YOUR PROMISED PENSION MAY SHRINK OR DISAPPEAR

When you were young, did mom or dad ever promise you something important, and not deliver? Or, did they give you something, but it wasn’t what you thought you were going to get?
Government entities have promised their workers, in most cases, a pension. Pension benefits, some of which are quite generous, are one of many reasons people take government jobs, often at lower salaries than they could make in the private sector.
But states, cities, counties and, yes, the federal government are all worried they may not be able to keep the promises they made to those workers.
Government revenue is down. Government workers are losing their jobs in relatively large numbers. And some public officials are taking action to ease their pension burdens.
Allysia Finley interviewed San Jose, Calif., Mayor Chuck Reed for an article in the Nov. 30-Dec. 1 weekend edition of The Wall Street Journal. Reed sees the crisis in the city’s pension obligation. It is now spending $45,263 each year per worker on pensions, according to the article. Reed sees that as unsustainable.
He is offering workers a choice: pay 16 percent more of your salary toward your pension – about 27 percent of a police officer’s salary – or accept lower benefits in the future. The choice circumvents state court decisions that protect workers’ vested pension rights. In other words, he can’t take their pensions away totally, but he can put more of the burden on the workers and less on the city.
The public employee unions are not too happy with this idea, as one might expect. Reed’s and other ideas from administrators and elected officials nationwide all but ensure that if you are young, and work for a government entity, chances are very good that you will not see the retirement benefits your older colleagues are seeing today.
Or, you’ll have to contribute more toward those benefits. Either way, government entities cannot sustain the status quo forever.
So, if you are that young, government worker, you have to begin thinking differently about retirement. Perhaps you will have to work longer than you’d planned. The idea of retiring with full benefits after 20 or 25 years of service – no matter how old you are – may not be in the cards. Yes, there are some jobs – firefighters and police officers, for example – that may not allow you to work past a certain age. So, you have to think differently.
That pension may not be enough for you to pursue a hobby, or second career, at your leisure, while you are relatively young. Instead, you may have to start now to set up your situation well ahead of retirement. You might even be able to set up something that won’t require you to work another job in your off time.
You hear people talk about investing and saving at an early age. That would be wise, but your government salary – and/or paying more for your pension benefits – may not allow as much flexibility to save much. Even if you can put away $5 a week, plus most, if not all, of any raises you get over time, and not touch it, you could have a pretty nice nest egg. Will it be enough?
There are lots of good ways to earn extra income while you are still on the job. For one of the best, visit www.bign.com/pbilodeau. If you and your friends in the same situation could lock arms, you all could not worry about making Reed’s choice, or deal with your promises not fully delivered.
Young folks in the private and public sectors all have to worry about how they will be employed for as long as they want to work. Unpleasant circumstances may intervene. Promises may be broken. If you presume they will happen, you can better prepare. Fighting valiantly to keep the status quo, as your union representatives and others may do, ultimately could be a waste of energy. Complaining about it is even a bigger energy waster.
Good things can come to those who prepare. The writing is on the wall. Eventually, Reed or some of his compatriots in government will reform pensions. Their decision(s) probably won’t benefit individual workers greatly. But they could benefit everyone into perpetuity. So get ready. Take action. Your future may depend on it.
Peter

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