Pension makes big difference

Dave Urbanek of the Teachers Retirement System recently responded to my letter to the Fence Post in which I suggested the creation of a “Pension Benefit Preservation Fund.”

The idea was for the Illinois pensioners to contribute an escalating percentage of their retirement income to the PBP fund to prevent the financial collapse of the retirement funds. Also, to reduce the potential large tax increase on Illinois taxpayers, who for the most part do not have pension plans. They must rely on Social Security for their retirement income.

He also mentioned that the teachers contribute 9.4 percent of their salaries to TRS annually vs. 6.2 percent of salaries of those covered by Social Security. However, there is a very large difference in the outcome and I would like to illustrate with an example:

A teacher starts at age 25, $35,000 starting salary, 2 percent annual salary increases, works 37 years to age 62 and retires with 75 percent of final salary of $71,396 with lifetime income of $53,547 which will grow at 3 percent per year with COLA.

Same scenario as above, but for Social Security person. Person contributes 6.2 percent to Social Security, and 3.2 percent to a 401(k) plan for a total of 9.4 percent. At age 62, the Social Security person would receive $53,547 annually with 3 percent COLA up to age 67 at which time the 401(K) funds would run out. From age 67 on, the Social Security person would have to rely only on Social Security of $28,027 annually.

If both teacher and Social Security. person live to age 75 the teacher will collect $351,239 more in income for the same annual contribution of 9.4 percent. So, who has the best deal?

Ron Fuchs

St. Charles