Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
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'm doubting she actually thought that. But it probably sounded good at the time to anyone that was listening.
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.
pension funds are professionally managed so you would expect them to do pretty well. but i wouldnt count on anything, id love to see hard data.
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
Nice to see you Em!!!
there's nothing wrong with them collecting since they are owed that benefit. it's a program to provide a basis of retirement income to US Citizens, based on their personal lifetime contributions. There's nothing wrong with that. Just like we all pay into an unemployment fund, and whether you make $20,000/yr or $100,000/yr, you get to collect unemployment benefits.
it's always been a redistribution of wealth from what I can see.
only in the sense that current payments come from current employees' income taxes (SS taxes). but current payments are based on the recipients payments into the program. it's slightly redistribution of wealth, in that the poorest participants get a bigger benefit than they truly "deserve", but barely. the proposals to means-test SS benefits would turn it down this path though.
pension funds are professionally managed so you would expect them to do pretty well. but i wouldnt count on anything, id love to see hard data.
me too, but i look at it in the same way i look at college's endowment funds. professionally managed, large buying power, etc. it's not difficult to make money when you're dealing with billions of dollars of capital. obviously, huge mistakes could be made, but those are pretty horribly run funds. it can happen. but it's a short term hit. when your dealing with long term investing, it really shouldn't be that difficult. and with a pension, you basically always have time to recover, because it's not like everyone is cashing out of it at the same time (i.e., a mutual fund starts to slip, people take their money out, makes it harder for mutual fund to recover and now they have to sell assets at a loss to cover claims, further hurting performance, causing more people to pull out, etc etc. becomes a self-fulfilling prophecy at some point).
i'd love to see real numbers too. i would never budget based on 8%. probably not 7%. 5% and 6% is where I'm comfortable personally making assumptions with retirment planning. maybe i'm i'm too risky though?
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.
I based my calculations on a few assumptions that I gleaned from news articles on this:
1. The average teachers salary is around $60k a year.
2. The average pension payout is $36,000 per year.
3. All teachers pay in 5.5% to the pension system.
4. The pension system itself assumes a return of 8.75%.
5. The actual returns over the past decade have averaged roughly 2.9%.
6. Teachers are eligible to retire at age 62 with 25 years of service.
So, I took 5.5% of $60k, which equals $3,300 per year. I then invested that money for 25 years and used a compound interest rate calculator to determine that at a 3% return the contribution equalled $124k. At an 8.75% return the contribution equalled $293k. Again, this is over 25 years at a steady investment based on $60k from year 1 through year 25. I used the average to make the math easier, though it isn't 100% accurate, though I believe it skews in their favor.
You did it over 40 years, so you got a hire contribution. That number may or may not be accurate. It's probably somewhere between 25 and 40, but I haven't been able to find anything that says what the average years of service are when a NJ teacher retires.
I also based the deficit on the average payout being $36k per year, which is what the union says it is. I think you are right that the state contribution is around $340 million or so per year, but they haven't been putting the money in. That means the actual deficit is in the $28 - $40 billion range. Again, based on teacher contribution (first number at 8.75% return, second at actual ~3% over the past 10 years).
I think we are on the right track, we just need to nail down some of the numbers, primarily average age of service at retirement.
******
The only thing I would want to add is that the $36k average is a number from the union that is based on the current average payouts to existing retirees, NOT the average expected payouts for future retirees.
There is a formula that determines what the payout is. It is Total Years of Service / 55 * Average Salary for Last 3 Years. I was able to find a calculator for it online and put a bogus name in it. I assumed 30 years of service and a final 3 year average of $80k. That gave me an annual benefit of around $43,636. Bumping it to $100k gave me an annual of $54,545.
brady, since you ran the numbers out, plug in a starting salary of say $45k, which is about the state average. Then run that out with the 5.5% contribution for say 30 years and assume 3% raises each year and we'll say 6% returns. That will give us the teacher contribution. Then take the final 3 years of salary and plug it into that calculator and we will get the total annual pension for our teacher. Then figure they'll live 15 years after retirement and that will be the difference the state is responsible for.
there's nothing wrong with them collecting since they are owed that benefit. it's a program to provide a basis of retirement income to US Citizens, based on their personal lifetime contributions. There's nothing wrong with that. Just like we all pay into an unemployment fund, and whether you make $20,000/yr or $100,000/yr, you get to collect unemployment benefits.
I don't either, and didn't mean to give that impression.
Location: The place where the road & the sky collide
23,814 posts, read 34,688,469 times
Reputation: 10256
Quote:
Originally Posted by tahiti
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.
You are correct, tahiti. 8% was actually a modest return ar that particular time.
I'm doubting she actually thought that. But it probably sounded good at the time to anyone that was listening.
Actually it was Florio. I stand corrected. From what I read, he raised it from 7% to 8.75%. It's since been lowered to "more reasonable" 8.25%. This "helped" defer payment. ugh.
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
8.25%. This "helped" defer payment. ugh.
