How does this retirement information sound to you?

[ScrimpAndSave]

Because it makes no sense to me. Haha...

RETIREMENT BENEFIT

For bargaining unit members (hereinafter referred to as “retiree”) who submit a binding resignation due to retirement, and who meet the criteria set forth herein, may purchase medical insurance and prescription drug coverage at 100% of the cost to the district. In addition, the retiree may also purchase dental insurance coverage as provided by the terms of the Agreement at 100% the cost to the District for a period of 18 months following separation from service. At all times, the benefits provided the retiree herein shall be equivalent to those provided to active employees (teachers) of the bargaining unit.

The retirement benefit is subject to the following terms and conditions:

The retiree must have a total of thirty (30) years of service in education, twenty-five (25) of which must be in the School District and be at least age 55. Said years of service must be verified through the Pennsylvania State Employees’ Retirement System (PSERS). The retiree must take the incentive in the contract year or the following contract year the individual meets all three criteria.

The retiree must submit a binding resignation due to retirement in writing no later than December 31st of the year he/she retires.

The benefits provided herein shall be for the retiree and if applicable, his/her spouse, and will continue until the retiree becomes eligible for Medicare. The District’s contribution to the annual retirement allowance for providing health insurance and prescription drug coverage for each retiree shall be $5000 deposited into a health reimbursement account.

Any health insurance refunds made available to the retiree through PSERS shall remain with the retiree and shall not offset or diminish the District’s obligation to provide the full amount of their annual retirement contribution for each retiree as defined in part 3 of this section.

The retiree shall receive written notice from the District of the cost of the health insurance by October 1st of the fiscal year in which the cost occurs and will be required to reimburse the District upon receipt within sixty (60) calendar days.

In the case of married couples employed by the School District where one is retired, the retiree may select health insurance, prescription drug coverage, dental insurance coverage, etc. as a spouse under the terms of the employed spouse’s benefit package. Upon the retirement of the last employed spouse from the District, both the retiree and his/her spouse shall each be entitled to their respective retirement allowance and may apply said amounts toward the cost of individual health insurance and prescription drug coverage as provided herein.

[jIM_Ohio]

sounds good to me.

Of course $5000 now sounds good.
In 30 years that will hardly be worth anything towards skyrocketing insurance costs.

[kork13]

The retirement benefit is subject to the following terms and conditions:

The retiree must have a total of thirty (30) years of service in education

twenty-five (25) of which must be in the School District

be at least age 55.

The retiree must take the incentive in the contract year or the following contract year the individual meets all three criteria.

Does this last part equate to a mandatory retirement as soon as you meet all 3 criteria? (I separated them above) I may be reading it wrong, but if that's correct, it just see it as interesting... That you would hit a mandated retirement brick wall...

I agree with Jim, that any dollar figure specified in a retirement plan NOW would be a bit disconcerting. Is that there to supplement medicare?

In any case, it's essentially part of a guaranteed, state-sponsored pension plan, which anymore seems to be something to be prized...

[jIM_Ohio]

Does this last part equate to a mandatory retirement as soon as you meet all 3 criteria? (I separated them above) I may be reading it wrong, but if that's correct, it just see it as interesting... That you would hit a mandated retirement brick wall...

I agree with Jim, that any dollar figure specified in a retirement plan NOW would be a bit disconcerting. Is that there to supplement medicare?

In any case, it's essentially part of a guaranteed, state-sponsored pension plan, which anymore seems to be something to be prized...

I interpreted this as required retirement at age 55 with 30 years of service, 25 of which were in the district.

[ScrimpAndSave]

Jim - you are correct. And our contract changes every 5 years...and I have 25 more years to go...so the contract is going to change a few more times.

I just need to find out if I can see how much money I have within my pension plan...and how it is invested. I know they invest 7.5% of my salary there.

[jIM_Ohio]

Think of it this way.

Most people will want 3-4 legs of a retirement plan

1) Social Security. Are you eligible for SS (teachers in my district do not pay in (and save themselves 6.2% in taxes) but cannot collect benefits.
2) pension or annuity. You have this, others would have to purchase an annuity.
3) personal accounts with tax favored status (401ks, IRAs)
4) taxable accounts (no special tax status)
5) inheritance
6) other (specify)

each of those TYPES of assets should be evaluated on several levels

a) COLA or not? Cost Of Living Adjusted. Will the account above keep pace with inflation? Every 24 years the cost of things doubles.
b) Variable withdraw or fixed withdraw? Is the amount of withdraw guaranteed or will it vary? Might be tough to travel if variable income drops. If money is in a savings account and you live off interest, the money might be guaranteed but it will also vary with prevailing interest rates.
c) Who controls the risk? Can you invest for higher growth (and a higher standard of living). Can you access money whenever you want it? For example if you retire from district at age 55 and want to travel heavily between ages of 55 and 70, can the account type above get you access to money while you are young? Risk is double edged because that same risk means money could run out.
d) Does the account or pool of money have favorable tax status (for tax planning)?

You do NOT want to have any one leg answer YES to every question, and you do not want YES to be the answer to every leg.

Only you know what you want your retirement to be.

My retirement is:
1) SS a-yes;b-fixed;c-no growth/no risk, difficult to access;d-tax free if under 44k income, taxable if income+1/2 SS is over 44k- so taxable for me.
3) 401ks and IRAs a-YES (significantly);b-variable;c-I control risk, I can access money with moderate restrictions at age 53; d-401ks NO, Roths YES.
4) taxable accounts a-YES (significantly); b-fixed and variable; c-I control risk, NO RESTRICTIONS; d- YES

If you look at
a) I have this covered (both answers apply to me)
b) all answers apply to me
c) all answers apply to me
d) all anwers apply to me.

If you decided to do
1) SS
2) Pension
3) Annuity

as your only 3 retirement legs, you would have a solid income stream, but little control over the income stream.

Many people with pensions and other retirement savings find themselves in a HIGHER tax bracket during retirement, which means some tax planning (Roth IRAs and taxable accounts) might be in order. If you look at the most pension collectors (employees of US government), I bet MOST would tell you they retired from 20-30 years of government work at 70-80% of pay (with pension) and worked another civilian job, so their tax bracket went up with pension.

So with retirement planning go with a broad approach:
7.5% of income going to pension will probably supply about 33%-66% of your retirement expenses.
66% if you plan to NOT save and 33% if you DO save.

If you don't save more, the other 33% comes from SS/home sale or similar taxable investments.

If you DO save, a 5% contribution by you (say $2500 into a Roth IRA each year) will probably grow faster than the 3% raises you get and the 7.5% pension contribution of the salary/raise. And because the Roth is post tax, you also have some flexibility with things on withdraw (as far as tax brackets). If you did 10% ($5000) into Roth each year, your retirement would have many of the a-b-c-d answers covered (both sides of questions) with a taxable account to provide the rest of the flexibility needed.

[Joan.of.the.Arch]

Has your school district and pension system sent you any information about Social Security lately? If you live in a state which already had a pension system in place for teachers and so negotiated back when Social Security was first created for its teachers to be exempt from SS contributions (and to only be eligible for 1/3 or 2/3 the Social Security they'd be eligible for via non-teaching income), then you may be in for a surprising letter or two.

The Social Security Administration seems to be deciding that the agreements that have been in place for decades no longer apply and that all teachers must pay into Social Security now, though at a reduced rate. School districts have been letting their teachers know this. Pension systems are making plans to go to court over the issue, but in the meantime, the amount that now must be paid to SS is being taken out of the teachers' pension contributions (in our local district anyway).

The reduced pension contributions mean that the schedule for retirement must be re-worked. In our local system, I think it is working out that someone hired today must work 30% more years to get a pension than someone who is ready to retire this year! Everyone in between is having their years-to-retirement re-worked and sort of pro-rated. By the way, this may cause a difficulty for local school districts who depend, in part, on turn over in the pool of teachers so that a portion of them will be new teachers earning lower salaries.

It also may mean that teachers' health insurance rates will go up more as they are keeping on more older teachers who are more likely to have health issues. (Our local district does not contribute anything to health insurance for retirees, as yours does.)

Even with the new teacher contributions to SS, teachers will still be eligible for SS at only a reduced rate. None of this applies to you if teachers in your school district have always paid SS.

Anyway, even though you are a long time from retirement, the issues can effect you now, including affecting your pocketbook and your ability to plan. It is good that you are paying attention to what is going on. Every time new contracts are negotiated find out how the retirement terms have turned out, not just what your salary scale will be.

[ScrimpAndSave]

I know I have always paid SS...I see it come out of my paychecks...something else that comes out of my paychecks is FICA...anyone know what that is?

[kork13]

You're seeing SS and FICA taken out of your pay? That's strange... SS is a part of FICA. Your district's finance office may be calling the Medicare deduction 'FICA', even though FICA technically is the two of them combined.

"FICA" refers to the Federal Insurance Contributions Act, which basically funds Social Security and Medicare. It calls for an employee to pay 6.2% of income to SS, and 1.45% to Medicare, which is then matched by your employer. Normally you would see either separate deductions for SS and Medicare, or a single deduction for FICA (for the total 7.65%). You might ask, but I expect that "FICA" really means "Medicare" on your pay stub, if they're deducting SS separately.

[ScrimpAndSave]

No...you are right. Just FICA...

From my last paycheck, I grossed $1872.
$114 went toward FICA
$26 went toward Medicare
$140 went toward "retirement" which must be my pension...bc that looks like 7.5%.

[jIM_Ohio]

going back to the "leg" analagy I presented... if you have SS and a Pension you have the distinct issue that it's possible that SS+Pension is close to 15 percent of pay right now.

If you put 10 percent ($5000) into a Roth, my guess is your 10 percent beats the pension+SS 15 percent (for how much income it provides you in retirement).

Come back in 60 years and let us know.

[ScrimpAndSave]

lol Jim.

Will do!

[ScrimpAndSave]

What with social security? My dad, who is 75, says that they have been saying for 40 years that there won't be anymore social security.

I know that I can depend on it...but what do you think? Will it be there? Will it be gone? I obviously don't count it into the 15% that I should be saving for retirement...

[jIM_Ohio]

What with social security? My dad, who is 75, says that they have been saying for 40 years that there won't be anymore social security.

I know that I can depend on it...but what do you think? Will it be there? Will it be gone? I obviously don't count it into the 15% that I should be saving for retirement...

The politicians are just delaying what they will do to fix it.

For example right now you and I can collect "full" benefits at 67 and reduced benefits at 62. If your gross income +50% of SS benefits exceed 44k, then the SS is taxable. Depending on how much over 44k, 50% of SS might be taxable or 85% of SS is taxable. This basically means that if tax rate is 20% and your pension was kicking you 40k in income and SS was kicking in 24k you do the equation:
40+50%*24=52, which is >44, so 50% of the 24k is taxed at 20% (or whatever your marginal tax bracket was at the time).

If you had a pension of 40k and Roth which kicked out another 15k, plus same 24k of SS your math would probably resemble this:

40+15+50%*24=67>44. You would be paying tax of 85%*24k*20% (or whatever your prevailing tax rate was at the time).

You need to note that even if the income is "tax free" (like a Roth or muni bond income) it gets added into this equation.

Many financial planners call this the phantom 85% tax bracket. There are MANY ways I could probably get around this (if you had no pension).

Make sure the RMD from the IRA keeps you below the 44k threshold. Every second or third year take a large IRA distribution to cash (cap out 25% bracket for example). Then in year 2 and 3 just withdraw cash from your checking account for expenses (the equation looks at income, not spending). Checking account assets are not income.

---
This being said, I expect to collect SS, I simply expect it to get taxed. Any politician which forced me to pay in at 6.2% then not let me collect a portion of what I paid in would not have a job next election. That President would be guaranteed to lose the state of florida and arizona in the next election too. Not a wise career move for any politician to touch this.

My opinion, anyways.
--
I would expect you could access SS at age 70 or 75 (maybe they adjust age to modern life expectancy), maybe they reduce our benefits, maybe they do not index that 44k number to inflation (my understanding is that 44k number has not changed in years, so they are already doing this I think) and we also expect tax rates to go up (notice I used 20% above and not 15% for example).
--
rant- if President Obama reads savingadvice and wants a stimulus plan which is permanent, just take the 6.2% SS tax and decrease it .1% per year. Add 2 years to the minimum age each time the tax is reduced.

Does 4 things
1) gives more take home pay (person making 100k has extra $100 per year)
2) reduces payroll taxes of companies (might save layoffs- any company with 1000 employees making 80k (80,000,000 in payroll) saves a full salary per year- they could hire one more person (or not lay off one more person).
3) reduces drain on system in 10 years (people over age 57 could be grandfathered in) or 20 years (over 47).
4) reduces need to tax existing benefits (I doubt the tax ever goes away, but in theory it could).

[noppenbd]

SS is not going to ever completely "run out", because there are always people paying in. The problem is that there has been a surplus for a long time, and that surplus is projected to run out. Then by 2040 or so (about when I am going to start collecting) it is projected to only be able to pay 75% of benefits. So if absolutely nothing is done until then, the worst case is I only get 75% of what they are projecting. Therefore I use 75% of what they say I will get for my projections. Most likely it will be a combination of higher payroll taxes earlier or making more of it taxable as Jim said.