By Dr. Glenn Mollette
Stories of struggling government pension funding have abounded the last few months. Reports of changing the retirement scenario for state employees
are dominating the conversation in states like New Jersey, Illinois, California and Kentucky.
Seventy-five year old retired Americans aren't interested in going back to work.
However, if state government pensions are cut some may feel like they have to.
Already, Wal-Mart, McDonalds, Target, Starbucks and scores of other retailers are filled with America's seniors trying to at least make grocery money to survive during their senior years. The picture of an 80 year old who has to work just to make payment on his government subsidized housing and to afford a few groceries is not a pretty picture of America.
Americans grew up in the sixties and seventies believing that someday most of us would be millionaires. During Jimmy Carter's Presidency and runaway inflation era all the projections concerning 401k-pensions were that they would yield at least a million dollars in savings. A friend of mine who recently retired and paid into a 401 k annuity plan prescribed by his company for 35 years had approximately $350,000 saved to live on the rest of his life. That sounds like a nice chunk of money but it won't go far.
Take for example a state government pensioner whose retirement is $4,000 a month. Some are a bit less and many are a lot more. However, this is $48,000 a year plus medical insurance benefits. A state government employee who retires at 52 and lives for 30 years will collect $1,440,000 plus occasional cost of living increases, plus health insurance.
It doesn't take a genius to figure out that a defined benefit retirement will produce a lot more yield over a lifetime than a 401k-pension. A 401k requires a very grueling disciplined lifestyle of saving lots of money and doing without today in hopes of having money for the golden years. Most of America's current workers cannot fathom of trying to save $10,000 to $18,000 a year into a retirement plan because they need every penny today to live on. College loan debt, house payments and often one or two small children consume every penny. By the time people start seriously paying into a 401k-pension the race is on. You can't build much in 20 years unless you are paying $15,000 or more a year into a fund. Thus, most people need 30 to 35 years today to accumulate much money. A government pension that promises you
$4,000 to $5,000 of money every month the rest of your life after working 28 years is a deal that is hard to beat.
Government retirements and other industries for years have afforded their retirees defined benefit retirements secured on the backs of what other people will pay into the fund. Social Security today is in trouble because the money people paid into it was not kept in reserve for the retirees. Instead we have spent it on Vietnam, Afghanistan and anything the government wanted to spend it on. Thus, we are already being warned that in 15 of so years there will not be enough people paying enough money into Social Security to fully pay America's future retirees what was promised.
One major problem we are trying to survive as Americans is the politicians who have been in office for so many years. They have taken care of themselves and failed Americans. Sadly, we keep electing them, and they keep failing us.
Saving American's pensions will take an all out effort. We can't just kick the can down the road. Eventually there will be no more money to borrow because the ability to pay it back will be impossible which is where we are throughout our country.
I do believe Americans will do their part if government will do its part. Most pensioners would reluctantly take a painful ten percent cut if it meant saving the system. Retirees would probably be willing to work to 59, but when you start at 25 that is still 34 years of work. A combination of state pension and Social Security would be a workable solution as well.
More taxes are not the answer. A huge segment of people paying taxes in states like Illinois, New Jersey and Kentucky who are all in big trouble are state pensioners. The state pensioners can't afford any more taxes than the person next door. The idea of taxing the rich doesn't solve the issue because the rich people can all move their residency to another state including Texas, Tennessee or Florida where they don't have a state income tax.
States with increasing income taxes aren't doing so great - consider Illinois. Illinois can't afford to pay their lottery winners. A friend of mine said he was supposed to receive about $200 back on his state income tax filing but knew Illinois would never give it back to him and he was right, they didn't. They don't have the money. The new tax rate for individuals in Illinois is 4.95 percent as of July 1, 2017. Kentucky collects 6% from its highest earners. If you earn over one half million dollars a year you pay 8.97% in state income tax in New Jersey. If you earn between $75,001 and $500,000 then the rate is 6.37% in New Jersey. In Florida the state income tax is zero. However, you do pay a 6% sales tax. In Florida you do not have to pay tax on income from an S corporation.
One major plus of a 401k-pension fund is that at least it is your money. If you have saved two or three hundred thousand dollars then you can count on it. You can spend it or leave it to your children. One thing about your government pension in this new modern era is - you probably can count on it - just probably not all of it.
Glenn Mollette is a syndicated columnist and author of twelve books.
He is read in all fifty states.
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