Author Topic: Foolish for relying just on our pension system for retirement?  (Read 4225 times)

kevj1085

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Foolish for relying just on our pension system for retirement?
« on: January 18, 2017, 06:35:44 AM »
My wife and I both work the same teaching job, and plan to work right around 28 years to receive full retirement funding. I'm just wondering if we are being naive to assume that we don't need to worry about any extra Roth ira, 401k etc in addition to that pension plan, or if it should be enough to take care of us into retirement. We will probably still side job after retirement by substitute teaching when we feel or whatever to supplement it. It is just a dilemma I am curious about to ensure extra funds we have after paying off our mortgage are being used properly.

kevj1085

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Re: Foolish for relying just on our pension system for retirement?
« Reply #1 on: January 18, 2017, 06:39:12 AM »
If it helps it appears we will be making around 3k each a month BEFORE taxes and health care are taken out, so 6k total, whereas right now we make about 9k before taxes and health care. Of course we won't have a mortgage by then, ideally we will downsize our house and live somewhere we can bike the majority of the time, and our 2 kids will be on their way.

Laura33

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Re: Foolish for relying just on our pension system for retirement?
« Reply #2 on: January 18, 2017, 07:19:55 AM »
1.  How does the projected pension amount compare to your estimated retirement expenses?

2.  How would you manage if your pension was cut in half?  Does it change the analysis?

Personally, I would not feel at all confident in relying solely on a pension from anyone.  It used to be just companies that cut/dropped the pensions they promised their workers.  But now many states are facing budget issues (and if they are not now, they will be when the Boomers retire en masse) and are cutting pensions as a result. 

Not to mention the tax advantages of the various retirement savings options.  So, yeah, I basically see no downside to saving more on the side.

With This Herring

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Re: Foolish for relying just on our pension system for retirement?
« Reply #3 on: January 18, 2017, 07:36:59 AM »
I would save for a full retirement in your shoes.  You two are relying on the same pension system.  It would be a little different if you were planning on pensions from two different states.  Also, why not go for retiring early?  Extra savings mean that, if the policies at your school change enough to make working there unbearable (and I have heard of this happening to teachers), you won't be trapped by that pension reliance.

Proud Foot

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Re: Foolish for relying just on our pension system for retirement?
« Reply #4 on: January 18, 2017, 08:23:35 AM »
I would save and utilize tax advantaged accounts.  This will keep you from relying solely on your pensions in retiring. The last thing you would want is to be terminated, or one of you passing away before being able to retire with the full pension benefit. The additional savings would help reduce the financial risk related to those events. The pensions could be enough to fund your retirement but it is always best to have multiple sources of income in retirement.

Also you would need to know more details about the pensions (you probably do but did not outline them here) such as:
Does the payment adjust for inflation?
What happens to the pension benefit when one of you dies?
What happens if the death occurs before reaching full retirement funding?

Giro

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Re: Foolish for relying just on our pension system for retirement?
« Reply #5 on: January 18, 2017, 08:57:13 AM »
How many more years do you have left of that 28 needed?

You may see yourself working until retirement now, but that may change in the future and you'll be kicking yourself for relying on that pension. 

boarder42

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Re: Foolish for relying just on our pension system for retirement?
« Reply #6 on: January 18, 2017, 09:08:10 AM »
so my mom just retired in aruguably one of the best teacher retirement states in the country.

You only get inflation adjusted raises for the first 17 years of retirement here.  Also they just passed a rule stating that if inflation isnt at least 2% you get no raise.  you get 2% if its between 2-5% and 5% if its above 5% 

So the one thing you can probably bet on is that it can and will change you just have no clue how or when or what that will effect as far as your retirement plans.
« Last Edit: January 18, 2017, 09:11:24 AM by boarder42 »

Another Reader

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Re: Foolish for relying just on our pension system for retirement?
« Reply #7 on: January 18, 2017, 09:08:33 AM »
Suggest you have a look at this blog.  It might change your perspective.

http://www.millionaireeducator.com/

In your shoes, I would look at funding the 403 (b)'s and the 457's, if available to you.

SimpleCycle

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Re: Foolish for relying just on our pension system for retirement?
« Reply #8 on: January 18, 2017, 09:23:43 AM »
My mom is a retired teacher.  She only taught part of her career so she is eligible for a reduced SS benefit and Medicare, but people who have only been teachers are 100% reliant on their teacher pension and district provided retiree health benefits.  Her district recently raised the retiree portion of health insurance premiums by $600/month, which seriously impacts most retirees budgets.

Even if you rely primarily on your teacher pension, you need investments to absorb things like increases in healthcare costs.  You also are locking yourself in to many years of service to get the expected payout.  It's not a wrong choice, but it does give you less flexibility.

ltt

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Re: Foolish for relying just on our pension system for retirement?
« Reply #9 on: January 18, 2017, 09:34:14 AM »
My husband's pension plan was frozen several years ago.  They offered him a lump sum, immediate annuity, or he could wait until he retired to have a monthly check.  We took the lump sum and are investing it.  I wouldn't rely on a pension plan to fully fund retirement.

Who manages the fund for the teachers' pension in your state?  You can probably do some research to see what's happening with them.


MayDay

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Re: Foolish for relying just on our pension system for retirement?
« Reply #10 on: January 18, 2017, 09:35:10 AM »
I would definitely save in addition to then pension.

Too many unknowns for me personally, with both of you being teachers in the same system.


ltt

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Re: Foolish for relying just on our pension system for retirement?
« Reply #11 on: January 18, 2017, 09:39:44 PM »
Oh yes, CalPERS.   I think it would be good for OP to google CalPERS.

lbmustache

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Re: Foolish for relying just on our pension system for retirement?
« Reply #12 on: January 18, 2017, 10:12:08 PM »
I'm in CalPERs state pension which is seriously under funded and will potentiality cut benefits to current and future retirees. Maybe even go bankrupt. So no I don't think it's wise to count your pension as your only retirement vehicle. I maxed my 457 and tIRAs while working (also TSP while in the military) plus had substantial savings and a paid off house before pulling the plug on my job (8 years before eligible for pension). So if the pension tanks I can live on investments. If both yank I can sell my house and rent. If all three tank I'll be knocking on MMMs door begging for handouts ;-).

Yep. I would absolutely not rely only on a pension, especially in California - ha.

http://www.latimes.com/projects/la-me-pension-legal/


Dicey

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Re: Foolish for relying just on our pension system for retirement?
« Reply #13 on: January 18, 2017, 11:45:05 PM »
DH has a really generous defined benefit pension plan. He is always amazed at the number of his colleagues who don't save a penny toward retirement.

The reason to save is so you have choices in your life. One of my BFF's dad was a retired Fleetwood executive. Fleetwood declared bankruptcy and his pension evaporated overnight. Fortunately, they had other savings to fall back on, but it was a rocky post-retirement road for them for quite a while. Here's another one. A couple I know were counting on her pension as one of their three legs of their retirement stool. At about age 50, she died suddenly of a brain aneurysm. He was shocked to discover that her pension payout was only a tiny fraction of what it would have been had she lived to retirement age. He had to scramble, including selling their house and moving to a less expensive part of the country in the middle of his grieving process. So sad.

You do it for yourselves, because it gives you choices. Is there any better reason than that?

lbmustache

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Re: Foolish for relying just on our pension system for retirement?
« Reply #14 on: January 19, 2017, 11:04:22 AM »
I'm in CalPERs state pension which is seriously under funded and will potentiality cut benefits to current and future retirees. Maybe even go bankrupt. So no I don't think it's wise to count your pension as your only retirement vehicle. I maxed my 457 and tIRAs while working (also TSP while in the military) plus had substantial savings and a paid off house before pulling the plug on my job (8 years before eligible for pension). So if the pension tanks I can live on investments. If both yank I can sell my house and rent. If all three tank I'll be knocking on MMMs door begging for handouts ;-).

Yep. I would absolutely not rely only on a pension, especially in California - ha.

http://www.latimes.com/projects/la-me-pension-legal/
I think the state SC passed that in Nov so can now legally cut pensions not just for future CalPERS recipients but current retiree pensions too. Will they? And if so by how much. They did require greater employer and employee contributions into the system and changed the retirement age for new hires so maybe that will help. Doubtful though with billions in shortfall.

My understanding of law is minimal, but I believe it's up at the state supreme court right now, awaiting a decision. The appellate courts did rule that CA can legally cut pensions. I'm curious too as to how much they will be cut. I'm only 28 so I declined the CalPERS option because I felt that it wasn't going to be around in the current form in ~40 years.

Beardog

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Re: Foolish for relying just on our pension system for retirement?
« Reply #15 on: January 19, 2017, 11:27:26 AM »
Some teachers are eligible for Social Security benefits and others are not.  Will you be able to collect SS as a back up for your pension?

Another consideration ... if you and your spouse were to separate, could you survive on your pension alone?  Sorry to ask that, but it may be a consideration.

robartsd

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Re: Foolish for relying just on our pension system for retirement?
« Reply #16 on: January 19, 2017, 12:37:48 PM »
I think the state SC passed that in Nov so can now legally cut pensions not just for future CalPERS recipients but current retiree pensions too. Will they? And if so by how much. They did require greater employer and employee contributions into the system and changed the retirement age for new hires so maybe that will help. Doubtful though with billions in shortfall.
My CalPERS contribution balance is credited with 6% interest (which admittedly is high for a "guaranteed" return in today's economy). I'll personally be reasonably happy just to get my contributions plus this interest back from the system.

There are a few changes that I think would be reasonable to make for current employees:
  • Increase the number of years considered in calculating the basis compensation for an employee. This would reduce the risk of pension spiking. This should not be more than the number of years required for vesting. This could also be applied retroactively to current retirees provided that the adjustment is limited to canceling future COLA until inflation brings the pension in line with the new formula.
  • Change the formula for calculating the benefit of future service credits; however, all service credits already earned should continue to use the formula they were earned under.
Of course, what I think is reasonable and what the courts decided to allow are likely to be completely different things.