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> One study found that more than three-fourths of all American teachers hired at age 25 will end up paying more into pension plans than they ever get back. You

> One study found that more than three-fourths of all American teachers hired at age 25 will end up paying more into pension plans than they ever get back. You're welcome kids - we've been stealing your money for the last few decades by ignoring basic economic facts. As a result of our greed, instead of getting more out of your retirement savings than you put in (you know, from things like compound interest and investments), you're paying for the previous generation's unsustainable pensions. And of course since we've backed ourselves in to this corner, we can't let you opt out of the pension plan so you can behave responsibly on your own..

Terr_ 10y ago
The trick is to distinguish those situations from the ones where it's a political goal to destroy the pension plan because somebody considers union and pensions to be intrinsically wrong.
wishinghand 10y ago
There is an infographic that opens another page in the OP's article that shows that new Massachusetts teachers will NEVER break even on their pension.
SilasX 10y ago
This is what worries me about most such pension systems[1] -- because they don't operate on an actuarially sound basis, but depend on there always being enough payers, they are prone to "evaporative cooling"[2], which can strike suddenly and without warning. That is, as you keep goring a larger chunk out of newcomers, you make their alternatives more attractive e.g. occupations other than teaching, or teaching in other country. This looks disproportionately appealing to the biggest potential contributors. So each person that leaves means a bigger chunk you have to take out of other newcomers, and the process accelerates. So then you may have little warning before you reach the point where enough have left to make it bankrupt. Unfortunately, it's an uphill battle just to convince people that pensions should required to be funded at all, i.e. they set aside the discounted present value of every future dollar promised, rather than "oh don't worry, we'll totes have enough rev by then!". [1] i.e. pay-as-you-go or underfunded [2] To explain the metaphor, "Evaporative cooling" refers to how the exits from the system are lopsided and change its average properties. For liquids, the particles that evaporate away have the highest energy per particle, leaving the average particle energy -- and thus temperature -- lower.
- hackits 10y ago
  I'm from Australia and here is my pet hate. Over here we have compulsory Superannuation Funds where 9-10% of your salary is deposited into your superannuation fund of your choice. Although you cannot access the superannuation fund until you turn 80, and this figure keeps getting pushed back. The business tax rate is 30%, and also employee tax rate for me is 25-27% of my income goes into income tax. We get shoved down our throat's that we shouldn't be a burden on the tax payer, and will have to provide for our own retirement using our own superannuation funds. Well at the same time being faced with the following situation. 27% of the wages go into tax. 9% of the wages go into superannuation fund for retirement. 2% is the medicare levy that you have to pay per year. 5% or $70 per week for Private Health insurance or you get health insurance loading after 30 years old that accumulates 2% per year. Then we're faced with a situation where housing is 8-9 times medium income in this country. So in summary, you're faced with indirect costs to about 43% of your gross income. So take my situation for example 85000+(85000*0.09) gross income the take home at the end of the year is 52,810.5. Considering a house is now 8-9 medium income, this comes to $680,000 for a average 3 bedroom house. Using a full time income to pay that mortgage @ 4.5% PA ($96 going to fees and associated council rates) weekly repayment of $919 this will take ~ 23 years to pay the mortgage off with the total cost of the loan being $1,086,386, and total interest payable. $406,386. So fast forward, forward 23 years I'm 58 with $175,950 in the super fund. Assuming a 3% growth of the value of the house, it would be now worth $1,382,299. The only realistic option for the remainder is to save for the next 20 years until I can access the superannuation (if its around) $344,250 in super payments $1,284,081 in savings, $2,496,588 house value at the time of retirement and medium wage would be ($277,398) So what does this say about the Australian economy? Well everyone is banking their house will pay for their retirement that they would draw down on in later years. If by any chance house prices go through a major correction here the whole system will be thrown into a massive shit storm.
  - trprog 10y ago
    >Although you cannot access the superannuation fund until you turn 80 This is incorrect. You can access your super from 65 no matter what. You can also access it earlier under some specific circumstances. https://www.ato.gov.au/individuals/super/accessing-your-super/ https://www.ato.gov.au/individuals/super/accessing-your-supe...
branchless 10y ago
Wow, a boomer who thinks the boomers are reprehensible. Rare!

Terr_ 10y ago

The trick is to distinguish those situations from the ones where it's a political goal to destroy the pension plan because somebody considers union and pensions to be intrinsically wrong.

wishinghand 10y ago

There is an infographic that opens another page in the OP's article that shows that new Massachusetts teachers will NEVER break even on their pension.

SilasX 10y ago

This is what worries me about most such pension systems[1] -- because they don't operate on an actuarially sound basis, but depend on there always being enough payers, they are prone to "evaporative cooling"[2], which can strike suddenly and without warning. That is, as you keep goring a larger chunk out of newcomers, you make their alternatives more attractive e.g. occupations other than teaching, or teaching in other country. This looks disproportionately appealing to the biggest potential contributors. So each person that leaves means a bigger chunk you have to take out of other newcomers, and the process accelerates. So then you may have little warning before you reach the point where enough have left to make it bankrupt. Unfortunately, it's an uphill battle just to convince people that pensions should required to be funded at all, i.e. they set aside the discounted present value of every future dollar promised, rather than "oh don't worry, we'll totes have enough rev by then!". [1] i.e. pay-as-you-go or underfunded [2] To explain the metaphor, "Evaporative cooling" refers to how the exits from the system are lopsided and change its average properties. For liquids, the particles that evaporate away have the highest energy per particle, leaving the average particle energy -- and thus temperature -- lower.

hackits 10y ago
I'm from Australia and here is my pet hate. Over here we have compulsory Superannuation Funds where 9-10% of your salary is deposited into your superannuation fund of your choice. Although you cannot access the superannuation fund until you turn 80, and this figure keeps getting pushed back. The business tax rate is 30%, and also employee tax rate for me is 25-27% of my income goes into income tax. We get shoved down our throat's that we shouldn't be a burden on the tax payer, and will have to provide for our own retirement using our own superannuation funds. Well at the same time being faced with the following situation. 27% of the wages go into tax. 9% of the wages go into superannuation fund for retirement. 2% is the medicare levy that you have to pay per year. 5% or $70 per week for Private Health insurance or you get health insurance loading after 30 years old that accumulates 2% per year. Then we're faced with a situation where housing is 8-9 times medium income in this country. So in summary, you're faced with indirect costs to about 43% of your gross income. So take my situation for example 85000+(85000*0.09) gross income the take home at the end of the year is 52,810.5. Considering a house is now 8-9 medium income, this comes to $680,000 for a average 3 bedroom house. Using a full time income to pay that mortgage @ 4.5% PA ($96 going to fees and associated council rates) weekly repayment of $919 this will take ~ 23 years to pay the mortgage off with the total cost of the loan being $1,086,386, and total interest payable. $406,386. So fast forward, forward 23 years I'm 58 with $175,950 in the super fund. Assuming a 3% growth of the value of the house, it would be now worth $1,382,299. The only realistic option for the remainder is to save for the next 20 years until I can access the superannuation (if its around) $344,250 in super payments $1,284,081 in savings, $2,496,588 house value at the time of retirement and medium wage would be ($277,398) So what does this say about the Australian economy? Well everyone is banking their house will pay for their retirement that they would draw down on in later years. If by any chance house prices go through a major correction here the whole system will be thrown into a massive shit storm.
- trprog 10y ago
  >Although you cannot access the superannuation fund until you turn 80 This is incorrect. You can access your super from 65 no matter what. You can also access it earlier under some specific circumstances. https://www.ato.gov.au/individuals/super/accessing-your-super/ https://www.ato.gov.au/individuals/super/accessing-your-supe...

branchless 10y ago

Wow, a boomer who thinks the boomers are reprehensible. Rare!