a certain amount of COLA'd income while leaving the invested balance intact.

A pension, or an annuity, may give such a $35K annual income stream possibly even with a COLA kicker, but when you (and possibly your spouse) kick the bucket, you have nothing left. With the actual investments providing the income stream, you probably still have that million bucks or more to pass to your estate. Big difference.

[eta2020]

For Detroit retirees, pension cuts become reality

We had seen those guaranteed pensions cut in the past.....

It much more likely then for example any kind of means testing of SS and they did no means testing in their bankruptcy and pension cuts.

[Jpg1717]

Ziggy29- Great analysis. The fact is that an individual with a pension is not truly a "millionaire" because when he dies his children are not left with a million.A person withdrawing 3.5% of a million annually will be able to still leave an estate of one million. As you said- apples and oranges.I have learned a lot from this forum, although I do not feel welcome as a member of this community because of some of the earlier comments (ie High School grads getting large pensions).

[Tekward]

Good discussion. As the OP I was focused on risk factors to see how people were accommodating a changing landscape.

I'm sorry if people with pensions feel pressure. I believe people with pensions are lucky, and luck is when opportunity intersects with preparation and hard work. People on this board would do the math and make informed life decisions. Many paths, many variables and many end results.

A favorite, "Comparison is the thief of joy." Teddy Roosevelt.

[Whisper66]

Quote:

Originally Posted by Jpg1717 .......although I do not feel welcome as a member of this community because of some of the earlier comments (ie High School grads getting large pensions).

In any large group with this much discussion we see many different viewpoints. That is one if the things that makes this group so useful to so many. If you need some protection from others ideas, feel free to block postings from those you disagree with. I think it will lessen the value of this place to you but to each his own.



Sent from my iPhone using Early Retirement Forum

[Htown Harry]

Quote:

Originally Posted by Tekward As the OP I was focused on risk factors to see how people were accommodating a changing landscape.

For an individual in a pension plan, the only risk factors that matter are those that might affect that particular plan.

With hundreds of plans and a huge spectrum of situations, it's a risk that one's assessment of his pension risks might be distracted by news coverage, editorials or internet threads ( )that extrapolate the serious challenges of some plans to one's own plan.

I read my plan's annual report, follow any pension bills filed when the legislature is in session, and take notice of the rare times when a federal proposal might affect the whole set of state & local public pension plans.

The risk is assessed periodically and I move on, content to let others get riled up for debate or entertainment purposes.

[stepford]

Quote:

Originally Posted by Jpg1717 Ziggy29- Great analysis. The fact is that an individual with a pension is not truly a "millionaire" because when he dies his children are not left with a million.A person withdrawing 3.5% of a million annually will be able to still leave an estate of one million.

But even pensions that leave no survivor benefit have a dollar value. On the open market I would have to pay something over $600K to purchase an immediate annuity paying $35K/yr - until my death, when my survivors would get nothing. This is for a non-COLA'd annuity. COLA'd annuities are a lot harder to find, but even conservatively the cost of an inflation protected annuity with the same starting $35K/yr payout would be at least $200-300K more - and possibly close to $1M.

Regardless, the value of a $50K/yr inflation protected pension (starting at age 55 or earlier) is greater than $1M - even with zero survivor benefits. This is value measured strictly by what it would cost to buy such a financial instrument.

Nobody likes to call themselves rich (except maybe Donald Trump and Larry Ellison), but if you own an asset worth a million dollars it's fair to call you a millionaire.

This is no criticism or attempt to delegitimize public pensions. From my earlier posts you will see that I strongly support pensions for every worker that earned theirs. But it's only fair to assign pensions their proper value.

[utrecht]

Quote:

Originally Posted by stepford Nobody likes to call themselves rich (except maybe Donald Trump and Larry Ellison), but if you own an asset worth a million dollars it's fair to call you a millionaire.

After scrimping, saving and sacrificing for 25 years, I love to call myself rich.

[nun]

State and public pensions are a vast quilt of funding and financial health and so there is no single answer to the question of their viability. Federal pensions are a lot more uniform so asking about the viability of military and civil service pensions might be a better question.

[hnzw_rui]

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Originally Posted by eta2020 Newspaper probe alleges nepotism among L.A. firefighters Family members beat the odds in winning prized firefighting jobs - LA Times That is not my listing. That is what newspapers report just as they report that 25% of hires where kids of public officials. BTW that is 130k COLA pension for life at a bit over 50 and not compensation.

Note, it says $130K in pension and health benefits. Since there's a 90% cap on pension (@30 years service) and base salary of regular firefighters top at right around $100K, I'm betting actual pension is less than $100K and the rest is health benefits. I looked at their retirement plan and as far as I'm aware, overtime, etc are not counted for their pension.

[ERD50]

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Originally Posted by Jpg1717 Erd50 Perhaps you do not understand that if I die next week, my wife does not get a million dollars. She gets a very small Widows monthly stipend, that is not even close to my monthly pension.Whereas in your analogy the guy taking annually 3.5 % of his million will leave his Widow as a millionaire if he dies next week. We all need to please deal with the facts only.

I understand that isn't a exact comparison, because it isn't the same thing, exactly. But it is one of the options (and most likely option) available to someone who did not go the public pension route. So it still stands as a comparison, and it is based on facts. I might also outlive the portfolio, right?

And do you have other options for the survivor? For my (small, non-COLA) private pension, I can accept a lesser amount and leave 50% or 100% to a surviving spouse.

Quote:

Originally Posted by ziggy29 Apples and oranges to a degree. That 3.5% rule or 4% rule or whatever is designed to give you a certain amount of COLA'd income while leaving the invested balance intact. A pension, or an annuity, may give such a $35K annual income stream possibly even with a COLA kicker, but when you (and possibly your spouse) kick the bucket, you have nothing left. With the actual investments providing the income stream, you probably still have that million bucks or more to pass to your estate. Big difference.

But there is no guarantee. It isn't 'designed to leave the balance intact', that has happened in a % of cases historically. And even at 3.5%, a significant number of of the portfolios drop to low values, in fact, FIRECalc shows a 4% failure rate for a 47 year portfolio (assume a retiree at 53 with a spouse - a 5% chance of one living to 95).

FIRECalc: A different kind of retirement calculator

OK, so take DLDS approach, and try to buy a COLA'd annuity with that...

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Originally Posted by daylatedollarshort Your pension value then is closer to the cost of a single annuity with inflation protection. Look up what it would cost to buy on the private market and that is the value.

Quote:

Originally Posted by Jpg1717 We do not need to look up the cost of a private annuity. I do not need an annuity . I have a pension. I thought this was an online early retirement community? Why are some people criticizing their fellow members of this community whom chose to reach early retirement by putting their lives on the line,protecting their fellow citizens for 30 years,and retiring with a pension?

Maybe I missed it, but I didn't see any criticism in this thread. And I sure hope you aren't lumping me in that category (if I said something to offend, please point it out so I can explain and/or apologize if needed). I was merely pointing out that it would take > $1M to replace a $35,000 COLA'd pension. It has nothing to do with what anyone chose for their career, I'm only commenting on the numbers.

There's lots to learn here - but maybe best to stick to the numbers. People made career choices, and here we are. No going back, time to look forward and play your cards, whatever they may be at this point.

PS - are you a firefighter, or an attorney?

Early Retirement & Financial Independence Community - View Profile: Jpg1717

-ERD50

[ERD50]

Wait a minute. Didn't you say the same thing earlier?

Quote:

Originally Posted by Jpg1717 .... How do all of these people retire early without a pension ? If a pension with cola and 700 k isn't enough , then I guess you have to be a multi millionaire to retire .

-ERD50

[ripper1]

Quote:

Originally Posted by Jpg1717 Erd50 Perhaps you do not understand that if I die next week, my wife does not get a million dollars. She gets a very small Widows monthly stipend, that is not even close to my monthly pension.Whereas in your analogy the guy taking annually 3.5 % of his million will leave his Widow as a millionaire if he dies next week. We all need to please deal with the facts only.

In Chicago the widow gets 50% and cola stops.

[ripper1]

Quote:

Originally Posted by Jpg1717 We do not need to look up the cost of a private annuity. I do not need an annuity . I have a pension. I thought this was an online early retirement community? Why are some people criticizing their fellow members of this community whom chose to reach early retirement by putting their lives on the line,protecting their fellow citizens for 30 years,and retiring with a pension?

Misery loves company!

[rodi]

Quote:

Originally Posted by ERD50 PS - are you a firefighter, or an attorney? -ERD50

ERD50 - The question isn't directed at me but I'd like to point out they are not mutually exclusive. As I posted about my friend... Firefighters can come from a variety of backgrounds. My friend was a navy seal and an investment banker for Goldman Sachs before becoming a firefighter. He's also an entrepreneur who recently sold one business and has started another, while being a firefighter.

Again - the question wasn't directed at me - but I'm sure you do not want to be perceived as stalking the guy... but that is a perception you are giving to me. I'm sure that is not your intention.

[hurricane harry]

Quote:

Originally Posted by Tekward Good discussion. As the OP I was focused on risk factors to see how people were accommodating a changing landscape. I'm sorry if people with pensions feel pressure. I believe people with pensions are lucky, and luck is when opportunity intersects with preparation and hard work. People on this board would do the math and make informed life decisions. Many paths, many variables and many end results. A favorite, "Comparison is the thief of joy." Teddy Roosevelt.

mmm, no
I specifically sought out a job that offered a pension, no luck involved