While my wife and I were sitting in our hotel room Saturday evening, I was working my way through the cable channels and stumbled upon the Suze Orman Show on CNBC. Suze is a best-selling money guru, and she was doing her "How Am I Doing?" segment where someone discloses their finances, then Suze gives them a grade of A-F.
The women who was being interviewed was in her 40's. She had just sold her home and was living with her sister. She had no debt of any kind. She had income of about $3500/month, but her monthly expenses were only around $2000/month. She had always had a goal of retiring at the age of 58. (She could give no specific reason for 58, it was just a number that she had always had in mind as a retirement goal.)
When Suze asked the woman to grade her financial performance, she gave herself an A-. Suze thought it deserved an F. And here's where my mouth began to drop open.
Suze explained to the woman that, if she kept on her current path, she would have amassed $1.2 million by the time she reached the age of 58. That seemed pretty good to me. But Suze explained that if she were to retire at 58, she would lose many of the benefits she was enjoying by living on a college campus and, apparently, working for the college. She would need to pick up her health insurance, for example, as she would be too young for Medicare.
Suze calculated that the woman's monthly expenses after retiring would be about $5000/month, and explained that the income from $1.2 million would not even cover those expenses. (This was the point where my wife chimed in: "Thank God for pensions!")
Suze told the woman that she would need to work until age 67 when she would have saved $2.1 million. That would give her an income of a little more than $7000/month. Enough to cover expenses and a bit more.
Do you feel a little bit better about having a NYS teacher pension? I sure do!
Then I thought about our kids. Yours and mine. We seem to be determined that the "defined benefit" pension system will disappear, to be replaced by the "defined contribution" --or 401K--type of retirement plan. In 2009, when Time Magazine did a cover story called "Why It's Time to Retire the 401K," only 21% of American workers were covered by a traditional defined benefit pension plan.
Remember, the woman Suze Orman advised needed $2.1 million to cover monthly expenses of $5000. Here's a paragraph from the Time story:
"The average 401(k) has a balance of $45,519. That's not retirement. That's two years of college. Even worse, 46% of all 401(k) accounts have less than $10,000. Today, just 21% of all U.S. workers are covered by traditional pensions, and the number shrinks every year. "The time may have come to consider returning 401(k) plans to their original position as a third tier of retirement planning, behind pensions and Social Security," says Alicia Munnell, who heads the Center for Retirement Research at Boston College. "They should not be the thing we rely on for retirement security." And the government seems to agree. This summer, the Government Accountability Office concluded, "If no action is taken, a considerable number of Americans face the prospect of a reduced standard of living in retirement." That's what is known as an understatement."
Even if they're really good-and/or lucky--with their investments, it's difficult to see how our kids will wind up with $2 million in their 401K's. It's even more difficult for those who are out of work for any length of time. Not only are they not contributing to their plans, but many will be forced to raid their retirement savings--even in the face of penalties--to put food on the table.
And that, friends, is why we're fighting so damned hard to protect the NYS teacher pension system.
There's more from the Time story on the "pension" page of the RC4 website. The link is
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