– John Dillon. John blogs at Pension Vocabulary and will be joining us as a guest on Hitting Left with the Klonsky Brothers, episode #27, airing live August 11th at 11am on 105.5fm in Chicago and streaming http://www.lumpenradio.com. Podcast hittingleft.libsyn.com
Have you ever wondered just how many contributions to your retirement plan it would take before you broke even? Breaking even would be that point in a teacher’s career where her contributions would match the value of her benefits in retirement?
If you read the Chicago Tribune, listen to the administrative support team of Governor Rauner (Illinois Policy Institute), or have a family member or neighbor who works in the private sector and abhors taxes of any kind – well, you’d think you would get a sweet return which would always wash over what you put in, wouldn’t you?
But you’d be wrong.
Nearly 3 out of 10 teachers leave the profession within the first five years, and we can expect their contributions to the pension systems will never match any real return. In fact, they’d be wise to take it with them.
Pension contributions are back-loaded. That means that teachers put in increasing amounts as they gain experience and value (salary) in the classroom. In Illinois, 9% of $25,000 starting salary is much less than the later multiple-degree salary of $60,000. In fact, only about half as much.
Somewhere out there in the future, the meeting between what teachers have given and what they will earn crosses.
According to a recent research paper looking at all states, that moment of equivalence may be longer away than any teacher thought, and it will be VERY dependent upon the specific state’s retirement program.