The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: frugal_c on December 12, 2019, 08:41:59 PM
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What kind of odds do you put on receiving government pension plans? I think some sort of cut should be planned for but what amount? I am in Canada and feel that it is reasonably safe and might just need a small haircut down the line. However I don't want to be poor in retirement either so I'm open to alternative opinions.
I currently plan for a 25% reduction, inflation adjusted, from current levels. This actually feels really pessimistic. There is always some scenario where it gets cut to 0 but this seems unlikely.
Canada has much lower debt than other countries and with immigration a growing population. You throw in automation and various productivity enhancementd and it seems more likely the benefits will slowly go up over time.
It's a big deal for us as it really changes the ER equation. A typical Canadian couple can easily get $30 to 40k from CPP and OAS for instance. If you want to live on a frugal but not that frugal $50k that means you only need maybe 500k instead of 1.2m once you hit 65. It really changes things. It actually puts you at "risk" of significantly over saving if you pencil in a 0. This applies more to someone retiring at 45+, much younger than that and the pension is too far away to plan for I would imagine.
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I figure on a 99% chance of getting it. I think it could be reduced by ~10% due to political climate, national debt, and general villification of gov't workers by the current president. Am probably more concerened about future inflation eroding the spending power -- cost of living increases are generally <2% annually.
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How did it do during the 1970's? That seems like a good gauge of how it might do going forward. You are talking about social security?
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No , I was referencing a US govt' federal employee pension. I am unsure of the COL raises in the 70's . Have only been paying attention for the last 15 years or so.
I think USA social security is going to be a last minute fix to keep projected payouts. MAybe they will raid the fed employee pension fund to pay out social security benefits if congress can't agree on a fix on time. Unfortunately it's not big on the radar for elected leaders currently - why do today what you can put off till tommorow ? . They tend to borrow money from fed pension funds whenever the country hits it's congressionally mandated "borrowing limit".
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I figure that my odds are high of getting some CPP . . . but it doesn't factor into my retirement plans. If I get it, it'll just be a nice bonus.
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I'm pretty sure I'll get a pension, since my country's FIRE fund currently is 10 185 699 420 976 NOK (1 USD = 10 NOK). https://www.nbim.no/no/. But my calculations showed that since I won't get that money until I'm 67, It doesn't make a big impact on my FIRE number. The money I need to survive from now until 67, and now until 100, were surprisingly not very different. As I get older, the ratio will change, but I haven't made any calculations yet on where the crossing point is.
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I was talking more about public pensions, as in CPP/OAS in Canada, or Social Security in the US. Just in case that makes a difference to the odds. It seems it would be a touch harder to reduce pensions on the entire population than on federal workers but obviously it can still happen. If it does, yes it could be via rate increases below inflation, e.g. 1% increase when inflation is 3%.
gaja, I am planning for retirement at 50 and at that point it makes a huge difference. At 40 or earlier almost no difference, I acknolwedge that. If you are 50 and the pension number can supply say 40% of your income at age 65, then a 4% withdrawal moves from a 90% success rate to a 100% success rate. At that point you start to have a decent chance with even a 5% withdrawal or at least intermittent 5% withdrawals. Without that pension backstop I would need to use a 3% withdrawal rate as even at 50 years old, we could still live another 45 or 50 years.
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I'm very confident about the pension. We have a tiered pension based on how many years you work. The amount that is paid in by employees and employer is sufficient to maintain the pension.
We also have a strong union that regularly fights for the workers. But not an insane union that will damn everyone through insane benefits that are unaffordable long term.
I am pretty sure I will get a 60% pension (or more). With the money I've already stocked away, hopefully buying and paying off a home before I retire, and putting another 5-10% into my 457 I am fairly confident I will be doing fine. And confident the pension will be there.
I think I should be able to live on my pension plus a 2.5-3% withdraw rate on savings if everything goes well (as in no depression...).