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Guest Post: Who's Living Large in Retirement?

Tyler Durden's picture




 

Submitted by Dennis Miller, via Casey Research,

Who fares better in retirement, pensioners or folks who saved up their own respective nest eggs? If you look at the numbers, you might be surprised to learn who's really "living large" after retirement.

Regardless of how you made your money, what determines if you're rich when you retire? Frankly, it isn't how much money you made, but how much you accumulated that counts. So who are the real rich people?

Retirees generally fall into one of four groups: folks who retired from the private sector with a 401(k), IRA or a lump sum payout in lieu of a private pension; those with a government pension; self-employed folks who saved their own respective nest eggs; and finally, those scraping by on Social Security alone.

The U.S. Census Bureau reports that in 2010 the top 10% had a median net worth of $1,864,000. If you're worth that much or more, 95% of the population thinks you're rich. But are you?

When my wife and I were first married we had a negative net worth. No silver spoons for us! By our late 50s we were successfully self-employed and in the top income tax bracket. And yet, once we paid federal and state income taxes, plus Social Security and Medicare, about 50% of our gross income went to taxes. We raised a family with what was left.

Once the children left the nest, we were in the race to the retirement finish line. For us, like most folks, that's when we really began to accumulate wealth for retirement. Here was our challenge.

For a self-employed person to end up in the top 5%, with a net worth of $1,864,000, he would have to earn a spare $3,728,000 before taxes. Now that sure sounds rich, but is it?

Assuming this person lives in a paid for home worth $564,000, that leaves $1,300,000 in his portfolio for retirement. And let's assume he and his spouse receive $35,000 a year in combined Social Security payments.

Today the best rate for a FDIC-insured CD is 1.1%. If the entire portfolio was in CDs, it would pay $14,300 in interest. Add that to their $35,000 in Social Security and they earn just under $50,000. Remember, 95% of the population thinks they're rich. Their retirement income is likely no more than 40% of what they earned when working.

And the winner is...

Firefighters in Contra Costa County, CA have a state law protected pension; many receive over $100,000 annually. (Their department is also closing four stations to make budget.) I have several friends who retired from the government who've received a large increase the last couple of years, bumping their pensions to well over 80% of their former salaries. Many regularly risked their lives, and I don't begrudge them a dime.

But it would take a self-employed person $2 million in earnings to net $1 million, which could fund an $11,000 pension. It would take just over $9 million for a person in the private sector to fund the pension equal to a Contra Costa County firefighter.

So who is living large?

Those who are fortunate enough to have sound government pensions are living very well compared with those in the private sector.

So what do I tell baby boomers in the private sector? First get out of debt. The quicker you can start accumulating wealth, the better. If you have any type of tax-deferred retirement plan like a 401(k) or an IRA, strive to maximize your contributions.

Once you have maximized tax-deferred accumulation, move on to the next phase. Start accumulating wealth long before your nest is empty. Even saving just $20/week beginning at age 50, with a modest 4% growth rate, will turn into $31,573 by the time you are 70. Through the magic of compounding, $20,800 saved over 20 years will earn $10,773 on top. Start the process and watch it grow; it will make you want to save more.

Don't rush out and join the fire department. Whether you are in the government or private sector, the combination of tax-deferred retirement income, savings and prudent investing, and most importantly—having an easy to use plan that you’ll actually follow—is what will help you enjoy your "golden years."

In our Money Forever letter we recently developed a monthly income plan using some of the safest dividend stocks on the market. The plan is easy to follow, doesn’t require an extensive background in investing or even that you start with a lot of money; you just need a willingness to learn and a desire for reliable monthly income. Click here to find out more.

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Wed, 02/20/2013 - 18:52 | 3261439 ACP
ACP's picture

This is absolutely correct - state workers always live in the best neighborhoods in CA.

The firefighter pension is for the lowest-level firefighter. A Captain will have well over a $200k pension.

Wed, 02/20/2013 - 18:53 | 3261448 Zap Powerz
Zap Powerz's picture

ACP,

Yep, the parasite does very well until the host dies.  Then its shit out of luck.

Wed, 02/20/2013 - 19:00 | 3261457 ACP
ACP's picture

Here's some more detail that will piss off anyone who actually works for a living:

http://www.nbcbayarea.com/news/local/Non-Union-Retirees-Rake-in-200k-Plus-Pensions-168179636.html

Excerpt:

The "fattest of the six-figure pensions guaranteed by California taxpayers" go to a former San Joaquin County superintendent of schools and a fire chief in San Ramon Valley, both of whom take home more than $295,000 a year.

THIS ZH ARTICLE ACTUALLY UNDERSTATES THE PROBLEM!!!

Wed, 02/20/2013 - 19:05 | 3261474 augustusgloop
augustusgloop's picture

And so Calpers is fully funded for all this largesse? Clearly the frugal governors of California have been socking away for just such returns to its employees. 

Or, just debase the currency so 100-200K will buy a loaf of bread and a half tank of gas. Problem solved, no need to change legally guaranteed benefits. 

Wed, 02/20/2013 - 19:08 | 3261481 SilverTree
SilverTree's picture

Is Tulving sold out?

Wed, 02/20/2013 - 20:32 | 3261723 1100-TACTICAL-12
1100-TACTICAL-12's picture

Get out of debt. check

contribute to 401k ,IRA not so much. seeds, lead, brass,silver,gold & black powder /dirt. Thats how i roll.

Thu, 02/21/2013 - 01:37 | 3262289 TruthInSunshine
TruthInSunshine's picture

Math is sterile and cold, but I love it (even if I don't excel at it & never have) because it doesn't lie. Statistics may misrepresent since they're subject to tortuous skewing and false correlation-causation narratives, but not plain old arithmetic.

And the plain old arithmetic clearly demonstrates that a massive number of those now working or even already in retirement, who are vested in pensions, government and otherwise, are going to experience one of 3 things (or perhaps a combination of these things):

1)   Their pension will be paid in increasingly debased fiat, and in increments of debasement that are FAR higher than historical rates of inflation (that's the price that will have to be paid in order to avoid a de jure default on the underlying contract, even if it constitutes at least a partial de facto default).

2)  Their pension will be slashed significantly in nominal and real terms, in order to avoid having the base pension fund from evaporating prematurely (which will have the same practical effect as number 1 above)-- and The Pension Benefit Guaranty Corporation (PBGC) will not be liquid enought to gap fill the shortcoming.

3)  Their pension will be outright voided, based on events such as Chapter 9 municipal bankruptcies, corporate bankruptcies, and the simple failure of certain pension funds for other reasons, and which the PBCG will refuse to assume or can't assume (due to its own "issues").


Wed, 02/20/2013 - 19:55 | 3261610 knukles
knukles's picture

CalPers and CalSters are Not Fully Funded
Even the way they count it
They do not calculate funding needs on a PBO but rather an ABO basis (not exact but close enough for gubamint work) meaning that the liability is grossly understated.  The ABO generally and over simplified but again CEFGW assume that the world simply stops today.  Nobody ever accrues another days work, which is a dumb ass irrelevant number.
But close enuf for...
Then, it is said by sources in the "profession" that some of the assets have not been effectively marked to market as should have been done.  Marked to Myth type efforts.
To wit:  I have been told that there are scads of real estate investments been basically wiped out gone Gonzo Alonzo that are still carried at cost because somebody somewhere believes they have some economic value and land shall again rebound... some where over the rainbow.

So, the accounting that is put forth by such entities is sadly, grossly underestimated as to the true economic effective cost to the taxpayer.
And these folks live large, nice vacations, Porches, Mercedes 500 classes, top end restaurants, weekend jaunts to the big city to take in the plays, dinners, etc....

We the people been had.
They gave themselves all this shit without saying a Goddamned thing.  And then quit the jobs, draw pensions and even get consulting jobs with the same entities on the side to double dip. 
Waste of Fucking Money

Thu, 02/21/2013 - 00:14 | 3262241 TahoeBilly2012
TahoeBilly2012's picture

There worst part and I live in Sac, thwy don't work hard, the aren't really very smart (I went to school with most of them) and they wouldn't no what working in a for profit/free market day was like in the their lives!! It's astounding shit when you are a hard working entreprenuer who has fallen on tough time (back climbing ladders)...insane. My solace is God gives me the struggle so I get to see and feel more than most. These people are living in la la land.

Thu, 02/21/2013 - 00:01 | 3262218 LongBallsShortBrains
LongBallsShortBrains's picture

Don't forget that CALPERS owns many of the capital appreciation bonds purchased from bankrupt entities who's employees retirement is in......CALPERS.

What a fucking pretzel.

Thu, 02/21/2013 - 07:50 | 3262583 Slightly Insane
Slightly Insane's picture

I'ld prefer that the municipality just file for bankruptcy and renig on the pension obligations.  When more municipalities do this, those heavy on the teat will leave in droves, and it will send a clear message to those wishin to loot the public.   (Wait till the affordable health care crap kicks in .... insurance companies collapse, followed by hospitals, all by gov. decree).

Thu, 02/21/2013 - 08:34 | 3262633 sbfeibish
sbfeibish's picture

celestial justice (def.)

"Or, just debase the currency so 100-200K will buy a loaf of bread and a half tank of gas. Problem solved, no need to change legally guaranteed benefits. "

Thu, 02/21/2013 - 08:34 | 3262634 sbfeibish
sbfeibish's picture

celestial justice (def.)

"Or, just debase the currency so 100-200K will buy a loaf of bread and a half tank of gas. Problem solved, no need to change legally guaranteed benefits. "

Wed, 02/20/2013 - 19:28 | 3261536 greyghost
greyghost's picture

just another rich ass cry baby. will be glad when zero hedge leaves these fucktards behind and stops posting their endless dribble. enough already. compared to my grandparents from the thirties forties fifties and their tax rates this clown is living in hog heaven. if this cry baby wants to bloviate why not direct attention to the federal reserve and it's banker friends. holy shit just another moron that finds it easy to point fingers at their fellow citizens. it's all soc. sec. and medicare and food stamps and high tax rates and that fucktard next door and welfare and those damn mothers and apple pie and guns and.......................this clown has never had a thought about why all these programs were started....never. maybe just maybe some people knew that since they allowed the federal reserve and their banker friends to "SKIM" the economic cream from the top, that maybe some would be left wanting. so now the bankers aren't happy with just the skim, they are taking it all, the butter fat, the cream and now the 2% milk. it is not the person next door, it is not your parents or grandparents. when good times roll do you blame those people for your good fortune? grow up people and start putting the blame squarely where it belongs.

Wed, 02/20/2013 - 19:35 | 3261552 Dr. Richard Head
Dr. Richard Head's picture

You are comparing nominal amount of Federal Reserve Noted over two different generation and money systems - they had gold backed dollars to a point and this generation has nothing back dollars. The life s millionaire in the 20's is much different than the life a Millionaire now.

On a different not about this article, I stopped reading after the part about maxing out 401k. Sure one can get lucky with the right fund and timing, but I won't play in that HFT trading market that is levitated with ZIRP, QE, money laundering, and fucked up PE ratios; all the whole the Feds pick their chops at those "holdings".

I believe I also stopped reading your post after something about the millionaires' champaign sorrows.

Wed, 02/20/2013 - 19:35 | 3261553 buckethead
buckethead's picture

Umm. I think you would like to have typed "drivel". Not that spelling is the major flaw in your comment. 

You might start by re-reading the original post, then contrasting your comments. It seems you are adressing phantom issues.

Wed, 02/20/2013 - 19:26 | 3261537 McMolotov
McMolotov's picture

Pensions are the equivalent of promising your daughter a Lamborghini for her 16th birthday when you work part-time at Starbucks.

Wed, 02/20/2013 - 19:44 | 3261580 A Lunatic
A Lunatic's picture

And then pimping off your Granddaughter in order to actually fund it..........

Wed, 02/20/2013 - 22:46 | 3262026 willwork4food
willwork4food's picture

Then buying it yourself for "security reasons" and leasing it to her.

Thu, 02/21/2013 - 07:58 | 3262590 Slightly Insane
Slightly Insane's picture

You forgot to add, (for the Government Pensioner) that the tab gets picked up by the Starbucks customer (a tax payer).  Sooner or later the customer switches to a less expensive brand when faced with declining discretionary dough, or gives up on the high priced coffee altogether.

Wed, 02/20/2013 - 20:24 | 3261696 Never One Roach
Never One Roach's picture

Lifeguarding in OC is totally lucrative; some make over $200k

 

High pay and benefits for lifeguards in Newport Beach is the latest example of frustrating levels of compensation for public employees. More than half the city’s full-time lifeguards are paid a salary of over $100,000 and all but one of them collect more than $100,000 in total compensation including benefits.

 

http://orangepunch.ocregister.com/2011/05/10/lifeguarding-in-oc-is-total...

Wed, 02/20/2013 - 22:48 | 3262027 willwork4food
willwork4food's picture

You have got to be fucking kidding me.

Thu, 02/21/2013 - 01:19 | 3262337 A Nanny Moose
A Nanny Moose's picture

At least the lifeguards do what they do without guns. They do it for people who are largely too stupid to respect nature, precisely because there is someone to save their asses (moral fucking hazard)...just like banks.

I cannot tell you how many mouth breathers, we've risked our lives to save, because they are too stupid to avoid into a class V+ monster that wants to eat you. Meantime Search and fucking Rescue stands on the river bank waiting to call in a a fucking helicopter, because it's "not their job"

/search and recover rant -off

Thu, 02/21/2013 - 08:04 | 3262595 Slightly Insane
Slightly Insane's picture

Maybe its time to take down all those tall chairs, send the lifeguards home and post signs "swim at your own risk, your results may vary" .... and put a list of all the Hazards.

 

 

Wed, 02/20/2013 - 19:09 | 3261484 boogerbently
boogerbently's picture

Why can't we make the respective unions finance their OWN retirees/

See if they agree to a cut then!

Wed, 02/20/2013 - 20:18 | 3261683 Dingleberry
Dingleberry's picture

"Don't hate the playa.....hate the game!"

Local Union (fill in the blank CA public servant)

 

On a side note, just another reason to bump up the income tax rate to 13%......RETROACTIVELY. 

 

No sympathy here. 

Wed, 02/20/2013 - 22:53 | 3262041 RKDS
RKDS's picture

Yeah well Pennsylvania is paying file clerks about as much as non-union computer programmers so it ain't all roses in state employment either.

Thu, 02/21/2013 - 08:22 | 3262614 RKDS
RKDS's picture

 

Gee, I wonder where the down arrow came from, an overpaid file clerk, a Republicrat politico, or an imbecile parroting whatever they head on Hannity last night.

 

Thu, 02/21/2013 - 00:18 | 3262254 PGR88
PGR88's picture

My kid's kindergarten teacher just retired -and bough herself a new Mercedes 500 SEL

Thu, 02/21/2013 - 09:59 | 3262885 midtowng
midtowng's picture

My brother is a state worker in CA and he lives in an apartment complex.

Wed, 02/20/2013 - 18:52 | 3261443 Pairadimes
Pairadimes's picture

Marry a Rothschild.

Wed, 02/20/2013 - 19:13 | 3261497 kito
kito's picture

or a Walton, or a Slim, or a Gates....

Wed, 02/20/2013 - 18:53 | 3261449 john39
john39's picture

maximize your 401k cntributions?  so the government or bankers can steal it?  good one...

Wed, 02/20/2013 - 19:10 | 3261488 CPL
CPL's picture

If the early indications of contribution so far this year versus historical are correct.  Then I understand that all that disposable income (credit cards) are at their limit.  Plus true employment income has shrunk enough that there is no benefit to contribute a dime to them, shopping in general like Walmart is noticing now.

Then news articles like this one start to pop up.

http://www.dailykos.com/story/2013/02/16/1187559/-How-the-Hell-do-you-get-OUT-of-a-401k

And ilustrated examples of how to dump a 401k fast.

http://www.softpanorama.info/Skeptics/Financial_skeptic/Protecting_your_401K/index.shtml

 

Everyone knows it's coming and are running hard sensibly.  If you've got one, don't be the last guy out.

Wed, 02/20/2013 - 20:18 | 3261678 SIOP
SIOP's picture

CLP, that artice "Protecting your 401K" looks like a good read, I will be reading it over the next few days, thank you.

Wed, 02/20/2013 - 20:31 | 3261717 CPL
CPL's picture

Lots of sensible input on how to manage the problem of being trapped in a forced or stuck position in a 401k.  

The author keeps on topic of how people can save themselves a lot of pain by understanding what a 401k really is and how to put yourself into a defensible posture while trouble is brewing.  While people won't get to keep it all, they will at least manage to save more than if the panic button was hit.

Judging by world banks moving in a hard line to devalue themselves.

Thu, 02/21/2013 - 00:14 | 3262242 Edmon Plume
Edmon Plume's picture

You can't use "dump" "fast" and 401k in the same sentence.  It can - and probably will - take weeks to withdraw, depending on your financial "manager".  I've seen months.  As soon as you submit a withdrawal request, it's like they become government employees.  Paper shuffling, foot dragging, you name it.

Wed, 02/20/2013 - 19:12 | 3261496 MachoMan
MachoMan's picture

No shit...  I'll be able to pull that money out in about 45 years...  if the government or other parties don't steal it first.

In this regulatory and economic environment, who the fuck would stuff an illiquid account full every year of maximum contributions?  Fuck, of any money?

I get it if you have old man balls and are on the brink of retirement, but jesus...  for young people, getting started early contributing to a retirement plan just means you get to be fucked more often and longer.

Wed, 02/20/2013 - 19:15 | 3261508 CPL
CPL's picture

Young people should wait for the next economy before investing in this one, better yet, build their own.

Wed, 02/20/2013 - 19:52 | 3261602 Manthong
Manthong's picture

401k's made some sense until "they" demonstrated that FRN's had no wealth preservation value and that the markets are all a kabuki.

Wed, 02/20/2013 - 20:08 | 3261644 Papasmurf
Papasmurf's picture

There won't be a next economy.  There is only the illusion of one.

Wed, 02/20/2013 - 20:31 | 3261721 CPL
CPL's picture

Well, it'll probably be called trading again.

Wed, 02/20/2013 - 23:45 | 3262180 Kirk2NCC1701
Kirk2NCC1701's picture

Indeed. Don't forget that any savings and assets (house etc) must first be liquidated if/when you need to get Gov handouts. These tax-payer-funded handouts are only for those who did not save or build. They are for Takers, not for Makers.

Kirk to crew: Prepare to beam down. Set phasers on stun. For now.

Wed, 02/20/2013 - 18:55 | 3261452 Silver Garbage Man
Silver Garbage Man's picture

Buy silver and do it with honesty and integrity.

Wed, 02/20/2013 - 19:04 | 3261473 Talleyrand
Talleyrand's picture

...and volatility. Ouch!

Wed, 02/20/2013 - 19:13 | 3261495 CPL
CPL's picture

If you find someone selling at 28.70 let me know.  I have a truck that I need filled.  All that there is paper.  Cheap, unbacked, worthless paper.   They can keep it.  

In fact I'm willing to pay 35 per real (and tested) ounce if you have some, 5 shy of the $40 street rate but if you feel nervous holding silver I can take it off your hands right now.

Wed, 02/20/2013 - 19:19 | 3261523 SilverDOG
SilverDOG's picture

CPL,

 

 

Street rate here at LCS is $1.00 over spot for OPM rounds.

They just received 3900 shiny friends.

Well not 3900 any longer.

 

Wed, 02/20/2013 - 19:28 | 3261541 CPL
CPL's picture

It's the same everywhere, it's already spoken for months in advance.  Central Bank of Canada closed the silver sales and started issuing the paper variety.

 

1/2 ounce of silver can be bought from the mint for a 'reasonable' 40 bucks on a 'ten' dollar coin.

http://www.mint.ca/store/coin/12-oz-fine-silver-coin-the-beaver-2013-prod1630013

.5 gram gold coin 80 bucks.

http://www.mint.ca/store/coin/0.5-g-fine-gold-coin-hummingbird-mintage-10000-2013-prod1630009

 

Please note that mint up until a couple of years ago didn't produce such small weights en masse.

Wed, 02/20/2013 - 20:01 | 3261624 2bit Hoarder
2bit Hoarder's picture

CPL ... i buy from silvertowne.com  never had any problems with them.  just bought gold and silver today.

 

http://www.silvertowne.com/c-498-silvertowne-bars.aspx

 

http://www.silvertowne.com/p-21494-2013-canadian-gold-maple-leaf-1oz-bu....

 

 

Wed, 02/20/2013 - 20:38 | 3261737 CPL
CPL's picture

They got caught selling shaved coins in 2010.  I tuned them out after that, be careful of 'deals' in shiny objects that have value.

 

If I pay for 99.99 I don't want 97, 96 or 92.  I want my 99.

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