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so you calculated $100,000 salary, 30 years of employment, 5.5% contributions?
if you invested 5.5% of $100,000, on a monthly basis, for 30 years, assuming a 6% annual return and no tax exposure on gains each year, your account value 30 years from start would be $462,077.
not sure where you got only $150,000...that's just the money you put in, with no returns calculated I guess?
But yes, we should calculate some return on it. What would be a reasonable return?
And we should also add in the value of the healthcare benefits through retirement to be fair.
i would love to see the actual return for as many pension funds that i could see. its amazing that they can get away with assuming an 8% return (or maybe it isnt, lets see).
I believe part of Christie #1's plan was not only raiding the fund, but upping the anticipated return to 8% to offset the damage. She took more thinking the return was going to be MUCH higher than reality (tech bust anyone?). Someone can correct me on this.
I believe part of Christie #1's plan was not only raiding the fund, but upping the anticipated return to 8% to offset the damage. She took more thinking the return was going to be MUCH higher than reality (tech bust anyone?). Someone can correct me on this.
yeah, well the idea is you increase the expected return and you can pay in less money. i guess the other side is not to pay the expected benefit in the future. now we need to work on that end of the deal.
I believe the last time I checked there were about 8 states where teachers are not mandated to pay Social Security. Texas and Maine are two examples.
For those who are complaining about the "largesse" that teachers seem to get and often do, let me tell you about how it works at the federal level. I retired from the Post Office in 2004. I'm in the old Civil Service retirement system. I pay 30% of my health benefit costs, currently $113 a month for Basic Blue Cross and Blue Shield. It's a good deal. As for as Social Security goes, I started working for the PO after working for about 3 years after grad school. I have 29 quarters paid into it which I will never see. But here's the kicker! Thanks to that d***head Reagan, even if I had worked for more than a few years and had paid into Social Security, there is something called the Offset Provision, which means that even if I were eligible to collect, say $500 a month, that if I attempted to collect it, my Civil Service Pension, currently $1644 a month would be reduced by $500 each month. There is another similar situation for married couples where when your spouse dies, his survivor pension offsets your Social Security benefits and if his survivor pension is bigger than your SS payment, you get zippo!
Perhaps everybody should be subject to the same proviso. If you have a pension, either public or private or even 401K monthly income, your Social Security would be "means-tested" (which BTW, Republicans in Congress are currently in favor of!) your Social Security payment would be reduced accordingly. So if you had say $50,000 in retirement income, (pension, 401K money), your Social Security payment (say if you were due to collect the max ~$2400) you might well end up with only $400 a month instead! I bet Social Security would remain solvent until the Sun burns itself out under those conditions.
I have a friend who retired as a Nassau County cop who gets nearly a $90,000 pension (where he didn't pay anything for it -no 8% and nothing for health benefits) and on top of that even pays for parts of Medicare for him! Talk about a golden parachute! He thinks my Federal Benefits are cr*p! But I bet if they ever means-test and reduce his SS, this FOXNEWS-loving friend will be screaming to the high heavens over that one!
And people wonder where the term "Going Postal" came from! Ha-Ha!!!
I know multi-millionaires collecting SS - and before anyone "goes postal" on me, they contributed as much as joe-schmo making $106K, right?
i think the only group getting a "better deal" than state employees would be retired Port Authority workers! Can we hate on them next? LOL
I know multi-millionaires collecting SS - and before anyone "goes postal" on me, they contributed as much as joe-schmo making $106K, right?
yeah, but once you change that then you are philosophically changing the deal from a savings plan to a tax and redistribution of wealth. i doubt there will be much choice but to change that in the not so distant future.
On the pension front, the average NJ teacher makes around $60k per year. After 25 years of service they are eligible to retire at age 62 and receive a pension that averages $36k per year. During their career they invest 5.5% of their pay into the system.
They would contribute $3,300 a year based on the 60k per year average. Over 25 years with a modest 3% return they would contribute a little under $124k to the pension system. If we use the NJ formula that shows they expect 8.75% returns (apparently Madoff consulted on the project), they would contribute a little under $293k. That number is generous as I am giving them compound earnings early in their career, when they ostensibly make less than $60k.
After that it all depends on how long they and their spouse live (pension is transferable to spouse) collecting the $36k per year average. At 15 years (age 77, which is about average life expectancy) they would receive a total benefit of $540,000. Had they earned the generous estimated return, they would have contributed more than the state to their total pension. $293k from the teacher, $247k from the state. However, actual returns are much closer to 3% and means they only contribute $124k and the state contributes $416k, or roughly 40% more than the original plan expected.
There are roughly 113k teachers in NJ, so that takes the states obligation from $27.9 billion to about $47 billion. That doesn't count things like cost of living increases or increased life expectancy nor does it count anyone currently in the system. That is simply how much it will cost on average to pay a $36k a year pension to the existing teachers. I felt that it was important to show the total number, as I think it has more impact than the smaller individual numbers.
On health care, that is entirely dependent on the district. Those benefits vary greatly from district to district. However, the retiree health benefits are handled through the states own benefits program (the one state employees use). Participants in that program do pay an insurance premium based on whether or not they also participate in medicare. Some plans are also subsidized by the employees old school district. The plans have varying levels of coverage and include perscription coverage as well and looking at the costs you would be foolish not to take advantage of it. For instance, most of the plans feature $10 or $15 copays and have annual maximum layouts of $400 for an individual and $1,000 for a family. Also, the plan has no lifetime cap or benefit maximum.
One example I saw would be supplemental coverage to medicare for the retired employee and their spouse for a cost of $300 a month and it included a prescription plan coverage. Opting not to take Medicare primary would bump it to $600 a month. In the case of my parents however, the district is supplementing that cost and they will have a rather generous state employee plan covering, medical, dental, presecription and vision at no cost to them. Even at $300 a month, I think most of us would give an organ to get that kind of supplemental coverage.
i ran some numbers through a tool and came up with a beginning balance needed for $36,000/yr ($36,088.06 actually) assuming 5% annual interest rate to be $582,500. I also ran the numbers through a retirement similutor i have in excel with the following assumptions:
starting salary $36,000
6% gains (8.75% is obsene, but 3% is paltry)
3% raises
5.5% contribution
i got a "account balance" for the employee of $461,837 if assuming employment from 25 yrs old through 65 years old (40 years).
that leaves the employee contribution to be 79.2%, with the state needing to kick in the remaining $120,663 over the course of 40 years (3,000 per year, with no returns calculated in there, per employee). 113,000 teachers, times $3,000 per year (which would overfund the state's obligation) = $339M per year on the states' obligation.
entirely possible i made poor assumptions or did math leaving something out...but this paints a bit of a different story.
6%!!!! Who is getting 6%? That was one of the mistakes that were made.
an avg 6% annual return over 30 years is not conservative, but it's not that risky either. it's relatively easy to get 4.5-5% through muni bonds and some pretty solid corporate bonds. my annual return in 2010 in my 401k was 14.5%. YTD for 2011 is 4.6%.
yeah, but once you change that then you are philosophically changing the deal from a savings plan to a tax and redistribution of wealth. i doubt there will be much choice but to change that in the not so distant future.
it's always been a redistribution of wealth from what I can see.
But yes, we should calculate some return on it. What would be a reasonable return?
And we should also add in the value of the healthcare benefits through retirement to be fair.
4% is the minimum i would assume, and that's very conservative. i think it's easily fair to assume 5 or 6%, with 6% leaving the conservative assumption. but when you're managing that sum of money, it's much easier to achieve higher returns with less risk. so 5/6% is more than fair in my opinion, a 6/7/8% return is aggressive, and shouldn't be used as an assumption, but also wouldn't be shocking if it turned out that way. the 8.75% the state has used seems pretty crazy to me though.
it's always been a redistribution of wealth from what I can see.
social security? i guess in certain ways you could say that. you benefit more from it the less you earn. but i wouldnt say its a very extreme example of it.
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