Tuesday, September 4, 2007

Gotta Luv the Pension Plan

The San Diego Union Tribute profiles a fairly typical boomer retiring couple. He's 64 and ending 32 years as a firefighter. She's 58 and a teacher's aide. They have what I think are adequate savings ($400,000+) but they also have an eighteen year old daughter about to enter an expensive college. (I consider any college that will cost more than $40,000 per year darn expensive.)

Crucial to their retirement plan is the $5850 per month Mr. Campbell will receive as his pension. That's only $15,000 less than he makes working full time in a very dangerous occupation. He will also get an additional $600 per month from Social Security, which is perplexing. Shouldn't it be considerably more than that, say closer to $1500?

At any rate, there will be no pension for me. Unlike my father, a disabled longshoreman who made 65% of his prior salary in pension benefits, or my mother, who received $85 per month for the 14 years she had worked for the phone company before marrying my father, I cannot depend on the employer largesse that my parents considered their due.

I have no problem with Mr. Campbell getting his pension. There's much to admire about anyone who has been protecting my property (analagously speaking, since he lives in San Diego and I don't) for the past 32 years. I just feel badly that pensions in general are going the way of the Dodo bird.

Paying for college right around retirement seems like a boomer right of passage. Many of us had a lot of fun in our twenties and thirties, delaying our families until we were in our forties. Nothing wrong with that except that one day we wake up and we're age-sixty with age-forty-something financial issues.

The advice the Campbells are given is predictible: They cannot afford to retire. Mr. Cambell may not want to continue as a firefighter, but he's going to have to work at something. The planner suggests he find a position that pays at least $50,000 a year, and that he work until he's 70.

I'm guessing that's not quite what these boomers had in mind.


Anonymous said...

There's something I'm missing in this article. It looks like with his pension and social security, that he will be taking in 70K per year. Plus the 10K that she is still making. So their income will barely go down. If he takes another job, the daughter's grant will be reduced, so he is basically working to pay money that they would have gotten for free.

EMF (Engineer) said...

A $600/month Social Security check seems plausible. Some governmental employees do not pay into Social Security, so their lifetime earnings under the SS system are less. If he gets a non-civil service job then he'll get earnings on which SS tax is taken, so his benefit would increase.

Second, the Windfall Elimination Provision would apply to offset the windfall to government employees who work most of their careers outside the Social Security system. The way SS benefits are structured, most of your benefit is earned in the first few years of your employment. The amount he actually gets may be less than $600, if that's the amount given on his annual SS statement and WEP applies.

Third, whatever benefits he would be entitled to are reduced if he starts benefits at age 62.

I'm Grace. said...

I knew someone would know the answer to the Social Security question. I should have suspected that it woul be the engineer!

Thanks for the info.

EMF (Engineer) said...

I think that everyone who's counting on Social Security for a sizable part of their retirement income should really understand how the system works, more than just glancing at the estimated benefits in the annual statement that's sent out. Some government employees possibly including our fireman will be surprised when they get less than their statement says. For everyone there are considerations for maximizing your benefits.

The SS has a pretty good page here. Everyone should look through it and the pages it references, including this one

mariam said...

This is the single, selfish person in me talking. If I ever have kids, you bet I'll be trying to help them in college as 40k a year is steep. However, I won't be putting my retirement on hold because of my kids. I've been blogging about the value of education lately and the more I think about it, while you want to hedge your bets and have a good education, it's not essential to your financial success. Call me naive, but where there's a will there's a way.

MEG said...

I have to agree with Mariam. Tuition can be financed (and/or obtained cheaply) by the student. Parents and/or grandparents should not feel obligated to pay the entire thing--especially if it means putting your financial situation at risk! I am so glad my grandparents had the money to pay for my college tuition--but they wouldn't have done so if they didn't, and I would never ever want them to. Like I wanted my grandma eating beans and rice (or delaying retirement) so I can die of guilt every time I binge drink at a frat party or skip class!!!