Alternatives to pension survivor benefit

[donheff]

We've had this discussion a million times here...

PS..you should come take a look at how bad my insurance plan is or how bad my work hours are....not too mention working conditions. I wonder if you would advise your son or daughter to become a police officer because its such a gravy train? I doubt it. Most people would rather they go to college and get a better job.

+1 Good for you Utrecht - a well earned pension. After reading all of these complaints about the age/pension issue I was about to say, I'll bet he's a LEO. Come on folks, it's like the military. We ask a lot from our law enforcement officers and war fighters and we let them out early. That's the deal they sign up for. Why should we begrudge them the benefits?

Edit: just saw rbat's post -- firefighters too, they deserve their bennies. Just come to my house quick when I call 911

 

[utrecht]

rbat,

Ive looked at alot of police / fire pensions over the years. How does yours allow you to retire at 44? Are you taking some sort of reduced benefits? That doesnt seem to be possible based on the numbers you listed.

 

[ziggy29]

Don't get me wrong. I do not, and have not ever, wanted to take away anything that has already been promised and earned, and I don't blame anyone for taking advantage of what's available to them. I sure as hell would -- they promised it to you, you fulfilled your end of the bargain so you earned it. I think future changes are needed because these costs can otherwise spiral out of control. But I also believe a deal is a deal. It's just that the deal needs to change for the future. We can not continue down this road.

Having said all that, the first thing I'd do is check your city's financial condition. If it's about to go Vallejo, that's an important thing to know. More and more cities are coming under fairly dire financial circumstances with the combination of lower tax revenues, more deficiently funded pension obligations due to a crappy stock market.

If I feared my former employer was going to struggle down the road, I'd want to take as much as I can up front.

 

[utrecht]

Ziggy,

The pensions of most civil servant are NOT connected in any way to the financial strength of the city. Maybe rbats situation is different, but in Dallas and most cities that Ive looked at have seperate pensions for their sworn and non sworn personnel. In Dallas the non sworn city employees are covered by a pension that is funded and run by city. The police and fire pension is a totally seperate entity. The City contributes a percentage of the salaries as do the cops and firemen. After that point, the City has no further dealings with the pension (other than having city councilmen occupying 2 out of 14 seats on the pension board). The City cant touch the money for any reason. They cant raise or lower benefits for pensioneers so I dont see how the City's financial condition plays a part unless his pension is set up differently than most of them are.

Also, as burch64 pointed out, I think you greatly overestimate how much a pension costs the City when compared to what most large private companies pay as non salaried compensation. Not only does the city pay just about all of its employees less than their private sector counterparts, I have to pay 8 1/2 % of my salary into the pension and dont get any employer match into my 401K (which saves them another 4-6%). I also dont pay into SS (and dont collect it later) so the city doesnt have to pay SS taxes on my salary.

I also have a $3000 deductible on my health insurance which Im guessing is higher than most people's. Thats because the City doesnt pay for a top notch plan. More savings for them.

 

[travelover]

I resent your depiction of me as resenting anyone on this forum.

And I resent your resentment......

 

[REWahoo]

And I resent your resentment......

I resent responding to your post...

 

[Moemg]

I would rather her not have to worry about investing etc., thinking there should be enough either way to where very secure, non stressful type investing would provide enough income for her. Also why I am considering taking maybe 50% at a reduced benefit with insurance to supplement it. But I also do not want to have all of our eggs in one basket. Her income is less than 50k and should not be a concern. We currently have a whole life policy to cover our 200k mortgage.

That sounds like a great idea . I have a 50% survivor benefit and investments and I love the security of that monthly payment and I especially loved it m first few years of widowhood when I was a little crazy .

 

[Rambler]

rbat - I can't offer advice, I have no pension. Just thanks... you worked your years, put your own life at risk who knows how many times, and at pay rates that were probably less than many of us on this board. But, you were providing a service we cannot go without. For that, I thank you.

Oh, personally I always try to make sure my wife is well cared for. But only you and your wife can make the decision as to how best to do that. Good luck,

R

 

[Texarkandy]

Speaking as a future government pensioner - I wouldn't have done civil service if not for the benefits - maybe for two or three years, but not for twenty-five - I seriously considered whether to leave government after the first few years, the deciding reasons why I chose to stay were job security, health benefits, retirement benefits.

 

[NW-Bound]

Do any of the people who complain about government pensions know how they work and are funded?
I believe that the worker pays 10% of his salary into the pension fund. The City pays 20% into the pension fund, but pay nothing into SS which I believe is currently about 8%. So the city is paying 12% more than a private employer, but wait don't most private employers pay another 6 to 8% into a 401K plan of some kind for their employees, so now the city is only paying 4 to 6% more for pensions than private employers.

The pension funds take this money and invests it and hopefully make more money.

When a government worker retires, the city does not contribute any more money to his pension. The pension is paid from the pension fund.

My point is that sometimes government pensions do not cost the taxpayer as much as some people think.

Given what you described, then the difference between what government workers and private workers get in retirement is due to:

1) Public pension funds manage their investment better than the individuals managing their own 401k. There's a lot of truth to that. Individuals bail out of equities when the going gets tough, pile all onto their employer stocks (Enron anyone?), and cash out to buy a new house or car when they change job. Some never even bother to participate in their 401k. Or they work for mom-and-pop or small companies that offer no 401k. IRA until recently was a joke with $2K/year limit.

2) Public pension funds only cover those who pay into the system, in proportion to their contribution. Not true with SS. Social security is more a welfare system that pays according to needs.

So, the above explains how the average private sector worker generally ends up with less in retirement, partly due to her own fault (item 1 above), and partly due to forced participation in SS (item 2 above).

 

[donheff]

Given what you described, then the difference between what government workers and private workers get in retirement is due to:

1) Public pension funds manage their investment better than the individuals...
2) Public pension funds only cover those who pay into the system, in proportion to their contribution. Not true with SS. Social security is more a welfare system that pays according to needs.

So, the above explains how the average private sector worker generally ends up with less in retirement, partly due to her own fault (item 1 above), and partly due to forced participation in SS (item 2 above).

The Feds and many states and local governments have switched to social security plus an employer defined component. In the Federal government that component is a substantially reduced pension plus a 401K type plan with partial match. There are incentives/punishments in place (I can't remember what they are) for governments to switch to a SS based system. As an aside, I don't think any of this is an indictment of SS since SS is a social safety net - insurance or welfare depending on how you view it.

 

[Texarkandy]

.... As an aside, I don't think any of this is an indictment of SS since SS is a social safety net - insurance or welfare depending on how you view it.

As a federal FERS retiree I won't consider my Social Security to be a "social safety net", "insurance" or "welfare". SS is part of my retirement package by definition. In 1984 when the govt (thanks again RWR) put all new hires on FERS, the pension component was significantly reduced from the old federal CSRS pension and SS added to (supposedly) make up the difference.

(CSRS employees didn't pay Social Security on their federal salaries - and are subject to having SS offset (reduced) by the amount of their federal pension if they do qualify for SS based on earnings before/after/outside their federal employment that they paid SS tax on)

FERS employees do pay into Social Security & SS is now considered to be a "component" of federal retirees retirement package. This was the rationale for reducing the pension.

But this is pretty far off the subject of whether to opt for survivor benefit or not. I am weighing the options also on that.

 

[FDCaptain]

rbat, civil service pensions do often take a beating here, but that is okay with me. I do not spend any time defending it or justifying it. However, there is great advice on this board enregards to your question. Stability of the pension being one, my pension for example is a state pension and recently underwent review and was found to be underpaid by a couple hundred million. The cities were not contributing the full amount required. So they changed the contribution percentage for new hires and extended the time in service needed for retirement from 20 years to 25 years. For current employees nothing changed, yet. I plan to work another 13 years or so and expect less at retirement in the way of health insurance (I expect to pay all). By the way, since the cities were behind in contributions they gave them a year off! That is right they were behind in the obligations but were given a year without payment. Some catch up plan. Anyway, the pension is also tied into the state legislatures pension so I feel they will make sure it does not fail.

My pension pays 50% of your high 3 years at 20 years of service and about 80% at 27 years service.

Stay safe.

FDCaptain

 

[donheff]

As a federal FERS retiree I won't consider my Social Security to be a "social safety net", "insurance" or "welfare". SS is part of my retirement package by definition.

In this you are no different than the rest of the American workforce. They may not "define" SS as part of their retirement package but it is in exactly the same amount and manner that it is for you. what is different for you are the other components - TSP, FERS annuity.

 

[Texarkandy]

In this you are no different than the rest of the American workforce. They may not "define" SS as part of their retirement package but it is in exactly the same amount and manner that it is for you. what is different for you are the other components - TSP, FERS annuity.

The federal government has "defined" SS in writing as part and parcel of
federal workers retirement package. They did that when they gutted the CSRS pension system in 1984. Ergo,my point about my personally not considering SS as "insurance" or "welfare" as you suggested.

TSP equates to a decent company 401k (has up to 5% match) and has pretty much all the same rules. Fed employees have lost their money of late just as has the private sector.

FERS annuity (pension) is not exactly grand (1% per year); then reduced for survivor benefits (10% for 50%); & permanently further reduced if taken before age 62 (5% per year). Yes, it's Cola'd but only at age 62 & still loses 1% per year against the CPI by design. (60k federal worker who would like to ER at age 55 after 30 years w/50% survivor benefit: Annuity = $10,500 woo hoo! This employee better hope their TSP did well & SS stays afloat!!)

A lot of municipal pensions are typically much more generous nowadays as re: the pension aspect. You just have to wonder about the security of some of them.

 

[donheff]

(60k federal worker who would like to ER at age 55 after 30 years w/50% survivor benefit: Annuity = $10,500 woo hoo! This employee better hope their TSP did well & SS stays afloat!!)

The FERS annuity would be $20K for the employee plus about $18K for SS, based on age 62. So you are starting out at $38K about half of which is fully COLAd and the rest partially COLAd. Not as good as CSRS but not awful. Add in the 5% match on TSP and you can do OK.

 

[Texarkandy]

The FERS annuity would be $20K for the employee plus about $18K for SS, based on age 62. So you are starting out at $38K about half of which is fully COLAd and the rest partially COLAd. Not as good as CSRS but not awful. Add in the 5% match on TSP and you can do OK.

Yes, based on age 62 (btw, your employee would have 37 years service at age 62 - so actually 22K but don't forget to reduce by 5% or 10% for either a 25% or 50% survivor benefit) note: not "fully" cola'd: diet cola'd at CPI minus 1%.

But in my example of the 30 yr employee wanting to retire at age 55 (this is an ER forum ): 60K*1%*30 yrs = $18k-35% reduction for 7 yrs b4 age 62 = $11.7k-10% reduction for 50% survivor = $9900 annuity & no cola's for 7 years)

In either case you can see why the 30 or 37 year federal worker doesn't consider his/her Social Security as "insurance" or "welfare"

 

[Sue J]

My husband is in a similar situation, he's in our state's pension plan. He pays in 10% of his salary, his employer matches that but does not offer any match on 403b.

He just reached 25 years of service and hopes to stay 5 more years and make it to 30. At 30 years his pension would be 2.2% of his 3 average highest years, times his 30 years for his single life. Reduce that to 79% if he takes it with a 100% spousal life benefit. There are other options for other percentages to the spouse.

As the spouse, my preference is the reduced benefit with 100% to the survivor. I like a "sure thing". But we are also considering the other options, possibly 75% to surviving spouse. We still have some time. I'll get a small SS payment and if DH completes his SS credits he will get something, but it will be reduced because of his pension.

You and your wife are a lot younger than us and your possible pension is a lot larger than what my husband's will be. When the time comes we will consider taking a larger pension amount and buying life insurance but my gut tells me that life insurance companies are riskier than our state pension plan. I could be wrong with that.

Also, in considering life expectancy, my DH's father died at 70. One grandfather died at 52 and other grandparents died at 90. His mother if in very good shape and turning 80 in a few months. Hard to predict that one.

 

[SteveL]

Possibly there is some math you can do to help. The present value of the $594 difference (without COLA) between the top and bottom option is $123,000 at 5% interest through age 84. If you get hit by a truck later this year, and you picked the top option, your spouse would be out $1,260,000 during this 40 year period. Your plan has enough life insurance to offset not receiving your pension, assuming that she can manage to invest these funds in a way that will generate equal payments. If she isn't good with money, she'd be better off with the pension.

 

[rickier55]

rbat,

Looks like you have pretty good benefits there. While the incremental cost of the 100% survivor benefit is reasonable, it might also want to look at whats needed.

There a lot of discusion about how much you need after retirement compared to before retirement, but not quite as much on this board as to how much a "survivor" would need.

You wife will surely need more than 50% but will she really need 100%?

I didn't have a choice of survivor benefit levels (the survivors benefit is 50%). So I went through a fair bit of estimating to determine the level of insurance I needed to provide for her.

I'd look closely at the 75% survivor option. Though you really need to look at expected expenses and a break down of expenses to make that decision. The real question is how much will her expenses go down when you're not there to help her spend money? (or will they, as my wife says, claims go up if you're not there to slow down her spending)

Rick

 

[Zoocat]

I say again, "once an employee retires from the city, the city has no further obligation to that employee for his pension".
The pension is paid from the pension fund which is independent from the city. The city could go broke and it would not directly affect the pension fund because it is separate from the city.

.

That's good to know. Thanks for the info.

 

[NW-Bound]

In either case you can see why the 30 or 37 year federal worker doesn't consider his/her Social Security as "insurance" or "welfare"

I did not intend to demean people who rely on SS, either entirely or partially. Heck, I just ran FireCalc again with SS entered in for ourselves at 62, and it sure helped.

What I meant was that SS is not the same as other true retirement funds, in that if person A contributes twice as much as person B, then person A should get twice as much benefit. The higher-income workers end up subsidizing the lower-income workers. To check this out, you can download the SS benefit calculator to play with different scenarios to see for yourself.

If I remember correctly, Cato Institute had a calculator that shows how much benefit you would have in retirement, had your SS contribution been invested in S&P500. It was much higher, as I remember. Perhaps even double.

Now, I do not say that we should not provide for our elderly lower-rung citizens. But the government does not want to separate out what is your deserved portion, and what is a tax to help others. In fact, it appears politicians like to obfuscate this fact.

I always have worked for megacorps with 401k with $10K yearly contribution (it was upped in recent years). But it irked me when I saw that people who work independently or for mom-and-pop businesses could only contribute $2K/year (until recently) in an IRA. But professional workers (lawyers, doctors, etc...) could have Keogh plans with even higher limits than 401k.

Why such disparity for different workers? Is it because privileged groups have lobbyists working for them, while the average Joe/Jane is left with no advocates? In fact, the common 401k was originally intended for the executives to defer taxes on their bonuses, not for the lowly employees like myself to participate. It was the work of Ted Benna who brought the 401k participation to every worker.

So, you see, perhaps it was not intended for Joe/Jane Blow to have anything other than SS as the vehicle for retirement savings. But people want to have ownership of their own retirement funds, and they have found ways. Sadly, many people still think of SS as their sole source of retirement income.