State pensions are overspent

[Rickeroo]

I'm 48, and most of my work history is in the private sector, having been diligent with 401k's in my jobs. 2 years ago I took a state job and became aware of the "grid", whereby you're entitled to certain percentage of your salary when you retire.

At my age and length of service, I'm looking at about 50% of my $65,000 salary as a pension when I retire in 20 years. I was curious as to what I would need to do in a 401k to match a $32,500 income in 20 years. Assuming that I would withdraw 3.5% yearly from the 401k, that 401k has to be $928,000 at the 20 year mark.

Assuming a 7% return, I would need to contribute $22,650 yearly over 20 years for the 401k (or other investment) to match the pension's income.

However, they are only taking $6,800 yearly for the pension plan, which if invested in a 401k would result in only $280,327 after 20 years, and a yearly income of only $9,811. Meanwhile they are going to give me $32,500.

Based on this example, it seems that a lot of the pension simply comes by default from the taxpayer and not actually earned.

 

[haymarket]

I'm 48, and most of my work history is in the private sector, having been diligent with 401k's in my jobs. 2 years ago I took a state job and became aware of the "grid", whereby you're entitled to certain percentage of your salary when you retire.

At my age and length of service, I'm looking at about 50% of my $65,000 salary as a pension when I retire in 20 years. I was curious as to what I would need to do in a 401k to match a $32,500 income in 20 years. Assuming that I would withdraw 3.5% yearly from the 401k, that 401k has to be $928,000 at the 20 year mark.

Assuming a 7% return, I would need to contribute $22,650 yearly over 20 years for the 401k (or other investment) to match the pension's income.

However, they are only taking $6,800 yearly for the pension plan, which if invested in a 401k would result in only $280,327 after 20 years, and a yearly income of only $9,811. Meanwhile they are going to give me $32,500.

Based on this example, it seems that a lot of the pension simply comes by default from the taxpayer and not actually earned.

Why do you assume a 7% return?

 

[ttwtt78640]

Why do you assume a 7% return?

Also why assume that your $65K/year salary will remain the same for 20 years.

 

[Drawdown]

I'm 48, and most of my work history is in the private sector, having been diligent with 401k's in my jobs. 2 years ago I took a state job and became aware of the "grid", whereby you're entitled to certain percentage of your salary when you retire.

At my age and length of service, I'm looking at about 50% of my $65,000 salary as a pension when I retire in 20 years. I was curious as to what I would need to do in a 401k to match a $32,500 income in 20 years. Assuming that I would withdraw 3.5% yearly from the 401k, that 401k has to be $928,000 at the 20 year mark.

Assuming a 7% return, I would need to contribute $22,650 yearly over 20 years for the 401k (or other investment) to match the pension's income.

However, they are only taking $6,800 yearly for the pension plan, which if invested in a 401k would result in only $280,327 after 20 years, and a yearly income of only $9,811. Meanwhile they are going to give me $32,500.

Based on this example, it seems that a lot of the pension simply comes by default from the taxpayer and not actually earned.

Often upper white colorish employees like judges and prosecutors and such can get double benefits so a year counts as two for pension purposes

 

[Rickeroo]

Why do you assume a 7% return?

7% is what the general stock market does, adjusted for inflation over the long term.

 

[Rickeroo]

Also why assume that your $65K/year salary will remain the same for 20 years.

It will be $117,400 in 20 years, but this is due to 3% average inflation. The amounts I quoted are inflation adjusted and assume 2020 dollars.

 

[AliHajiSheik]

I'm 48, and most of my work history is in the private sector, having been diligent with 401k's in my jobs. 2 years ago I took a state job and became aware of the "grid", whereby you're entitled to certain percentage of your salary when you retire.

At my age and length of service, I'm looking at about 50% of my $65,000 salary as a pension when I retire in 20 years. I was curious as to what I would need to do in a 401k to match a $32,500 income in 20 years. Assuming that I would withdraw 3.5% yearly from the 401k, that 401k has to be $928,000 at the 20 year mark.

Assuming a 7% return, I would need to contribute $22,650 yearly over 20 years for the 401k (or other investment) to match the pension's income.

However, they are only taking $6,800 yearly for the pension plan, which if invested in a 401k would result in only $280,327 after 20 years, and a yearly income of only $9,811. Meanwhile they are going to give me $32,500.

Based on this example, it seems that a lot of the pension simply comes by default from the taxpayer and not actually earned.

You are using the wrong terms. You "actually earned" all of it because your employer is the government and you are being paid less than the private sector.

Stick to the correct narrative or the "grid" will deal with you.

 

[Rickeroo]

You are using the wrong terms. You "actually earned" all of it because your employer is the government and you are being paid less than the private sector.

Stick to the correct narrative or the "grid" will deal with you.

You have a point. It seems for my job title, I'm underpaid by about $20,000 a year, resulting in a state savings of $400,000 over 20 years for the salary component.

 

[TomFitz]

I'm 48, and most of my work history is in the private sector, having been diligent with 401k's in my jobs. 2 years ago I took a state job and became aware of the "grid", whereby you're entitled to certain percentage of your salary when you retire.

At my age and length of service, I'm looking at about 50% of my $65,000 salary as a pension when I retire in 20 years. I was curious as to what I would need to do in a 401k to match a $32,500 income in 20 years. Assuming that I would withdraw 3.5% yearly from the 401k, that 401k has to be $928,000 at the 20 year mark.

Assuming a 7% return, I would need to contribute $22,650 yearly over 20 years for the 401k (or other investment) to match the pension's income.

However, they are only taking $6,800 yearly for the pension plan, which if invested in a 401k would result in only $280,327 after 20 years, and a yearly income of only $9,811. Meanwhile they are going to give me $32,500.

Based on this example, it seems that a lot of the pension simply comes by default from the taxpayer and not actually earned.

You need at least a million bucks, in order to generate a rate of return like that. Only on the assumption that you preserve the principal, which means that the buying power of your 32K will erode with each year past retirement age due to inflation.

 

[TomFitz]

Also why assume that your $65K/year salary will remain the same for 20 years.

They buying power will. You have to plan for that.

 

[haymarket]

7% is what the general stock market does, adjusted for inflation over the long term.

If you want that return then invest in the stock market and take the risk of also losing. Pensions are an entirely different matter are are far far more of a steady but slow process. I really do not think the assumption of a 7% return is fair at all in comparing pensions.

 

[Helix]

I earned my pension by working for the pension as part of my lower immediate salary. Reneging on that deferred salary now is wage theft.

 

[Neomalthusian]

If you want that return then invest in the stock market and take the risk of also losing. Pensions are an entirely different matter are are far far more of a steady but slow process. I really do not think the assumption of a 7% return is fair at all in comparing pensions.

LOL. Pensions are not an "entirely different matter," nor are they "far far more of a steady but slow process." What are you even talking about? There isn't some magic special "steady" way that pensions work where money just appears in the pension funds that is so inherently different from other types of retirement accounts. Money is put in, the money is invested (including in stocks), the money earns interest, and benefits are paid out.

Pensions have an assumed rate of return. It is often around 7%. Do you know what that's based on? It's based on where the pension funds are invested, which includes the stock market.

 

[Neomalthusian]

Based on this example, it seems that a lot of the pension simply comes by default from the taxpayer and not actually earned.

The pension money is coming from the pension fund. The money that goes into it is partly from your payroll deduction contribution and partly from the state matching that contribution.

If the pension fund not being adequately funded, then you'll be drawing from an underfunded account, which contributes to the problem of pensions gradually becoming more and more unfunded over time.

What state is it?

 

[haymarket]

LOL. Pensions are not an "entirely different matter," nor are they "far far more of a steady but slow process." What are you even talking about?

Pensions have an assumed rate of return. It is often around 7%. Do you know what that's based on? It's based on where the pension funds are invested, which includes the stock market.

You know what they same about people who assume.

The stock market and pension funds are not exactly always the same thing so a 7% return on one does not dictate the same return on the other.

 

[haymarket]

I earned my pension by working for the pension as part of my lower immediate salary. Reneging on that deferred salary now is wage theft.

Exactly. And anyone advocating it is a potential criminal.

 

[Neomalthusian]

You know what they same about people who assume.

Accounting standards require an assumed rate of return, because that is how the liabilities which have to be reported on government financial statements are calculated.

The stock market and pension funds are not exactly always the same thing so a 7% return on one does not dictate the same return on the other.

That is well known. Pension funds (via their managers) have been notorious for overstating their assumed rates of return. Alaska finally reduced its AROR to around 7.4%, after overstating it at 8% for years and years, despite knowing that its 20+ year average was closer to 6.5%.

 

[Neomalthusian]

I earned my pension by working for the pension as part of my lower immediate salary. Reneging on that deferred salary now is wage theft.

Exactly. And anyone advocating it is a potential criminal.

When pensions and the entity that owns the pension liability goes bankrupt and cannot produce the funds to pay the pensions, the law has to change to address what happens next. If pensions are going to be solvent in perpetuity, the law has to change. Advocating that the law change before that sh** hits the fan is not "criminal." It could just as easily be argued that opposing pension reform (which is what you guys appear to be doing) is criminal.

Elected legislatures make laws that determine what will happen with these things. You can protest any and all pension reform by calling it whatever ugly sounding thing you can think up, "wage theft," "criminal," "stealing," "treason," "senicide," call it whatever ridiculous thing you want, it makes no difference, because you're clearly just sticking your head in the sand and refusing to acknowledge the reality.

These things are being systematically underfunded, their fiscal soundness is being eroded away from all angles. The killing of pensions happens gradually and cumulatively over time, continues to happen as we speak, and some of the most severe examples are being perpetrated by those who allege to be "friends of workers," people like union leaders, Democrat politicians and the like.

 

[haymarket]

Accounting standards require an assumed rate of return, because that is how the liabilities which have to be reported on government financial statements are calculated.



That is well known. Pension funds (via their managers) have been notorious for overstating their assumed rates of return. Alaska finally reduced its AROR to around 7.4%, after overstating it at 8% for years and years, despite knowing that its 20+ year average was closer to 6.5%.

It is still a straw man that you are making unfounded assertion about and them acting as if you are being cheated if those assumption do not materialize. That is my point.

 

[Neomalthusian]

It is still a straw man that you are making unfounded assertion about and them acting as if you are being cheated if those assumption do not materialize. That is my point.

That sentence is not coherent. I am not making any straw man argument. You alleged pensions are somehow fundamentally different than 401(k)s because the latter have to be invested in stocks to have any hope of realizing a 7% average annual return. I corrected you in pointing out that pensions require an assumed rate of return, which often is in the 7% or so range, which is only achievable because pension funds are invested in stocks.

 

[Helix]

Exactly. And anyone advocating it is a potential criminal.

Not necessarily, but they are advocates of wage theft.

 

[ludin]

I'm 48, and most of my work history is in the private sector, having been diligent with 401k's in my jobs. 2 years ago I took a state job and became aware of the "grid", whereby you're entitled to certain percentage of your salary when you retire.

At my age and length of service, I'm looking at about 50% of my $65,000 salary as a pension when I retire in 20 years. I was curious as to what I would need to do in a 401k to match a $32,500 income in 20 years. Assuming that I would withdraw 3.5% yearly from the 401k, that 401k has to be $928,000 at the 20 year mark.

Assuming a 7% return, I would need to contribute $22,650 yearly over 20 years for the 401k (or other investment) to match the pension's income.

However, they are only taking $6,800 yearly for the pension plan, which if invested in a 401k would result in only $280,327 after 20 years, and a yearly income of only $9,811. Meanwhile they are going to give me $32,500.

Based on this example, it seems that a lot of the pension simply comes by default from the taxpayer and not actually earned.

Yes all pensions are paid for by taxpayers. as the state does not produce anything that generates income.
the only "income" the state gets is by taxes.

now these pensions are supposed to be invested but in most cases states to not make the needed pension payments to keep them up.

 

[Helix]

When pensions and the entity that owns the pension liability goes bankrupt and cannot produce the funds to pay the pensions, the law has to change to address what happens next. If pensions are going to be solvent in perpetuity, the law has to change. Advocating that the law change before that sh** hits the fan is not "criminal." It could just as easily be argued that opposing pension reform (which is what you guys appear to be doing) is criminal.

Elected legislatures make laws that determine what will happen with these things. You can protest any and all pension reform by calling it whatever ugly sounding thing you can think up, "wage theft," "criminal," "stealing," "treason," "senicide," call it whatever ridiculous thing you want, it makes no difference, because you're clearly just sticking your head in the sand and refusing to acknowledge the reality.

These things are being systematically underfunded, their fiscal soundness is being eroded away from all angles. The killing of pensions happens gradually and cumulatively over time, continues to happen as we speak, and some of the most severe examples are being perpetrated by those who allege to be "friends of workers," people like union leaders, Democrat politicians and the like.

It is wage theft. I'd say that I hope that a former employer takes steps to recover a significant portion of your past wages, but I don't. I don't support wage theft. I'm sorry that you do, but I'm certainly not going to waste time attempting to convince the unconvincible. Time is money, dontchaknow.

 

[jimbo]

You are using the wrong terms. You "actually earned" all of it because your employer is the government and you are being paid less than the private sector.

Stick to the correct narrative or the "grid" will deal with you.

Why do you assume govt jobs pay less?

 

[haymarket]

That sentence is not coherent. I am not making any straw man argument. You alleged pensions are somehow fundamentally different than 401(k)s because the latter have to be invested in stocks to have any hope of realizing a 7% average annual return. I corrected you in pointing out that pensions require an assumed rate of return, which often is in the 7% or so range, which is only achievable because pension funds are invested in stocks.

Is it realistically possible that the pension investments will NOT get the assumed 7% return over the life of the fund?