Do you have $1 million on hand?
A new pension calculator allows individuals to see just how generous government employee pensions really are.
Illinois’ rising pension costs are squeezing the budgets of core government services like education and public safety. Polls show that Illinois voters overwhelmingly support pension reform, but those opposed to reform claim changes to the system are unnecessary and the state pension benefits are modest.
A new pension calculator from Public Sector Inc. allows individuals to see just how generous government employee pensions really are. This interactive tool sheds light on the million dollar pensions state workers receive and gives context to how these benefits compare to the private sector.
Let’s take the example of Sarah, an Illinois teacher who is retiring this year at 60 years old with 39 years of service. She has a final average salary of $60,000, giving her a starting annual pension of $45,000. That pension will grow at 3 percent compounded annually for the rest of her life. This means after only ten years of retirement, her pension will be greater than her final salary.
But what would it take for an Illinois taxpayer to get a similar retirement benefit? This new pension calculator determines the amount of money necessary for a private individual to purchase an annuity that would mimic these public pensions. For the example above, it would cost Sarah’s neighbor, Jane, an astounding $1,147,611 to buy an annuity that would give her the same retirement income as Sarah’s teacher pension.
You think that’s bad? This example above is very conservative. In reality, career teachers retiring today on average have much higher final salaries. In fiscal year 2011, teachers who retired with 35-39 years of service had an average final salary of $91,033. With that level of final salary, Sarah would have a starting pension of $68,275, and Jane would need over $1.7 million to buy an annuity that mimics Sarah’s pension.
For years the Illinois General Assembly has failed to address Illinois’ pension crisis, and the consequences of inaction are mounting. When Moody’s Investors Service recently downgraded Illinois’ bond rating to A2 from A1, securing Illinois the embarrassing title as the lowest rated state in the nation, it cited the fact that “the state took no steps to implement lasting solutions to its severe pension under-funding” in the last legislative session.
Years of generous benefit increases and irresponsible political behavior have led to skyrocketing pension costs. The current pension system is unsustainable, and Illinois needs lasting pension reformto solve the state’s fiscal malady. With 1 in 10 Illinoisans unemployed and state government raising taxes on individuals and businesses, the claim that these million dollar pensions are modest is no longer credible.