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brady, wanted to add one piece that we are missing. Apparently pensioners receive annual cost of living adjustments. These have averaged roughly 3% per year historically. I found this article that pointed that out and confirmed it on the states teachers pension page.
They assumed the following, a 60 year old teacher with 30 years of service would earn a pension of $49k per year. By year 10 it would be $62k, by year 22 (they pegged life expectancy of a retired 60 year old at 22 years) it would be $83k. That would net a total payout of $1.6 million assuming 2.4% annual increases.
Further compounding the problem, when the retirement age was raised to 62, the vast majority of current teachers were grandfathered in for eligibility at age 55. Given that, their scenario isn't too far off IMO.
A couple other points I was able to confirm. A teacher with 30 years of service earns between $80k-$100k per year in the state. The above used $90k as their number, so again not too far off.
The average years of service is between 30 and 35 years at retirement with a rather even spread. The bulk retire at about 32 years of service.
blah. now you're making me think too hard. i ran the numbers assuming $36k pension again. obviously have to adjust that up.
$500,000 annuity assuming 6% returns gives you $48,600/yr.
Many people my age are still burdened with college debt and then we are being told that we need to start saving for our kids college. Oh yeah, and you should also save for your own retirement entirely, because good luck thinking that any pension or even Social Security is going to be there. But in the meantime, we get to keep paying into all of these things to fund all of the Baby Boomers that are retiring.
Housing prices, well, we don't even need to go there. Think about it, so many houses that used to be able to be bought by one man working with an average job now requires a dual-income couple with advanced degrees. And for all of that, you get to live in a 50 year old house that needs work. At least that guy got the house when it was new!
The loss of manufacturing jobs has been devastating for our generation, particularly those who don't have college degrees obviously.
Ever increasing property taxes for less and less services.
Skyrocketing costs of healthcare. Constant fear of losing your job and losing aforementioned healthcare insurance.
Excuse me while I go listen to some grunge and watch Reality Bites.
isn't the average college debt like, $18,000? the media only likes to tell the stories about the people with $100,000 in debt, but that's not the norm, it's an extravagant exception.
any financial advisor worth a lick will tell you to save for retirment first, kids' college only after you're covered. from the information i've seen, social security isn't the "disaster" that the politicians like to tell us it is. but calling it such keeps it a nice campaign topic, swaying voters both ways.
housing prices in much of the country have adjusted, quite severely in many cases, down. people outside of northeast cities would be shocked to see how many families still exist out there where 1 person goes to work, and the other person is the caretaker, or maybe works part time.
U.S. still manufactures quite a bit of things, just not enough things. we can change that, but we have to want to change it.
what less and less services? i think we have quite a bit of service for the taxes. and again...leave NJ and see many places where the property taxes haven't gone up so much.
the doom and gloom in the media...sorry, i just don't buy it. i also don't buy how "lazy" gen-x is....
any financial advisor worth a lick will tell you to save for retirment first, kids' college only after you're covered. from the information i've seen, social security isn't the "disaster" that the politicians like to tell us it is. but calling it such keeps it a nice campaign topic, swaying voters both ways.
its going to be very much like getting hit by a train.
starting salary of $45k
5.5% contribution for say 30 years and
3% raises each year and
6% returns
in 30 years, that would leave the account balance at $272,578.
to pay $36,000/yr for 15 years, assuming 6% returns, you would need to purchase an annuity for $371,500 to generate $36,085.53. assume 5%, $392,500 would generate $36,013.66 per year. that leaves the state contribution, 30 years from day 1 of employment, at about $120,000.
Thanks for running it, but we need to change a couple things.
1. The pension won't be $36k per year to start. It will be based on whatever the final salary is. If I run it out at 3%, the final salary is $106k per year. A pension on that amount would start at around $55k per year.
2. The pension itself grants a cost of living adjustment that has averaged around 3% a year. So, we need to increase the payouts by 3% each year. For example, the true 15 year payout for the above pension, based on the actual start point of $55k would be $1.02 million over 15 years. Year 15 would see the pension increase to a touch over $83k per year.
I don't have a way to figure out what the annuity would need to be counting in the escalation. So, I took the 5% return and cut it to 2% to simulate the increased payout. I come up with an annuity needed of roughly $750,000 to make the actual pension payouts for 15 years in the above example. That would make the state chunk about $478k.
In order to get the $478k at 6% returns over 30 years, the state needs to invest $5k per year. The teacher (using a start of $45k and ending of $106k) will have put in $117k from their own money. The state will have put in about $150k of it's own money. So, the state is paying $1.22 for every $1 the teacher puts in. To look at it another way, the teacher pays in 5.5% and the state pays in 6.7%. I'd be ecstatic if I got that kind of match on my 401(k).
this concept reminds me of a conversation with a jewish woman in my office. she seemed pretty confident that the holocaust couldnt happen again. then i asked her if 6 million jews thought they were going to be systematically butchered over the next few years. of course not. just like murder victims dont expect to be murdered. when tragedy strikes, its generally not something you expected to happen.
Last edited by CaptainNJ; 03-01-2011 at 09:34 AM..
Thanks for running it, but we need to change a couple things.
1. The pension won't be $36k per year to start. It will be based on whatever the final salary is. If I run it out at 3%, the final salary is $106k per year. A pension on that amount would start at around $55k per year.
2. The pension itself grants a cost of living adjustment that has averaged around 3% a year. So, we need to increase the payouts by 3% each year. For example, the true 15 year payout for the above pension, based on the actual start point of $55k would be $1.02 million over 15 years. Year 15 would see the pension increase to a touch over $83k per year.
I don't have a way to figure out what the annuity would need to be counting in the escalation. So, I took the 5% return and cut it to 2% to simulate the increased payout. I come up with an annuity needed of roughly $750,000 to make the actual pension payouts for 15 years in the above example. That would make the state chunk about $478k.
In order to get the $478k at 6% returns over 30 years, the state needs to invest $5k per year. The teacher (using a start of $45k and ending of $106k) will have put in $117k from their own money. The state will have put in about $150k of it's own money. So, the state is paying $1.22 for every $1 the teacher puts in. To look at it another way, the teacher pays in 5.5% and the state pays in 6.7%. I'd be ecstatic if I got that kind of match on my 401(k).
the starting and ending salaries are right. i think there's a way to find a calculator that assumes increased payouts, since they sell annuities that will pay COL increases instead of fixed amounts as well. i'll find one tonight, but your numbers are probably close. but if you're doing 30 years for the teacher contribution, i have $275,857 as the employee account balance, but yeah, $118,000 is what physically left their paycheck over the course of the 30 years. i see what you did now.
honestly, i know of a few private companies that match dollar for dollar and also do profit sharing, or bonuses. we can't really compare that to a teaching job, because you're not turning a profit, or earning a bonus.
typically, an inflation adjusted annuity for the same price comes out with lower upfront payments. here's an article: Kiplinger.com
haven't found a calculator yet, but i'm sure they are out there.
this concept reminds me of a conversation with a jewish woman in my office. she seemed pretty confident that the holocaust couldnt happen again. then i asked her if 6 million jews thought they were going to be systematically butchered over the next few years. of course not. just like murder victims dont expect to be murdered. when tragedy strikes, its generally not something you expected to happen.
because you wish to be blissfully ignorant. greece and ireland have already seen their financial system basically collapse and require a bailout. you think many of them expected that to happen? probably not, but it did. on deck will be portugal, spain and italy. there isnt enough money to bail them all out. there certainly isnt enough to bail out america when our turn comes.
you just probably saw in the news something about ireland and greece needing a bailout and never thought could it happen here? you realize obama's budget included about $1.5 trillion in debt spending no? its interesting for me to see someone say "i dont buy into all this doom and gloom stuff." i mean, its already happened in places, why pretend we are so special that it cant happen to us?
Last edited by CaptainNJ; 03-01-2011 at 10:01 AM..
How big are these debts? National debt, put at €300 billion ($413.6 billion), is bigger than the country's economy, with some estimates predicting it will reach 120 percent of gross domestic product in 2010. The country's deficit -- how much more it spends than it takes in -- is 12.7 percent.
As of January 31, 2011, the Total Public Debt Outstanding of the United States of America was $14.13 trillion and was 96.4% of calendar year 2010's annual gross domestic product (GDP) of $14.7 trillion.[1][2][3] Using 2010 figures, the total debt (96.3% of GDP) ranked 12th highest against other nations.
now im gonna have to look at that deficit of 12.7% to figure out what they mean, because it looks to me like according to obama's budget we are basically planning to run a deficit closer to 50%.
because you wish to be blissfully ignorant. greece and ireland have already seen their financial system basically collapse and require a bailout. you think many of them expected that to happen? probably not, but it did. on deck will be portugal, spain and italy. there isnt enough money to bail them all out. there certainly isnt enough to bail out america when our turn comes.
you just probably saw in the news something about ireland and greece needing a bailout and never thought could it happen here? you realize obama's budget included about $1.5 trillion in debt spending no? its interesting for me to see someone say "i dont buy into all this doom and gloom stuff." i mean, its already happened in places, why pretend we are so special that it cant happen to us?
i was referring to that second paragraph.
i've followed the european news quite closely. the situation you describe is highly unlikely, though plausible. and the ireland bailout wasn't exactly shocking. why would a country guarantee every dollar of bank deposits is insane. from that moment everyone knew that ireland couldn't do what it said it would do.
our debt is still not even close to their debt in regards to GDP. so no, i'm not being blissfully ignorant. it's possible, but there's plenty of smart people who don't see it as that likely.
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