Los Altos district asks voters for new $193 tax
Original post made
on Apr 13, 2011
Mountain View voters living within the Los Altos School District's boundaries are being asked to approve a new $193 annual parcel tax to benefit local schools. Measure E will appear on the May 3, all-mail ballot.
Read the full story here Web Link
posted Wednesday, April 13, 2011, 11:48 AM
Posted by KD
a resident of Waverly Park
on May 2, 2011 at 3:52 pm
Retirement Guru (from April 28)
Your math and logic are somewhat flawed.
Let's assume that the teacher and engineer both decide to retire at age 60, after 30 years of work. During that time, each has received 2% annual raises, cumulating a final salary of $100,000 each (cash salary, excluding benefits and the value of employer contributions to a defined benefit plan in the case of the teacher, or possible matching contribution to 401k in the case of the engineer).
And let's assume that the return on investment is 6% per year. These not unrealistic assumptions if we assume that $100,000 is about the average of the highest paid LASD and MVLA high school teachers, 2% is a reasonable rate for inflation / salary increase.
Over 30 years, the teacher and engineer would have each earned $2.28 million.
The teacher would have contributed 8% of salary (total $187,171) which would have grown (within CalSTRS) to $469,417 at retirement, a 6% per year, through the magic of compounding.
School districts (including LASD) and the state contribute an additional 8% and 2% of each teachers salary to CalSTRS annually. These funds plus investment returns thereon (assume 6% per year) bring the total of the teachers "account balance" to $1,056,188.
The engineer would have contributed 15% of salary ($342,666), which would have grown (at 6% annually, compounded), within the 401k, to $880,000.
At retirement, the teacher is "entitled" to a pension of $68,400 per year (equal to 2.2% (approx) of final 3 years average salary (approx $98,000) times years of service (30).
Fidelity tells us that the cost to purchase a $68,400 a year / $5,700 a month life annuity (no beneficiaries) for 60 year old female living in California is approximately $1,014,000. So the teacher's pension has a market value of approximately $1 million at retirement similar to the theoretical account balance (above) after contributions from the teacher, district, state and investment returns over the years.
The engineer could use the $880,000 in the 401k to purchase a life annuity (no beneficiaries) that would provide monthly payments of $4,600 a month.
So the difference between the teacher's defined benefit plan and engineer's 401k appears to be $134,000 of capital value or $1,100 a month in retirement.
1) whereas the engineer's monthly income is fixed for life, the teacher's pension has a Cost of Living Adjustment (typically 2% per year)/
After 10 years, when the teacher is 70, her monthly pension payment will be $6,950, while the engineer is still at $4,600 per month.
2) the teacher should have been contributing another 7% of pre-tax salary to a 403b (so net, after tax income for both teacher and engineer were the same over the 30 year employment period). If we assume that the teacher's 403b also earns 6% per year compounded, the teacher at retirement has a 403b account balance of $410,000 which is enough to buy a life annuity of $2,141 a month.
Pension at 60 $5,700 / mo
401k / 403b $2,141 / mo $4,600 / mo
Total $7,841 / mo $4,600
Pension at 70 $6,950 / mo
401k / 403b $2,141 / mo $4,600 / mo
Total $9,091 / mo $4,600
In summary, the current teacher / public sector defined benefit pension program provides a retirement benefit that is 70% richer than the 401k benefit available to most tax payers at retirement and almost 100% richer 10 years post retirement.