Retirement savings in the neocon age...

November 7, 2014 2:55 PM

I am finally starting to plan for long term financial security and retirement. Good news, I have a pension. My question is, should I feel secure in my pension actually being there when I retire, or should have a separate, backup retirement account?

My pension is a county-based public employee pension – ACERA – which my employer and I both contribute to. The amount I contribute is mandatory and as far as I can tell I can’t add more although I can investigate that further. Using their online calculator tool, assuming I keep working at my current income level, I would retire with what looks to me to be a very healthy monthly income as well as medical benefits. With social security on top of that, I feel pretty good about the numbers I’m seeing. Like, if these numbers are correct, I should be in totally fine shape unless there is some really extreme level of unforeseen expense. (Yes, I recognize I am a unicorn and thank you to union organizing that I am in this position!)

But I also know that pensions are under attack as an institution. Is there a compelling reason to be concerned that I won’t see my pension money?

Or more generally, am I missing some big, obvious factor in how to think about retirement savings? Ie: Assuming my pension is like most pensions, can I just stop worrying about retirement right now and save for other stuff instead, like kid’s college or whatever?

I have been pouring over Personal Finance for Dummies and googling a lot but I am still not sure I understand this. I have also explored seeing a financial counselor but for a fee-based service it’s still a bit out of my price range. Maybe in a couple years I’ll do that but I’m trying to get on the right foot now so I can save toward more for services like that!

posted by latkes to Work & Money (7 answers total)

You're especially in luck because of the "California Rule", which is a (state) Constitutional protection of (state-funded) pensions.

I think you're asking how paranoid you should be about the stability of your state. I am not especially hopeful for the California state government, but I don't expect it to rewrite its state Constitution in the foreseeable future. If you do believe that's possible, I'd suggest that you should be more worried about whatever would precipitate California to do such a thing. For instance, total US economic collapse would probably cause California to rewrite its Constitution - but then your worthless pension would be just as worthless as everyone else's worthless 401(k).
posted by saeculorum at 3:01 PM on November 7, 2014 [4 favorites]

So, first obvious questions: are you definitely covered by social security in your current position? Many, though by no means all, public employees are not part of the social security system. You mention it in your question but I just want to make sure you're definitely qualifying for social security and not just assuming that you are.
posted by brainmouse at 3:02 PM on November 7, 2014

Response by poster: I came across that question about social security in my reading but I'm not clear on the answer. I do have social security deductions from my checks. I guess I'll call HR to confirm that one.
posted by latkes at 3:05 PM on November 7, 2014

I wouldn't worry. My parents are getting Social Security, CalPers AND my Dad's federal government pension. They make more now than they did when they were working.

It never hurts to fund an IRA, a Roth if you qualify. More money is better than less money.
posted by Ruthless Bunny at 3:17 PM on November 7, 2014 [3 favorites]

It seems like most pension plans are unsustainable given the rampant retirement of Baby Boomers (so Ruthless Bunny is correct about parents NOW, but what about in 20 years??) It doesn't matter what the law says if there's no money to pay pensions, so I think it's a safe bet that benefits will be changed or not fulfilled on many pensions.

I have no faith in my state retirement system (it's in good hands now, but the state is always trying to "borrow" from it for current expenses). So in addition to the 8% they take from my pay for that (not to mention SS), I put another 11% in my 403(b) and some in a Roth. I am super paranoid and frugal, so I'm definitely interested in some expert opinions on how much "back up retirement" younger folks should have. I think "oooh, it'll be fine." is not the correct answer.
posted by parkerjackson at 3:29 PM on November 7, 2014 [1 favorite]

I would contribute to a 403b plan if there is one available, or start your own retirement account through Fidelity or Vanguard. If you invest with Vanguard, you can get access to advice from Financial Engines.
posted by mogget at 3:40 PM on November 7, 2014 [1 favorite]

You're an unsecured creditor of your employer. Would you feel nervous making an unsecured loan to the county payable at retirement? That's the risk you're taking. If you're not comfortable with that risk, then save more in IRAs (5500 / year) or 403bs and regular accounts.

Re state level protection: we know a local government can default on its pension obligations in bankruptcy (federal bankruptcy law trumps state law; see Detroit). So the state level guarantees might not preclude default.
posted by jpe at 5:24 PM on November 7, 2014