By Seth Grossman, Political Columnist
?I?m 50, single,? and have $250,000 in my 401(k).?? I make $75,000 a year, and? have a small mortgage, but no other debts. . .?? I?d like to retire at age 62.? Is that realistic???? — Reader?s Question to?? ?Ask? Carrie? advice column,? Charles Schwab Magazine, Summer 2011.
Carrie Schwab-Pomerantz response:? ?Not likely!?
Carrie went on to say? the reader would need roughly $70,000 of retirement income each year.?? Since Social Security at age 62 only pays $16,000, the reader would need? $54,000? from savings for each of the remaining 28 years of her life?a total of $1.52 million.???? Since these funds earn income,? Carrie said the reader needed? $1.35 million by her retirement at age 62.
Carry said the 50 year old reader had to save $40,000 during each of her next 12 working years.??? (My arithmetic says the reader has to save $75,000 per year?but I?m no financial ?expert?.)
Regardless, Carry said retiring at age 67 was ?a much easier goal?.?? Social Security at? 67 would pay $24,000 per year.??? That, and five more years of work to build up savings, would give the reader enough– if? she saved? ?only? $11,000? during each of her remaining 17 working years.
But with layoffs, cutbacks, unemployed twenty-something kids moving back home, higher taxes including ?green energy? taxes for electric and gas, etc., saving even that much is hard for most people.
So Carrie?s final advice was:? ?The most creative idea may be not to retire in the traditional sense at all. . . many of today?s retirees find that continuing some type of work is the most rewarding retirement of all?.
Roughly 800,000 of the eight million people in New Jersey are active or retired state, county, or local government employees or public school teachers.? They don?t? trouble themselves with? any of this.
They only care about how much they earn in the three years before they retire.?? That is because most government employee pensions in New Jersey are determined by multiplying the average of those three highest years? by a certain fraction.??? The numerator of that fraction is the number of years? employed by the government.?? The denominator is 55.?? For most New Jersey government employees, age 60 or 62 is not early retirement, but rather ?Normal Retirement Age?.
Several? Ocean City kindergarten teachers are earning roughly $100,000 per year, after starting at age 22 and working 38 years.??? They can now retire at age 60 with 38/55 ( 69%) of $100,000 or $69,000 per year?plus free lifetime medical benefits.?? With a life expectancy of 23 years, the pension fund needs $1,587,000 plus the cost of the medical benefits for each teacher.
Since teachers and most government employees only contribute about 6% of their salary to the pension fund, not nearly enough money is set aside?even when? taxpayers fully match? the employee contributions.
Cops and firemen get? 50% of what they earned in? the last year before they retire.?? But they can retire much earlier?often at age 47 if they work? 25 years.?? And many cops (like other public employees) get? promotions (with pay hikes) just before they retire.?? A cop who retires with $60,000 per year at age 47 is expected to live 32 years and collect $1,920,000.
Cops and firemen pay 8.5% of their salary into their pension system, which is still not nearly enough to pay for what? they get.
To make things even worse, almost all? government employees and public school teachers? who? now retire are part of a population bulge called the ?baby-boom?.
For years,? when most public employees were? baby-boomers, almost everyone paid into the pension funds, while very few retired.? This, and the stock market bubble,? made the pension funds look like they were flush with money.?? So the unions demanded and got bigger? benefits without paying extra? for them.?? This made an already? bad situation worse.
But now all these baby-boomers are retiring ,? and the opposite is happening.?? The pension funds are shrinking as quickly as Bernie Madoff?s money during his last year in business?and for the same reason.
There are only two ways to fix this problem.??? We crush our kids (and retirees who didn?t work for the government)? with massive tax hikes for the next 30 years.?? Or we cut pension payments for all public employees?including those already retired.
The big deal between Republican Governor Christie and Democrat Senate President Sweeney does neither, and fixes nothing.
(Reprinted from June 29, 2011 Current-Gazette Newspapers of Atlantic and Cape May Counties, http://www.shorenewstoday.com/snt/news/index.php/politics/13026-retirement-math-not-the-same-for-everyone.html)
Somers Point attorney Seth Grossman appears on 1400AM talk radio 3-4 p.m. Mondays and Wednesdays and on 92.1FM 8-10 a.m. Saturdays. For information see www.libertyandprosperity.org, email firstname.lastname@example.org or call (609) 927-7333. Breakfast discussions are held 9:30-10:30 a.m. every Saturday at the Shore Diner on Fire and Tilton roads in Egg Harbor Township.
(Image Sources – http://i2.cdn.turner.com/money/2009/05/12/news/economy/benner_pension.fortune/chart_public_pension.gif & http://joanharvest.files.wordpress.com/2009/10/nothing_512_512.jpg)