Penniless Pensions

So a few days ago, I was a little bothered by something that I heard from a friend online.  My friend, “Frank”, made it clear that he thought NYC Mayor Michael Bloomberg had lost his marbles; one pickle short of a Big Mac; destined for the crazy bin.  Politicians do weird and illogical things sometimes so I really began to wonder what he possibly could have done to get “Frank”, not normally one to be bothered by stupid politics, all fired up.  The issue: Bloomberg demanded pension reform.

Part of me was disappointed that there was no major gossip or corruption story and another part of me was disappointed in “Frank” for not understanding such a basic principle.  That principle is this: if there is no money in the bank then there is no money to put into pensions (or anywhere else!).

Let me paint the full picture. For those who do not know, maybe only one or two of you, Mayor Michael Bloomberg is a 60-something billionaire. Having made his fortune building Bloomberg News, the mayor entered politics to try cleaning things up with his business savvy. If nothing else, he is helping by taking a modest annual salary of $1.  Quite simply, he knows business and how to successfully run an organization.

“Frank” is a young but ambitious guy working in public service.  He is simultaneously trying to build more than one business while also managing the demands of family life and fatherhood.  Full plate huh?

“Frank’s” position is completely understandable.  He joined the game with the pension rules in place and he wants to enjoy the benefits too.  He probably thinks that changing the rules in the middle of the game isn’t fair.  While I agree with that, life isn’t fair.  Everyone thought pensions were a great idea years ago…and then almost all major companies saw the writing on the wall and eliminated them because they are UNSUSTAINABLE.  The fact, and I stress the word FACT, is that pensions do not work as currently designed.  Why do you think companies stopped offering them?  Because the expenses were too high!  The expense of pensions on the NYC budget is, I believe, one of the largest expenses on the books and is projected to steadily increase every year.  [Think that over…one of the largest financial burdens on the City of New York is paying people who no longer provide any services.]  What makes things tricky is that the public sector can afford anything really…so long as the government taxes everyone enough.  Fabulous idea.

The problem, in my opinion, is that people have a low Financial EyeQ and want to be taken care of by the government.  Honestly, this is really disappointing.  We have moved from fighting to break free from an oppressive government long ago to wanting a controlling government today.  Nonsense.  There are many, many examples of this recently and it is simply really frustrating & confusing.

Anyway, lots of people with pensions retire at the earliest age possible so they can enjoy the benefits ASAP.   Maybe to change the mentality and hopefully the economics of the deal, why not:

  • Pay public service employees more while working & less in the pensions?  They can handle their retirement just like everyone else.
  • Pensioners who play the “20 and out” card get minimal benefits while those that stay longer benefit more
  • Individuals get educated, increase their Financial EyeQ and take control of their own retirement.

My hope is that more people choose the last option.  The simple fact is that the rules of the pension system simply do not work.  And if the pension system changes, how many people who rely on them would be able to adjust to the new system?  You cannot put all your eggs in one basket, especially when it comes to financial matters with the government.  To be clear, it is not a matter of appreciation for public service personnel, especially law enforcement and fire departments; their sacrifices are tremendous.  It’s just that the model doesn’t work as designed, plain & simple.  Get educated, increase your Financial EyeQ and take control of your retirement before the pension funds are penniless.

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