Retired California Teacher Pension - WOW

In a CNBC article, I read about a teacher/administrator in California who retired at 59 after 36 years and will receive a pension $174,308 a year for the rest of his life. Wow, what a deal. 

First, stories like these cause me to question the formulas used by governments to calculate public employee pensions.  For example, when I worked for a county organization as a summer part time worker, I learned that my pension formula was a percentage times years of service times the average of my three highest paid years.    So if I worked part time for 27 summers and then worked full time for 3 years, my pension would be based on my three full time years, even though the majority of my service was at a much lower pay.

Second, many public employee pensions are underfunded by about $690 billion, meaning the difference will likely be made up through higher taxes in the future or reductions in pension payouts. It seems that governments ought to consider what many private companies have done in moving from pension (defined benefits) retirement plan to a 401K type (defined contribution) plan.  That way retirees will truly get what they contributed, the company match, and the earnings.

Finally, I recognize that the person identified in the CNBC article is probably not the norm.  According to this article, the average California teacher pension is $40,000/year with only 2% of pensions exceeding $100,000/year, mostly for management retirees.    However, given the issues for the first and second points, its probably time for state and federal governments to review the feasibility of retirement pension benefits, as the private sector has done long ago.

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This is not financial or retirement advice. Please consult a professional advisor.

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