Alabama pension stopped sending checks

[benhogan]

This is the tip of the iceberg boys and girls.....

http://www.nytimes.com/2010/12/23/business/23prichard.html?_r=1&ref=business

We are gonna see a lot of municipalities default on their bonds pretty soon.

I assume the state will bail them out or they will be sued and forced to borrow money to meet their obligations. This is nothing but a case of mismanagement.

BTW, why in the world are these guys in their 50s and 60s retired, and why are they still in this town?

[Kuan]

Originally Posted by Craig

I assume the state will bail them out or they will be sued and forced to borrow money to meet their obligations. This is nothing but a case of mismanagement.

BTW, why in the world are these guys in their 50s and 60s retired, and why are they still in this town?

Some kind of age+years of service rule. I know at my wife's work they have rule of 72. You don't get a full pension until 65 years old though.

Originally Posted by Kuan

Some kind of age+years of service rule. I know at my wife's work they have rule of 72. You don't get a full pension until 65 years old though.

I understand that they can retire, but why would they want to? Then why would they stay in a town like this, especially after their pension goes away. Why don't they just get off their ass and get a job?

[benhogan]

according to the article, people put in 5.5% of their salaries, the town put in a matching 10.5%. That's already a lot. They were 'warned' that the fund was running out of money. Given the shrinking tax base, I do not know what else they could have done.

Alabama is already a poor state. I suppose some of these people can leave town and get jobs elsewhere but having lived there all their lives, that's a lot of inertia to overcome (a lot of pride too) to pack up and go.

The saddest part is they are getting nothing for putting in their 5.5%. It wasn't even optional. If you worked for the state, you have to put it in.

I agree that these folks got hosed, I'm sure they will eventually will a lawsuit and get their money back.

I just don't get the whole concept of forced pensions/retirement. Why not just pay people what they are worth and let them decide if/when they want to retire. Personally, I'm in no hurry to be retired/dead.

[daveuz]

Alabama Pothole Kills Mother of 2

http://www.cbs42.com/mostpopular/story/Pothole-Kills-Mother-of-2/Tdwt6NoANUCVtgnpA4nt0g.cspx

[jcyuhn]

Originally Posted by benhogan

according to the article, people put in 5.5% of their salaries, the town put in a matching 10.5%. That's already a lot.

No, it really is not. Play around with a portfolio calculator to see for how many years you have to save 16% of your income to reliably generate, say, 75% of your pre-retirement income. I think you'll be surprised.

Assuming there's no mismanagement of pension funds or fraud here - and the article mentions no such things - this is a simple case of either not saving enough or withdrawing too much. In either case, you run out of money. It can happen on an individual scale, and it can happen on a municipal scale.

[benhogan]

Originally Posted by Craig

I agree that these folks got hosed, I'm sure they will eventually will a lawsuit and get their money back.

I just don't get the whole concept of forced pensions/retirement. Why not just pay people what they are worth and let them decide if/when they want to retire. Personally, I'm in no hurry to be retired/dead.

The whole idea of the pension is a bit antiquated. A lifetime of service will be rewarded with lifetime of pension income. The idea was to have a 'safety net' for these folks when they stopped working. The problem is no one expected so many people to live so long at the same time have the revenue base (still-working folks putting money in) shrink. Double whammy.

Your second point is addressed by the 401(k). However, this assumes people are smart enough and disciplined enough to think far ahead in advance regarding their future financial needs.

The one big difference I noticed between the rich and the poor in this country is that the rich plan for generations while the poor plan for next weekend.

Originally Posted by benhogan

The one big difference I noticed between the rich and the poor in this country is that the rich plan for generations while the poor plan for next weekend.

Very true.

[retmil46]

Originally Posted by Craig

I just don't get the whole concept of forced pensions/retirement. Why not just pay people what they are worth and let them decide if/when they want to retire. Personally, I'm in no hurry to be retired/dead.

As far as the forced retirement part, especially when it comes to particular state/federal government jobs, forced retirement is often the only way to get rid of the deadwood and deadbeats, so you can get some fresh blood into the mix, and give them a decent chance for advancement in their field.

Even the Navy had to go this route in the early 90's - you had to show enough initiative on your part to advance to a particular pay grade after X number of years, or you weren't allowed to reenlist, much less stay in 20 or 30 years for a retirement check. If you didn't make the paygrade/time in service "gates", you walked.

Prior to that, it wasn't uncommon in some fields to see E-3's (essentially a buck private) with 10, 15, or more years of service. They were content to essentially get free room and board, go out and blow their miniscule paycheck on whatever type of fun floated their boat, and have little or no responsibilities to contend with due to their low rank.

And then you had those in higher ranks who stayed in for so long they literally dropped dead from age/health issues while still on active duty - filling up space in the hierarchy and limiting the advancement opportunities of younger capable personnel.

Originally Posted by retmil46

As far as the forced retirement part, especially when it comes to particular state/federal government jobs, forced retirement is often the only way to get rid of the deadwood and deadbeats, so you can get some fresh blood into the mix, and give them a decent chance for advancement in their field.

Even the Navy had to go this route in the early 90's - you had to show enough initiative on your part to advance to a particular pay grade after X number of years, or you weren't allowed to reenlist, much less stay in 20 or 30 years for a retirement check. If you didn't make the paygrade/time in service "gates", you walked.

Prior to that, it wasn't uncommon in some fields to see E-3's (essentially a buck private) with 10, 15, or more years of service. They were content to essentially get free room and board, go out and blow their miniscule paycheck on whatever type of fun floated their boat, and have little or no responsibilities to contend with due to their low rank.

And then you had those in higher ranks who stayed in for so long they literally dropped dead from age/health issues while still on active duty - filling up space in the hierarchy and limiting the advancement opportunities of younger capable personnel.

None of those are age issues, simply fire anyone who is unable/unwilling to do their job. That is the correct way to get rid of deadwood and deadbeats.

[SwampYankee]

Originally Posted by benhogan

The saddest part is they are getting nothing for putting in their 5.5%. It wasn't even optional. If you worked for the state, you have to put it in.

Classic ponzi-scheme. Not unlike Social Security.

I'm sure it's only the first of many shoes to drop. The states and municipalities have lots of obligations that were negotiated during good times. When that money isn't coming in like it used to, and none of the politicians (local or state) have the political gonads to make the necessary cuts across the board, there isn't much left to play around with.

I'm at odds with many members of our state Down syndrome group because the state has proposed across the board cuts, including to the Department of Developmental Services. Yes, they provide important services. So does every other state agency. Nothing should be off the board. If state finances were managed properly all along, we wouldn't be faced with a multi-billion dollar deficit over the next few years. It's easy spending tax payer money when times are good. When they're not, everyone has to make sacrifices.

[benhogan]

Originally Posted by jcyuhn

No, it really is not. Play around with a portfolio calculator to see for how many years you have to save 16% of your income to reliably generate, say, 75% of your pre-retirement income. I think you'll be surprised.

.

you are right. see below-

income=$100,000
years of service= 20 years
contribution= $16,000 (5.5% +10.5%)
target= 75% of the income= $75,000
growth rate=8%
withdrawal rate=4% (historically accepted % to avoid dipping into capital)
no pay raises (for simplicity)

the figure comes out to only: $29,000 per year! Less than half of the target!

Working for 30 years....... puts the income to $72,500 per year.

It's doable but there's a lot of moving parts!

Originally Posted by benhogan

you are right. see below-

income=$100,000
years of service= 20 years
contribution= $16,000 (5.5% +10.5%)
target= 75% of the income= $75,000
growth rate=8%
withdrawal rate=4% (historically accepted % to avoid dipping into capital)
no pay raises (for simplicity)

the figure comes out to only: $29,000 per year! Less than half of the target!

Working for 30 years....... puts the income to $72,500 per year.

It's doable but there's a lot of moving parts!

The problem is the 20 years of service. Do we really want to support someone for life for only 20 years of work? Assuming a lifespan of 80 years, you are talking about someone who only has to work for 1/3 of their adult life. Try crunching those numbers based on 40 years of service.