Pensioners v Do-it Yourself'ers

[kcowan]

Being in the boat with a non-COLA'd unguaranteed pension plus a COLA'd guaranteed smaller one, my target SWR does not include them. I have not reached that target yet, but every year that I receive those pensions, they contributed to an improved financial position moving towards my target SWR (3%).

I agree that this is overly cautious but it is part of the reason that my portfolio excluding the present value of those pensions is 78% equities. I am taking more risks while I can enjoy receiving those pensions as a buffer.

 

[Nords]

I think I don't trust to leave my money with my former employer but would rather take the money and run [it over to Vanguard]. I would be interested to understand the feeling of security that those with pensions have as it pertains to a government-backed pension versus a company-backed pension. I know that company-backed pensions are insured by the government, sort of . . . . (limits apply, age eligibility rules, etc)

I think you've answered your own question-- take the money & run. My FIL is a perpetual worrier himself and he sleeps much better with his lump sum instead of a pension check.

Once you achieve FI, many choose to strengthen the legs of their stool so that one shortened/cracked leg won't topple the stool. As Samclem says, veteran's benefits are constantly being sandblasted a millimeter at a time. That's why I think it's not only prudent but necessary to use the military pension as a base to build a long-term high-equity portfolio. And in your situation you could seek dividend yield or annuitize a portion of your portfolio-- asset allocation instead of all-or-nothing.

Anything bad enough to jeopardize a military pension would probably result in we veterans being recalled to arms anyway. It'd certainly take our minds off our financial troubles...

 

[tangomonster]

Rich, you were very tactful and diplomatic in how you initiated the posting of this thread, as well as everything you post (you must have missed the lecture that day in medical school on achieving a high degree of arrogance and limiting interpersonal skills!). I do admit to being envious of persons with COLA pensions. Yup, they were obtained by years of working---but I had to work the same amount of years for my FI and then save and invest on top of that.

To give a personal example, I earned about $40K when I RE, doing very similar work with the same qualifications as counselors who worked for the state. After 30 years, they retire with 90% of what their salary had been. (this has been lessened for new employees just starting out now, because the system is going to be bankrupt with all the retirees.) Meanwhile, DH and I had to save 30 to 75% of what we were earning to have financial security.

Many of the workers with a 90% pension complain that they feel the pinch of earning 10% less than they used to. And they're limited to the provisions of the pension since many did not save anything to supplement the earnings. So technically, I have more to spend each year at a SWR of 4%, but I also have the lack of security of knowing my investments could tank and/or running out of money.

For those with a substantial COLA pension, it's got to be a different mindset in terms of spending and investing any money they did save. Isn't it always said that kids appreciate money more when they are actually working to earn it and not just being given it? So therefore, it follows that DIYers are more frugal/cautious with their money...

I'm not knocking anyone who gets a pension. Those of you who do had the luck or forethought to obtain employment that provided it. I'm just envious, but I'm also proud of what I accomplished on my own...

 

[youbet]

I'm not knocking anyone who gets a pension.

I don't think it's a matter of knocking folks with pensions. It's a matter of understanding where people are coming from when listening to their comments on investing.

In my case, my FIRE status is based on roughly 40% non-cola pension/SS and 60% investment portfolio, so I'm somewhere in the middle. I know that 40% portion affects my strategy for the 60% portion. And I know folks who have large pensions would have their strategies affected even more. I just keep that in mind when listening.

Tangomonster, while a generous cola pension would be nice, many paid a heavy price. Those pensions sometimes lock folks into jobs/careers they absolutely hate and would leave in a minute if their pensions were portable. They show up on this board from time to time howling about "hell in cubeland" and other anguishing scenarios that make me grimace.

I think a 401K (or similar) plan with a good employer match looks very appealing today. No lock-in to a single employer for decades. Portability if you leave the job to follow a spouse or just to try something new.

Of course, if you do manage to work 30+ years for the government or some company that still offered dbp cola pensions and really liked what you were doing, that would be a wonderful thing.

 

[OKLibrarian]

I have a COLA pension, but A: I don't want to have to work long enough for it to cover everything, and B: even though it's through my state's gov't, I'm not fully convinced that what they say I'll get and what i will get in ~20 years will be the same thing. Hence we're saving as though we're DIY--making sure our necessities are covered in any case, and figuring on the pension for added fun and financial freedom. Paranoid? maybe--but after living through the telecom boom/bust, I don't take ANY employer's promises of lifetime financial security at face value. *shrug*

 

[Gone4Good]

For a long time now, I've felt fortunate not to have a pension. Obviously, an explanation is in order.

My grandfather was an electrician and worked almost his whole life with one blue-chip company. He worked hard, played by the rules, and retired on a nice pension. My father followed his example, becoming an electrician, working hard, playing by the rules . . . but late in the game, the rules changed. About 10 years before his planned retirement the big blue-chip company decided it didn't need or want a bunch of old folks hanging around long enough to collect their generous pensions. He was offered a much smaller package and shown the door.

Although I certainly like the idea of "guaranteed" lifetime income, I'm pretty glad that I'm not relying on someone else to provide for my future.

 

[haha]

My father followed his example, becoming an electrician, working hard, playing by the rules . . . but late in the game, the rules changed. About 10 years before his planned retirement the big blue-chip company decided it didn't need or want a bunch of old folks hanging around long enough to collect their generous pensions. He was offered a much smaller package and shown the door.

Same thing happened to my Dad. Fortunately he had also run a successful side business and had considerable savings.

Moral-if you rely on a pension only settle for an employer with taxing authority. Helps to be in a public employees union also.

Ha

 

[FinanceDude]

What's funny to me is people who love their pensions, but trash annuities. Tie a yellow ribbon on your SUV.

You owe me a NEW monitor..........

BTW, doesn't Vanguard SELL annuities? Don't see you guys analyzing them??

 

[HFWR]

I still say that having a pension "given" to you is not equivalent to "buying" an annuity...

 

[FinanceDude]

I still say that having a pension "given" to you is not equivalent to "buying" an annuity...

I often wonder how many people would join civil service or become a teacher without there being a guaranteed pension??

In other words, if the market dictated the needs and salaries of those professions, how would that shake out? I can't imagine if a teacher had to pay $600 or more a month for health care, there wouldn't be any left.............

 

[OKLibrarian]

I still say that having a pension "given" to you is not equivalent to "buying" an annuity...

As FinanceDude points out, as a state employee I paid an opportunity cost (in lower salary than I could make in the private sector) to get 0-premium health insurance, less career volatility, and a pension that I could theoretically live on if I put in a full 30 years. I earn my benefits just like I earn my paycheck.

 

[donheff]

I often wonder how many people would join civil service or become a teacher without there being a guaranteed pension??

I was bitten long ago with the Kennedy bug ("Ask not what...") and enjoyed my time in public service. But from day 1, the prospect of ER with a good pension at 56 was a huge positive. I am not convinced that Federal employees actually give up much, if anything, in the pay department but the retirement system certainly went a long way to make up for any gaps. I would venture the same is true for many teachers.

 

[FinanceDude]

I was bitten long ago with the Kennedy bug ("Ask not what...") and enjoyed my time in public service. But from day 1, the prospect of ER with a good pension at 56 was a huge positive. I am not convinced that Federal employees actually give up much, if anything, in the pay department but the retirement system certainly went a long way to make up for any gaps. I would venture the same is true for many teachers.

I venture to say we will see some movement to limiting the powers of teacher's unions in the future, whether teachers like it or not, their costs are going up.................

 

[Nords]

I still say that having a pension "given" to you is not equivalent to "buying" an annuity...

I would've used the word "earning" with regard to pensions. They don't exactly fall out of the sky and drop in your lap like a winning lottery ticket.

But the difference between a govt pension and a Vanguard COLA annuity is probably not much more than the difference between a Vanguard index fund's expense ratio and the TSP's expense ratio. Seems fair to pay a little more for the assurance/insurance. It'd be interesting to see if there's any studies or other basis for comparison...

 

[youbet]

I venture to say we will see some movement to limiting the powers of teacher's unions in the future, whether teachers like it or not, their costs are going up.................

There is always the possibility of some movement towards limiting the power of teachers' unions in the future, but I don't think it will be anything profound for a long, long time. With the Dems back in power in Congress, legislation to limit teachers' unions right to strike will never happen, guaranteed. The only other chink in the teachers' union armor is competition from the private sector. Do you think private/parochial schools are going to grow significantly as a percentage of total schools?

There might be a "movement" of folks not sympathetic to teachers' unions, but other than piss and moan, what are they going to do?

 

[Rich_by_the_Bay]

I get the sense that, like the stock market, the labor market is very efficient (if not unduly regulated). The incentives that lead to recruitment and retention in professions that are stressful, dangerous, tedious, or require extensive training at low wages sooner or later sort themselves out. There are alot of inequities (volatility) along the way in specific sectors, but overall a pension is earned, not given out.

In my profession, I elected not to follow a military career because I wanted to live in the civilian community, not move every few years, not get shot at much, and allegedly make more money. True, I'd have been long retired had I chosen that route, but those who did paid for it one way or another.

 

[FinanceDude]

There is always the possibility of some movement towards limiting the power of teachers' unions in the future, but I don't think it will be anything profound for a long, long time. With the Dems back in power in Congress, legislation to limit teachers' unions right to strike will never happen, guaranteed. The only other chink in the teachers' union armor is competition from the private sector. Do you think private/parochial schools are going to grow significantly as a percentage of total schools?

There might be a "movement" of folks not sympathetic to teachers' unions, but other than piss and moan, what are they going to do?

Well, in our community, the "movement" is already starting. The teacher's union is now bemoaning the fact that WE (the voters) WON'T agree to a large tax increase to do extensive remodeling of our schools and fix "stuff that will break soon"...........

Hmmm.....MAYBE they should have used the money from the LAST referendum the way they said they were going to, rather than use it for "pet projects" done in secret that later were leaked out to the community.................

We already had 5 teachers "quit" because they now have to pay $25 a month for FAMILY health insurance, instead of $0............boo hoo...........

 

[HFWR]

I would've used the word "earning" with regard to pensions. They don't exactly fall out of the sky and drop in your lap like a winning lottery ticket.

Agreed! Also concede that there's an opportunity cost in lost wages, although it's doubtful you'd receive the all of the difference in salary...

However, when someone says that they wish they had a COLA pension, they're probably not talking about buying one, but rather earning one for their years of servitude...

 

[FinanceDude]

Agreed! Also concede that there's an opportunity cost in lost wages, although it's doubtful you'd receive the all of the difference in salary...

However, when someone says that they wish they had a COLA pension, they're probably not talking about buying one, but rather earning one for their years of servitude...

Agreed..................

My mom is a good example. She was a teacher for 30 years in public schools. Because she had a master's degree, and taught gifted kids, she was at the top of the pay scale for teachers in her district ($63K)

At 30 years, she gets 80% of the average of her last 5 year's pay as a pension. It's a pretty good deal..........and she never complains, because with SS they can't even spend HER pension, much less my dad's.................

 

[youbet]

Well, in our community, the "movement" is already starting. The teacher's union is now bemoaning the fact that WE (the voters) WON'T agree to a large tax increase to do extensive remodeling of our schools and fix "stuff that will break soon"...........

Hmmm.....MAYBE they should have used the money from the LAST referendum the way they said they were going to, rather than use it for "pet projects" done in secret that later were leaked out to the community.................

Voting down a referendum targeted at capital improvements is hardly a blow to the strength of the teachers' union. While the teachers may think it's great that the kids have a new science lab, gym equipment or whatever, it's nothing to them personally. No change in pay or benefits or hours of work or.............

Don't misinterpret my position, I'm not a fan of teachers', or any, union. But having been a member of, and managed in, many industrial union situations (IAM, USW of A, Teamsters, etc.) and having been married to a union teacher for a few decades, my opinion is that teachers' unions are well positioned for the time being.

Change will occur over time, but actions such as voting down a referendum aimed at capital improvements, certainly will not be the death blow.