http://www.ocregister.com/2016/08/12/the-100k-club-public-re...
21K of $100K+ pensions. I wonder how much i should make to afford 401K contributions large enough to have result equivalent to one of those $300K/year pensions.
21K of $100K+ pensions. I wonder how much i should make to afford 401K contributions large enough to have result equivalent to one of those $300K/year pensions.
According to bankrate, you would need to save about $24,000 a year for 40 working years to be able to support $300,000 a year for 15 years of retirement (using the default bankrate settings of 7% returns during pre-retirement years and 4% returns during your retirement years).
That is only 8% of your annual salary (assuming you were making $300,000). That is NOT an unreasonable saving rate for your retirement.
You also have to remember that retirement benefits is a HUGE selling point for government work; they are able to pay WAY below market rates to workers because they have promised this benefit.
Of course, when you are planning your own retirement, you can't just assume you are going to die at exactly 79 years old, so you have to save more. That is one advantage of a pension fund - it averages out the cost for people who die early versus people who die late.
Anyway, bottom line, the pensions aren't ridiculous when you look at them in context. Of course, they were not being properly funded, but that isn't the fault of the people who took them.
Yet it is somehow the fault of the taxpayers, who are asked to sacrifice part of their income to make up for it.
how could have one saved $24K/year in 1977? I think it was pretty damn good whole salary back then. And it is kind of obvious that $24K yearly savings today wouldn't get you an equivalent of today's $300K/year in 2057.
From what I hear in Canada, university professors get some percentage per year of service of their average salary, but it is capped at 75% or something. No professor has $200k annual pension payments.
Also, what is the purpose of such high pension promises? Does the government really have such a high talent retention problem?
It's based on peak earnings, including overtime: http://dailycaller.com/2014/06/20/california-public-employee... So naturally California public employees will rack up huge amounts of overtime in their final year of employment.
> Also, what is the purpose of such high pension promises?
Well funded public sector employee unions donate huge amounts to Democrat politicians and strongly encourage their members to vote for the same. More simply, it's outright corruption.
> Does the government really have such a high talent retention problem?
Based on my visits to the California DMV, no.
It's based on peak earnings, including overtime
plus saved vacation and sick days, including carryover from all the previous years. The number of such saved carried over days are usually not capped. As result the last year total may easily double the previous years yearly income. It is called "spiking".
http://resources.calstrs.com/CalSTRSComResourcesWebUI/Calcul...
I think it is about 2% of your highest salary per year of service (once you hit 60). In other words, if you work 40 years and made $100,000 in your highest paid year, you would get $80,000 (80% of 100k). Some of them take highest 3 year average, or something like that.
The pension promises are absolutely about solving a talent retention problem. They pay way under market, and try to make up for it by offering amazing retirement benefits. If they were funding the pension properly, this wouldn't actually gain anything (since you could just give the employees more money instead). However, the government never funds them properly, and is basically borrowing from the future to retain employees today.
It should be noted, however, that governments aren't the only ones who do this. Detroit motor companies did the same thing (offered amazing pension plans in lieu of more money to keep workers), and also failed to properly fund them. The difference is that auto companies can file bankruptcy and not be obligated for the pensions. Because of this threat, unions were more willing to negotiate a lower pension rate in return for no bankruptcy.
Personally, I think a deal is a deal. If a worker chooses to give up salary in return for a pension, you shouldn't be able to just revoke that when you realize you promised too much.
highest salary per year of service
you shouldn't be able to just revoke that when you realize you promised too much.
See also https://www.city-journal.org/html/pension-fund-ate-californi...
Inflation. If you work for, say, 30 years at 2% annual inflation, that comes out to about 81% total inflation by the end of it--that makes weighting early years the same as later years completely untenable.
You max your IRA every year ($5500 tax advantaged). You also have a Solo 401K, in which for Tax Year 2017 you can contribute up to $18,000 a year as an employee and a total (including employer -- your business -- contributions) of $54,000 tax-advantaged dollars. We'll ignore "catch up contributions" and the fact these limits increase over time, and make this a round $60,000/year.
Let's assume that, after expenses, averages a 4.75% return over 40 years. Conservative, but let's roll with it. Based on the calculator the SSA provides, your monthly SS benefit is ~$6500 at age 65.
After 40 years, you have ~$6.75M in your tax advantaged accounts. With a conservative withdrawal rate to keep your lifestyle the same, you can have ~$220K in retirement income a year (in today's money before taxes taken into account) w/ SS. However, the problem with that is you'd never draw it down. Even if you adjusted it for inflation, you'd die long before depleting your savings.