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Adding....the GOOD news is that it is POSSIBLE for NJ to get ahead of this...drastically cut pensions over $100k, start shifting certain jobs to 401k, shared county services, no more rollover vacation pay etc. But we have a long road to travel to get back to anything resembling normal.
Look at the 1/9 corridor! $7,400 for almost any decent home and up. A starter couple with $15k in student loans with two $45k jobs has no chance and that is just completely unacceptable.
Oh...last gripe. Prop taxes need to be assessed by number of occupants or at the very least number of rooms. NJ does the absolute best job at DIScouraging people from improving their homes. This hurts contractors, hardware stores, decorating stores, home values and is to me, a no-brainer change.
It does for the Port Authority though overtime counts and they still get 100% free medical. The unions there supported the governor and he has increased hiring and has demanded no change to their pension or benefits.
It does for the Port Authority though overtime counts and they still get 100% free medical. The unions there supported the governor and he has increased hiring and has demanded no change to their pension or benefits.
He sure is different.
PA is the gold standard in the region's cop business. Patrol some bridges, ride the PATH, double your base in OT alone.
Can someone do a calculation start by putting 1,000 in an account increase that by $325 per year so the 2nd year is 1,325 third year 1,650 etc. You do that for 35 years. Assume an average rate of return of 7.0, 7.5 and 8%.
How much would you have in the account in 35 years under the 3 different rates?
That is not correct
1,000 invested in 1980 that earned 7.5% annually is worth about $13700 in 2014
1325 invested in 1981 that earned 7.5 annually is worth about $16800 in 2014
1650 in 1982 is now $19,500
If you do the calculation through 2014 you will see the pension should be funded fine based on the formula. Over a period of 35 years 7.5 is a fair average to use.
Maybe I misunderstood what you are asking, but if you have an account adding $325 a year to a $1000 base compounding at a 7.5% rate for 35 years, you're ending at $62,700.
That is not correct
1,000 invested in 1980 that earned 7.5% annually is worth about $13700 in 2014
1325 invested in 1981 that earned 7.5 annually is worth about $16800 in 2014
1650 in 1982 is now $19,500
If you do the calculation through 2014 you will see the pension should be funded fine based on the formula. Over a period of 35 years 7.5 is a fair average to use.
That is not correct Tom1944.
$1K earning 7.5% annually for 34 years is worth $11,691.97
$1,325 earning 7.5% annually for 33 years is worth 14,411.04
$1,650 earning 7.5% annually for 32 years is worth $16,693.78
Past is not prologue in investment returns. A 7.5% rate of return is fine if you have all investments in the highest risk category of equities. A pension fund however is widely diversified, holding a mix of equities and fixed income securities. Today's estimate of future returns is based on the following: 2% dividend yield plus estimated earnings growth of 3-4% (earnings growth is based on the GDP rate of growth; if the economy is crawling along at 1.5-2%, how can companies earn at higher rates infinitely? They can't!) - that is a 100% equity based portfolio could be expected to appreciate in value about 5-6% annually. The fixed income return of the portfolio is the coupon yield which in today's low interest rate environment is roughly 2.0% or less because the average duration of such a portfolio resides around 5-7 years - that is, the total return one could expect to earn during the average time the entire fixed income portfolio matures prior to being reinvested in new securities.
A traditional pension portfolio is 60/40 - that is, 60% equities and 40% bonds. If the above holds true, and that is what many actuaries (not politicians, not interested parties here) - true independents are saying future returns will be, that means the expected rate of return for a 60/40 portfolio is: 4.40%, but lets be a tad more generous because the state is not only invested in traditional equities and bonds, but are also investing a portion of the pension monies in alternative investments like private equity, hedge funds and real assets like buildings and timber. So let's say 5%.
So the real question is, if actuaries and other un-interested independent third parties are saying the real expected return is 5% in an average year - how can the state of New Jersey who among other states go around and predict 7.95% as the expected return when returns like that haven't been earned since the late 80's into the latter half of 1990's. The real reason the state of NJ is in this mess is not only have the politicians failed to make their required contributions, but the expected rate of return is off by a huge standard deviation.
Someone needs to start asking the trustees of the state pension plans some very hard and pointed questions.
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