TRA Testimony to the 2017 LCPR Omnibus Pension Bill

>> LCPR testimony May 8 <<< click the link to view.

Advertisements

Investing in Your Retirement Income

How is investing in your retirement income like keeping yourself in food? Well, how do you keep yourself in food now?

Feed-Me #3: I eat at my parents’ until they invite (force) me out to work and live on my own. Okay. Partying, social media, Starbucks platinum level may have to back off in place of serious work, rent and utilities, and eating out—but giving up international cuisine is asking too much. After all, you only live once, right? And this is how it will go until I drop or marry into money, the latter of which is not likely to happen when I pass the retirement age of 70+. By then inflation is likely to have out-paced wages by 100%. Hello, cat food.

I had no pension plan, except Social Security, and years of small government conservative shrank that and Medicare to something less than the poverty level and free clinic visits. No one explained to me that not everyone wins the lottery or winds up in the top 2% of wealth.

Feed-Me #2: I make a plan before moving out to own a house by 35, so save for a down payment while working hard and long—a day job plus a part time. I buy smart and healthy at the co-op and learn the best buys in wine and craft beers. I take a cooking class or two and master some pretty good dishes that impress my friends and partner. Our children don’t appreciate the food, but demand much in clothes, sports activities and tech-toys. Our kids go off to very good schools, which we hope will earn them high paying jobs.

By the time we settle in to paying off the house and college loans, we realize that there has never been a time to contribute the advised 20% of income to an IRA. We will be working past retirement age if we can, but those last 5 years of life, which cost half or more of our total life medical costs may have to be covered by the kids. I may be watching a modest life drain away into a long, sad decline. It all balances out.

Feed-Me #1: I live at home, paying costs to my parents until I have a steady career job. I plan on buying a home as soon as I can arrange it. I live as cheaply as I can manage, valuing people over things, parks over concert halls, Mr. Coffee over Starbucks. I use public transportation, which alone saves enough for a down payment on a house in about five or six years. I buy smart and healthy at the Cub. I have learned what foods have real value and are affordable. As soon as I can, I get a garden plot to supplement the expensive stuff I can grow. Once I get a house, I plant an apple tree in the yard and a big garden in the back. These investments, along with running and biking, help keep me fit as well, and will reduce my medical costs even into very old age. Live starts early and ends late after all.

I was fortunate enough to have a public pension plan which with Social Security took about 15% of my salary, and that was matched by my employer. I have paid off my house, and the kids’ public college loans are handled. Since I also saved in 430(b) and 457 plans almost from day one, I will have enough income for the next 20-25 years to equal about 80% of my final working salary. That means travel, visiting the kids, and even reinvesting against expensive final years.

Just as I planted seeds in my garden, I planted financial seeds in my retirement plans, and because I started early and waited, as I did with the apple tree, I can actually wind up with more than I absolutely need. Just as I understand the growing season, I see the value of treating life as a whole process. I could have just lived on the harvest collected by others; then I would have been feeding the others as well, and that would be expensive and would have no end. I could have joined the harvesting, cutting the wheat I could later eat, and that would have reduced the cost, but because of waiting until late in the process, it would have offered too little a return, and even that return could be threatened by a bad crop. Worse, next season, when I wasn’t working, I would earn no return at all.

Even starting early, planning and exercising some prudence, while it could earn proportional wealth compared to those early years, — even that case offers no guarantee. Climate change, mining operations, social disorder, any number of things can spoil the crops or even poison the land. Social Security and Medicare can still be gutted, pension plans can be subverted, or the world economy can collapse.

There are no guarantees; there are risks. The trick is to minimize the risks, and that is best done by pooling our efforts. Going it on your own, no matter how good you are, leaves you the most vulnerable. There is safety in numbers. It doesn’t matter how confident you are in your abilities, the thing that will get you is beyond your control or anyone else’s. Life is a challenge; rise to it; don’t try to play it. Your public employee pension plan is your best hedge against tragedy. It’s your right. Support it.

Pension Awareness Week

The Minneapolis Committee of Thirteen: Advocating for your defined benefit pension system and educating for a secure retirement with dignity.

It’s autumn, the time of year we gear up for the legislative session in which public employee pension systems are mulled, debated and very often modified here in Minnesota. During the next few months, the Legislative Commission of Pensions and Retirement, the LCPR, a joint House and Senate committee, meets to hear about, discuss and shape legislation about TRA, MSRS, PERA and other Minnesota public employee pension systems. How much active teachers, principals, clerks, ESPs and other workers in state funded jobs contribute to their pension systems, and how much those who are retired from those jobs get in pension payments.
It is also the time we ask active teachers and principals to sign up for payroll deductions of $1, $2, $5 or whatever amount they can manage to help meet the costs of advocating for them at the LCPR meetings as well as in face to face meetings with Representatives and Senators from across the state. Contributions are also used to help fund to campaigns. It used to be that campaign contributions from political action committees, PACs, were limited to a few hundred dollars during the campaign year, 2016, and there was a limit on how many total dollars candidate could accept from PACs. Those limits have now doubled and contributions cover a two-year span, currently 2015-2016. Well funded opponents of public employee benefits, including your pension, will have no trouble meeting those new limits, but we may be able to keep up without your help.

Next week will kick off the Pension Awareness Week. When active Minneapolis Public School teachers and principals see the bright green and yellow wristbands in their buildings, they’ll know the Actives Campaign is underway. If you are wearing a Pension Awareness Day wristband, be prepared to explain it to your colleagues; you’ll know what to tell them by then because other materials will be sent out at the same time.

Raising awareness is the first step in standing up for our earned benefits. Sharing that awareness then strengthens us all. And that’s what the Committee of Thirteen is all about:
* Supporting your future security by protecting your defined benefit pension system, TRA and Social Security.
* Understanding how an investment in your pension system and other places assures your later years will be a reward for your working years, and not a purgatory suffered under the influence of greed and economic inequity.

Please be ready and do what you can.

Forever Young?

With any luck, you’ll be reading this when you have a spare minute. It’s important, because you will get to be old one day. Think not? Or just trying not to think about it? Well, think of the alternative for a moment. I know you don’t have a third option, because if you did, you wouldn’t be teaching for long hours and low wages in an environment where you’re having your feet held to a fire by a corporate-political messaging campaign.

So let’s think about that for a moment; why are you doing this job? Well, I hope it’s for the love of kids and a belief you can make lives better for them. Assuming that’s the case, thank you for contributing to a civilized America. At the same time, there are some other benefits to teaching that might not be so clear and profound. One of those benefits is the promise of a pensioned retirement once you do get older. Now, you’re giving up higher salaries and rich salary increases, and you’re giving up a slice of the salary you do get all so you can have this promised pension. What you’re getting for that is twenty or maybe thirty years of secure income for the last piece of your life. That’s a lot. And it has a history.

In the old days, really old days, grandparents would reach a point where they could no longer do the heavy work they had done, so they switched to light domestic work and child care in the family home. Three generations lived together, caring for one another, and at the two ends of life being cared for by the rest of the family. These days, in a truly supportive society, we have reassigned the familial roles into societal roles. As a caring society, we care for the very young and the very old—the whole village idea.

But just like the old days, there are some who try to fly solo, loners who strike out Pinocio-like from the family and hope to make it on their own, lured by charlatans.  Some do make it and some don’t make it, but they all believe they’ll soar. What didn’t happen then was that the loners forced their risky life style on the whole family. That’s just what some free marketers would like you to do now, because like a croupier, they’ll take a litle piece of every play made, win or lose. So the more people they can get to the table, the better for them, but there won’t be any more winners, just more players who wind up losers. So put this together with getting older.

Think about getting older, and what it will mean to do that with a secure financial base or your casino winnings. The Minnesota Teacher Retirement Association is part of good family-style management, the pain we feel now rather than the much bigger pain of an empoverished old age. And you get this pension for caring about kids and making their lives better. A fair return on that investment. So be informed and engaged; protect your investment in your future.

 

The 75(k) Retirement Plan (repost)

Do you spend $2 a day on coffee, Monday to Friday, the 50 working weeks of the year? Well, that comes out to 250 $2 cups of coffee—$500. What if you invested that in something other than cardiovascular disease? What if you invested that money in something like bonds?
Now this only applies to those who can afford those cups of coffee, and who are unwilling to sacrifice such a small pleasure. They work hard in a stressful job, under paid and over worked. Of course caffeine probably doesn’t help that situation, but common sense isn’t the point here. Let’s switch to the other end of the work spectrum–retirement at age 67. It may be higher in fifty years, but there’s not much short term financial interest in keeping us alive much longer than we do now. It will be easier to raise the cost of those last five years of life that are some 80% of our medical costs over a lifetime.
So, at age 67, retired, could you use an extra $75,000? It may actually only be worth between $45,000 and $60,000 in today’s dollars, but that’s still pretty nice—world travel? taking grandchildren to Disney Galaxy? sailing the coastal waters? This is figured using an inflation rate of 2% or 3%, (only 0.5% on the cost of coffee!) against a low investment return of 4%, for saving the cost of 250 $2 cups of coffee a year from the age of 20. Current inflation is about 1%, of course, but it will rise, and equity returns average well above 4%, if you don’t cash out in a crash cycle. And yes, if you saved twice as much, it would grow to twice as much. Also remember, this is on top of your Social Security and/or other retirement account income.
The coffee you buy today may be a good short term solution, but it has a short term effect, measured in hours at best. Your needs for advanced years are long-term needs. They are real and will be measured in years. You have three choices there: poverty or near it, working until you drop, or planning ahead starting now. You choose. It matters. It’s your life.

The 75(k) Retirement Plan

     Do you spend $2 a day on coffee, Monday to Friday, the 50 working weeks of the year? Well, that comes out to 250 $2 cups of coffee—$500. What if you invested that in something other than cardiovascular disease? What if you invested that money in something like bonds?

Now this only applies to those who can afford those cups of coffee, and who are unwilling to sacrifice such a small pleasure. They work hard in a stressful job, under paid and over worked. Of course caffeine probably doesn’t help that situation, but common sense isn’t the point here. Let’s switch to the other end of the work spectrum–retirement at age 67. It may be higher in fifty years, but there’s not much short term financial interest in keeping us alive much longer than we do now. It will be easier to raise the cost of those last five years of life that are some 80% of our medical costs over a lifetime.

So, at age 67, retired, could you use an extra $75,000? It may actually only be worth between $45,000 and $60,000 in today’s dollars, but that’s still pretty nice—world travel? taking grandchildren to Disney Galaxy? sailing the coastal waters? This is figured using an inflation rate of 2% or 3%, (only 0.5% on the cost of coffee!) against a low investment return of 4%, for saving the cost of 250 $2 cups of coffee a year from the age of 20. Current inflation is about 1%, of course, but it will rise, and equity returns average well above 4%, if you don’t cash out in a crash cycle. And yes, if you saved twice as much, it would grow to twice as much. Also remember, this is on top of your Social Security and/or other retirement account income.

The coffee you buy today may be a good short term solution, but it has a short term effect, measured in hours at best. Your needs for advanced years are long-term needs. They are real and will be measured in years. You have three choices there: poverty or near it, working until you drop, or planning ahead starting now. You choose. It matters. It’s your life.

Defined Benefit Pension Plans

Retirement plans vary. People who had little to live on after their work life had ended lost everything in 1929. They were not the Wall Street speculators who threw themselves out of windows, not to be confused with the speculators of 2008. They were human beings who had worked as miners and waitresses and store clerks and teachers who entered 1930 with nothing.
Enter the 1935 Social Security Act, the “Old-Age and Survivors Insurance” program, as a cushion against abject poverty for those no longer able to work. Other than a start-up seeding of dollars to provide for those already retired or about ready to retire, the old-age and survivors policy was funded by payroll taxes invested in a retirement fund. It is the model for a defined-benefit (DB) pension plan. Social Security then and now was meant to cover to gap if a person’s own retirement savings failed.
Fast-forward to present day savings. Somewhere – before credit cards – saving, not debt, was the long range plan of workers in America. Bank failures, wars and Diners Club pushed the shift, but state and local governments, always being the last to change with societal tends, established the idea of pension plans modeled on Social Security. These, like Social Security, used a worker’s life time and high-five (or other number of years) earnings to calculate a “defined” retirement benefit, based on earnings not savings, and therefore predictable, dependable and guaranteed by law.
Defined benefit pension plans have long been seen as an employment benefit, part of compensation, for otherwise generally lower wage public employment. The funds are controlled by state and local governments, not private – for profit – investment companies or banks. Public employees are hired and work with the understanding that they are earning this benefit, not just getting it.
However, there’s bad news. Social Security and your TRA pension are a bare minimum for retirement. Teachers and other public workers should be saving on their own as well. Current estimates are that a retiree at 66 may expect to live 20 to 25 years in retirement, and perhaps more. One can hardly “plan” for less. To assure financial security over that amount of time, one should have a retirement value of about $900,000, and that might still be too little. It almost certainly will be too little in 5, 10, or 15 years. Social Security and TRA assets will cover about 2/3’s of that. Teachers must still save, early and hard. Better to manage financial hardship at 30 than 80. SAVE.
Your Social Security and Defined Benefit TRA pension benefits are yours. Don’t throw them away and don’t let anyone take them. Without them, you will have to save much, much more and your retirement may still collapse with a bad investment market. Fight for what’s yours.