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Pensions (are they safe?)

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  • #31
    @Raddoc123,  My husband, just 2 mos. ago, retired as a clinical assist. prof. surgery of UIC-Rkfd.  His  5% annuity was reduced from the calculated $650/mo. to  $220/mo. via the "may be reduced" clause.  We chose Aetna through SURS. The claims for my ophthalmologist visits are listed as, "approved but pending funding."  My interpretation is that despite promises and constitutional protection, when there is no money, the comptroller can not make payments.  Remember when the comptroller paid the lotto winners with IOUs?  I predict IL   teachers retirement plan and SURS will go through bankruptcy in 15-20 years, despite the constitution.

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    • #32
      ...........and as a data point,  when the city of Detroit went through bankruptcy, the pensioners took a 4.5% cut plus no inflation increases.

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      • #33
        Did not know there was this "may be reduced" clause.  Thought the constitution protected benefits?

        But in any case, the final amount of my balance at 62 may still not buy as good of an annuity in the private market as the surs annuity/pension (potentially reduced from 20k yr).  I figure I can make the choice when the time comes.  On the other hand, I also worry that due to the sad state of affairs, my cash balance may be cut or not available at some point since I still have many years before pay out.  Not sure what to do?

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        • #34
          @Raddoc123,  consider this strategy:   wait it out, but be prepared to have your expectations paired down.

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          • #35
            I know it might not sound good, but sock enough away and pare down your recurring expenses to the point where you could retire comfortably without the state pension.  I'd view pension payments from the State of Illinois as gravy, not as the prime component I'd depend on in retirement.

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            • #36
              I would point out that in Illinois that teachers don't contribute to nor pay into social security.  A consideration for the 'gravy' statement when an 'annuity' retirement component is totally missing.

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              • #37
                Are we going to have a generation of teachers, university professors and others in Illinois who will not be able to retire because  their benefit will be reduced drastically and have no social security coming?  I doubt many who make less than 100k and think they have a pension coming are saving enough to support a retirement?

                My best guess will be that Tier 1 retirees who started before 2011 will be subsidized by the Tier 2s and now Tier 3s and the state actually making appropriate payments into the system (kind of like a Ponzi scheme).  The Tier 2s and 3s have such reduced benefits that those workers may have to pay into social security by law eventually since their benefits may be less than social security.   And with all this mess, no one is held accountable for years of abuse!?

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                • #38
                  I am curious. If pensioners are forced to take a serious haircut i.e. 30-40% , what will this do to the local economies?  Real Estate prices? Will the Country see "capital flight" from California and Illinois?

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                  • #39




                    I am curious. If pensioners are forced to take a serious haircut i.e. 30-40% , what will this do to the local economies?  Real Estate prices? Will the Country see “capital flight” from California and Illinois?
                    Click to expand...


                    How money walks

                    Click on individual states to see lost income.

                    http://www.howmoneywalks.com/irs-tax-migration/

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                    • #40
                      @notadoc-  Great link showing the movement of gross income at a very granular level.

                      @ReFiDoc- Your question about what occurs with pension cuts is that it is a zero sum imo.  The pensioner would have less income and depending upon circumstances will make a variety of economic decisions.  The other side is that with no cuts, the money is still coming from other taxes payers (or borrowing in the case of Illinois) who now have collectively less to spend.

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                      • #41




                        I am vested in an Illinois pension from training days.  Should be about 20k/yr for myself at 62  + cola + health insurance which is discounted + 100% benefits for partner if I pass.  How much can I expect to see of this is anyone’s guess.

                        I also have a balance of about 90k right now which grows at about 6.5%/yr and have the option of rolling over to IRA at any point but then lose future pension benefits. Sometimes I think about doing this given the state of affairs, but feel there is a chance I’ll see my benefits given strong constitutional protections and reduced benefits for new workers.  What would you guys do?
                        Click to expand...


                        The Illinois pension system is in dire health. No, I don't think you will receive $0, but you could easily be reduced to 40-50% of your promised benefit. IL refuses to take the steps to make the pension system solvent or when steps are taken, they are struck down as unconstitutional. It is irrational to think that a constitutional requirement will protect the full value of the pensions in this situation. At some point the money runs out. How high will taxes get before people will start leaving the state? There is no 'light switch off' moment, but a slow eroding of the fiscal health over time as workers and corporations leave the state and relocate elsewhere.

                        IL has between $130-$250B in unfunded pension liabilities (depending on who you reference). According to Wikipedia, it took in ~$30B in Revenue for 2016. If you shut down all government services for 5 years and diverted all of that money into the pension, you could start to correct the imbalance.

                        Pension cuts are coming. The longer it takes, the bigger they will have to be.

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                        • #42







                          I am vested in an Illinois pension from training days.  Should be about 20k/yr for myself at 62  + cola + health insurance which is discounted + 100% benefits for partner if I pass.  How much can I expect to see of this is anyone’s guess.

                          I also have a balance of about 90k right now which grows at about 6.5%/yr and have the option of rolling over to IRA at any point but then lose future pension benefits. Sometimes I think about doing this given the state of affairs, but feel there is a chance I’ll see my benefits given strong constitutional protections and reduced benefits for new workers.  What would you guys do?
                          Click to expand…


                          The Illinois pension system is in dire health. No, I don’t think you will receive $0, but you could easily be reduced to 40-50% of your promised benefit. IL refuses to take the steps to make the pension system solvent or when steps are taken, they are struck down as unconstitutional. It is irrational to think that a constitutional requirement will protect the full value of the pensions in this situation. At some point the money runs out. How high will taxes get before people will start leaving the state? There is no ‘light switch off’ moment, but a slow eroding of the fiscal health over time as workers and corporations leave the state and relocate elsewhere.

                          IL has between $130-$250B in unfunded pension liabilities (depending on who you reference). According to Wikipedia, it took in ~$30B in Revenue for 2016. If you shut down all government services for 5 years and diverted all of that money into the pension, you could start to correct the imbalance.

                          Pension cuts are coming. The longer it takes, the bigger they will have to be.
                          Click to expand...


                          agreed the math is indisputable.  however, historically governments have been extremely reluctant to reduce benefits for those already retired.  so if you are in the situation of already being retired, you may ponder it differently.  Several cities have declared bankruptcy and reduced benefits drastically, although generally for those still working, rather than the already retired.  there has been no recent constitutional challenge to determine whether states should be allowed to declare bankruptcy.  in the meantime, all the state teachers, for example, are contributing to the pension fund and not to social security, so I'm not sure who gets left holding the bag.  Assuming social security exists in 30 years.  maybe early retirement isn't in the cards. 

                           

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                          • #43




                            agreed the math is indisputable.  however, historically governments have been extremely reluctant to reduce benefits for those already retired.  so if you are in the situation of already being retired, you may ponder it differently.  Several cities have declared bankruptcy and reduced benefits drastically, although generally for those still working, rather than the already retired.  there has been no recent constitutional challenge to determine whether states should be allowed to declare bankruptcy.  in the meantime, all the state teachers, for example, are contributing to the pension fund and not to social security, so I’m not sure who gets left holding the bag.  Assuming social security exists in 30 years.  maybe early retirement isn’t in the cards.
                            Click to expand...


                            Detroit cut the pensions of existing retirees ~30%. Puerto Rico was allowed to spin off it's debt and stop making payments on some of it. Precedents have been set and the whole state doesn't have to declare bankruptcy (but it might want to)

                            As for social security, you could continue to borrow (which might be a problem) or you could scale back to match the benefits with the income (which would be a 20-30% benefits cut) You could allow for increased immigration to increase the tax base. Or you could raise taxes. The Federal government has a lot more options than States/Cities. We saw the first Social Security benefit cut in 2015. It was small but it was a start.

                            As for teachers, those pension promises cannot be fulfilled and it's a shame. They would be better off contributing to social security. Teachers in PA pay into both. The Pension is in serious trouble, but they can also draw on SS. But burying heads in the sand won't solve the problem. We need realistic retirement accounts with realistic expectations that have a high probability of success. That way people can plan appropriately.

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                            • #44
                               

                              Kentucky Public Employee Retirements Surge As Fears Of Pension Collapse Mount



                              More state workers retired last month than the year before amid concerns that the legislature and Gov. Matt Bevin will make changes to state retirement plans.


                              The Lexington Herald-Leader reports that there was a 20 percent jump in state worker retirements last month.


                              http://www.zerohedge.com/news/2017-09-05/kentucky-public-employee-retirements-surge-fears-pension-collapse-mount

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                              • #45
                                @ Notadoc-  This article link (remove ':link') succinctly captures the essence of the issues that governments face with respect to pensions.

                                I found some of the totals of pension underfunding calculated by PFM group odd, a discount rate based on a LT corporate bond rand or 30-Year Treasury Bonds is unrealistic imo.

                                Pensions are a great way for large pools of workers to save for retirement, though the gap has certainly closed over the last 20 odd years due to low cost index funds and lower equity transaction costs pushed down to the individual investor.  Pensions needed to be watched like a hawk though and the way they have been reported has only recently changed to start to conform to reality versus a vague set of projections compounded 20 to 50 years in the future.  The elimination 'inflation' adjustments would imo help reinforce the idea that a pension is one component of retirement savings.  Unfortunately, power of annual contributions to fund pensions (and decide upon benefits) at the governmental levels needs to be taken from politicians (though it won't).

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