Some very generous retirement benefits
Unless you have nerves of steel there must be some concern about your retirement given America’s recent economic upheaval and the devastating effect it’s had on savings.
Then, the looming insolvency of Social Security and Medicare plays heavily on many folks’ minds. It is not a happy time to be contemplating retirement.
Rumblings out of Washington these days bode ill for younger workers, especially those under age 55, because of talk of raising the retirement age, means testing for Social Security and so forth.
Bottom line, it’s going to be up to the individual to plan for and save for any future they might have after they retire.
Many companies have abandoned defined benefit retirement programs, pensions and so on in favor of profit sharing or 401 (k) plans where employees contribute and the employer matches a certain percentage annually.
These plans put a premium on individual employee discipline to save and invest carefully for the future.
Unless, of course, you happen to work for the federal government. Take for example a certain member of Congress who photographed his weiner and broadcast it far and wide on social media and subsequently was forced to retire.
With the resignation of Representative Anthony Weiner from Congress, the media feeding frenzy surrounding his Twitter and Facebook blunders is winding down—but a teachable moment regarding the use (or misuse) of social media tools remains.
There has doubtless been much discussion regarding his conduct, his departure has also shed light on the generous benefits that Congress receives, particularly in retirement.
Over the past several years, government employee retirement and retiree health benefits have received a lot of attention.
Many state and municipal budgets are stretched to the breaking point funding their obligations to their employees.
Now state, county and city officials are reviewing their benefit programs in an attempt to rein in future costs.
We witnessed the riots and near-riots in Wisconsin when this effort resulted in restricting the collective bargaining rights of unions in such matters.
Given our current environment, it is instructive to note what Congress receives for retirement benefits: They are covered under the Federal Employee Retirement System (FERS), which features a pension-style plan at minimal cost to employees.
They contribute less than 1 percent of pay, and contributions bear no relation to the benefits.
Members of Congress and congressional staff pay 1.3 percent of salary for FERS coverage; Congress pays approximately 16 percent of payroll as the employer contribution for members and congressional staff covered by FERS.
They are also eligible to contribute to the Thrift Savings Plan (TSP) for federal employees.
The first 5 percent they contribute is matched by the government. In addition, Congress is also covered under Social Security, and the government matches their contributions (a total of 7.65 percent) up to $106,800. So, the government’s (i.e. taxpayer’s) burden for retirement-related expenses as a percent of payroll will range from 24–27 percent for Congress and their staff.
This is significantly higher than in private sector employments.
Turn your focus to the now-resigned Rep. Weiner, who at age 46 has been a Congressman for 12 years and has a recent salary of $174,000 (standard for both the House and Senate).
He can begin taking discounted pension payments of about $25,000 a year starting at age 56 or wait until age 62 and collect about $35,000 a year.
The estimated present value of that type of retirement plan can vary, but a reasonable approximation is in the $400,000–$500,000 range.
This value, plus the value of the TSP matching contributions, represents a generous retirement package for someone with 12 years of service to a job and is leaving at the reasonably young age of 46.
So where does this leave the average individual?
It’s a reminder to provide for your own retirement plan by utilizing vehicles like IRAs (regular, Roth and after-tax), as well as retirement plans like SEPs, SIMPLE IRAs and Safe Harbor 401(k) plans.
Or, as a last resort, you can get yourself elected to Congress so you can really cash in.