Welcome to the latest edition of This Week in Pensions! We have gathered the best stories about pensions and retirement security from the previous week. You need to know this news in the fight for a secure retirement.
NPPC News
October is National Retirement Security Month. At NPPC, we consistently highlight the value of defined-benefit pensions for public employees and everyone lucky enough to have one. But what about the millions who don’t have access to a secure retirement plan? Read about the importance of a secure retirement in our most recent blog. Also, stay tuned to our Instagram and Facebook page for content all month long!
OPINION: When it comes to state government, you get what you pay for
In an op-ed in the Anchorage Daily News, Dan Tucker argues for the necessity of defined benefit plans for state employees. Speaking on the massive shortfalls in reliable services due to the inability to hire enough workers, he points out how recruiting and retaining public employees differs from the private sector.
“Big business doesn’t typically have defined benefits (anymore — some used to), but they pay higher wages for most positions than the government does. But the government is far more ‘local’ in nature and relies far more on historical knowledge to capitalize on maintaining and planning for our futures. The benefits of having a fair defined-benefit retirement plan and being able to retain good, qualified, tenured, experienced, dedicated employees pay benefits to our state, cities, and citizens that just can’t be measured by simple dollars.”
Not only is public sector recruitment difficult for Alaska, but the employees of the state have an uncertain retirement ahead of them. Tucker writes, “…as government employees, none of the affected employees participate in, therefore, are eligible for Social Security benefits as a result of their employment.”
Alaska faces challenges in attracting and retaining people due to its remote location, and if there is no secure retirement option, the state’s outmigration problems will only get worse.
About 45% of Americans Will Run Out of Money in Retirement, Including Those Who Invested and Diversified. Here Are the 4 Biggest Mistakes Being Made
The state of retirement readiness is dire, writes Laila Maidan for Entrepreneur.
According to a simulated model that factors in things like changes in health, nursing home costs, and demographics, about 45% of Americans who leave the workforce at 65 are likely to run out of money during retirement.
This is highly concerning and can affect millions of people. While critics can suggest that proper saving and frugality can mitigate these factors, it doesn’t change the reality that things such as inflation and an increase in cost of living can reduce the amount of money invested in a defined contribution plan. And this is even assuming that the worker has saved for retirement.
“It’s wrong in so many ways,” Roop said. “After retiring, most people’s spending habits either remain the same or go up. When you have more leisure time on your hands, more money goes toward entertainment and travel, especially in the first few years of retirement. The outcome is a higher withdrawal rate, which can push you into a higher tax bracket,” he noted.
The article argues that people spend their careers investing in a 401(k) or an IRA because they allow contributions before taxes. It sounds like a great perk when you can cut your taxes and defer them. The downside is that withdrawals will be taxed.
The other downside is that it doesn’t offer the security that a defined benefit pension plan offers. With a defined benefit plan, retirement income is reliable and permanent, and the retirement crisis will end when everyone has one.
Be sure to check back next Friday for the latest news in the fight for a secure retirement! For now, sign up for NPPC News Clips to receive daily pension news from across the country directly to your inbox.