Category Archives: Retirees

It’s Official: The U.S. Retirement Crisis is Real

 

I have been aware of the retirement crisis in America for a while now. There are new articles published every week about Americans’ lack of savings, lack of access to retirement plans, and lack of financial knowledge. Combine that with the fact that defined benefit pension plans have all but been extinguished in the private sector, and anyone can see how this is going to turn out. Every once in while there is an article that claims the retirement is crisis is overblown, a farce, a fairy tale, like unicorns and bigfoot. But these articles are few and far between. There is little evidence that suggests we are all going to be OK and there are mountains of facts that say otherwise.

If there was ever, even more, reason to be concerned about the state of retirement security in America, there is a new report from the National Institute on Retirement Security (NIRS), Retirement Security 2017: A Roadmap for Policy Makers, that proves Americans are concerned and aware of the pending retirement bubble. I recently attended NIRS’ Retirement Policy Conference in Washington, D.C. where this study was released along with several presentations by experts all confirming that we are heading for crash if we don’t do something soon. Here are some of the takeaways from the report and the meeting.

“A secure retirement system is the key to economic security.”

 

Americans Agree There is a Problem

NIRS’ research finds that 76 percent of Americans are concerned about economic conditions affecting their ability to achieve a secure retirement and 88 percent agree that the U.S. is facing a retirement crisis. So it seems Americans are aware of the problem, but what about our elected officials? One of the speakers at the conference, U.S. Congressman Joseph Crowley (D-New York), is very aware of the retirement crisis and is taking steps to fix it. He said, “The American Dream is increasingly being put at risk,” and “A sound retirement system is the key to economic security.” However, Congressman Crowley noted during his remarks how hard it is to get his colleagues to pay attention to this issue. That is a sentiment that Americans share, based on NIRS study:

  • 85% says leaders in Washington do not understand how hard it is to prepare for retirement.
  • 86% say leaders in Washington need to give higher priority to ensuring Americans have a secure retirement.
  • 82% say government should make it easier for employers to offer pensions.

 

Americans Like Pensions

The NIRS study confirmed that Americans prefer pensions over 401(k)-type plans. Some 71 percent of Americans say that pensions do more to help workers achieve a secure retirement as compared to 401(k) plans and 85 percent say all workers should have access to a pension plan. The survey also found that 92 percent of Americans agree that pensions help recruit and retain good public sector workers to serve the citizens. “The public clearly supports retirement income for everybody,” Keith Brainard, Research Director for the National Association of State Retirement Administrators, said during the conference.

 

Most Americans Can’t Achieve Retirement Security on Their Own

National Institute on Retirement Security

The shift away from pensions in the private sector has forced workers to save for their retirement on their own. The problem with this is that the average American worker is not equipped to know how much to save, what to invest in, when to reallocate, and how to turn a retirement nest egg into lifetime income. Brian Perlman, the Senior Vice President, Financial Services Practice Lead at Greenwald and Associates, a full-service market research firm in Washington, D.C. said, “You can’t do it yourself. People cannot succeed [in retirement] on their own.” American workers agree, as the NIRS study found eight-out-of-ten Americans believe the average worker cannot save enough on their own to achieve a secure retirement and nine-out-of-ten say retirees don’t know enough about managing investments to make their savings last.

“You can’t do it yourself. People cannot succeed in retirement on their own.”

 

Americans Need Greater Access to Retirement Saving Vehicles

“People are more likely to save if you can do it through work,” said Gerri Madrid-Davis of AARP. Fifteen times more likely, in fact. The problem is that only about half of U.S. private-sector workers have access to a retirement plan provided by their employer and many workers that do have access choose not to save. Some states have tried to tackle this issue by setting up state-run funds that workers can put money into when their employer does not provide a plan. These state retirement savings vehicles seem like a great solution! But there is a problem, the U.S. Congress recently voted to restrict states from creating these funds by striking down the rule that allows these programs.

 

Conclusion: Why Does LAGERS Care About Any of This?

LAGERS members have will have a secure retirement benefit. Our retirees can rely on predictable monthly income that increases with inflation. The overwhelming majority of public sector workers still have pensions and the state-run retirement savings debate does not affect LAGERS in any way. So why do we care? It’s simple, our vision statement is “a secure retirement for all.” We support any reasonable initiative that will help realize that vision. At LAGERS, we are relentlessly pursuing our vision by protecting our members’ assets so they have peace of mind knowing a portion of the monthly income needed to sustain themselves during retirement will be paid as expected. And since we believe strongly that a well-managed defined benefit plan is the best way to improve retirement security, the more people we can get into our plan, the better off we all will be. That is why we also strive to carry our message to local governments that have not yet chosen LAGERS to encourage them to see if our services are a good fit to help their communities prosper.

We know we will never be able to achieve a secure retirement for all; that is why it is the perfect vision statement. It means we will never stop. We will never be finished. There will always be more work to be done.

 

Jeff Kempker
Manager of Member Services

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A Look Back at the 2017 Legislative Session

As the dust begins to settle in Jefferson City, we close the book on another legislative session. Beginning full of optimism, there seemed to be very little standing in the way of a seamless legislative agenda this year. Right off the bat we saw several major landmark bills from Right to Work to Tort and Labor Reform, and then the machine came screeching to a halt. Some say the Governor’s office was bullying legislators, others say it was lack of Senate leadership; some say it was simply in-fighting between party factions. We may never really know. Whatever the source of dysfunction, we saw at times a painfully slow legislative grind. In the final weeks, the bodies slowly moved forward and we did see a few other legislative accomplishments. The legislature passed the budget, fully funded the education formula, passed Real ID, as well as the Blue Alert system.

On the pension side of things, we saw a bit less accomplished. The biggest area of focus for pensions this session was funding. We saw a great deal of discussion in appropriations committee devoted to funding of the State Employees retirement system (MOSERS).  The House originally drastically reduced the requested funding, which was eventually resorted in the Senate. Out of 44 Pension Bills that were filled this session, only 2 were Truly Agreed and Finally Passed. The first,  Senate Bill 62, was an omnibus pension bill that contained amendments, many of which were designed to address some sort of funding issue. LAGERS was not directly impacted by this bill. Senate Bill 34 was the second pension bill passed, but its language was also contained in the omnibus SB 62. This bill modified language related to felony pension forfeiture.

LAGERS did not sponsor any legislation this session, but was closely watching several bills. LAGERS Public Safety Language was again filed this year to give all employers the option to update the definition of public safety to include EMS and Jailers. Though not initiated by LAGERS, Representative Walker filed the language in HB 865. While there was no opposition, the bill failed to gain traction as focus this session quickly shifted to some of the more pressing funding issues. The language was successfully amended to SB 394 later in session and came very close to the finish line this year. Thank you to those who called in on the bill’s behalf in the final days, and as one of our advocates noted, the capitol was quite busy the last two days as everyone made their final legislative pushes. While the Public Safety language fell short, LAGERS was encouraged at the progress the bill made this session and will be retooling our strategy over the summer.

Another bill that would have impacted LAGERS was HB 933. It would have allowed metropolitan planning organizations to be considered eligible for LAGERS membership (mirroring the regional planning commission language that was passed several years ago). While LAGERS did not sponsor this language, the MPO group did reach out to LAGERS to ensure the language they were seeking met our approval. This bill did not make much noise in its first attempt and will likely reappear next session.

Don’t forget that our Legislative Committee meets every year at our Annual Meeting. This is a great forum for all members of our system to meet with the Board, Legislative Committee, and Staff and participate in an open forum about upcoming legislative issues and agenda of the system. Be sure to look for more information on that in coming months!

Legislative Quick Links:

Sign Up to Receive LAGERS Capitol Report

Visit the Joint Committee on Public Employee Retirement’s Webpage

View Summary of 2017 Pension Legislation

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Use These 5 Simple Hacks to Ease Financial Stress

 

April is Stress Awareness Month and we all know that finances are the root of much of the stress we face. If you haven’t ever lost a little sleep worrying about a money-related issue, I would question whether or not you had a pulse. It’s almost inevitable that, at some point, we all will have a financial difficulty that wears on our mind, and ultimately, maybe even our body.

Financial Finesse is a financial wellness firm that offers coaching to over 2.4 million people in the U.S. In the firm’s 2016 Financial Stress Research, they reported that 1 out of every 4 people say that they suffer from high or overwhelming financial stress and 6 out of 10 people reported losing sleep over at least one financial problem. The good news is that there are some fairly simple steps we can take to ease financial stress. Here are some that have worked for me.

Resist the consumerist culture we live in.

My wife and I just recently realized we had too much stuff. Not only did we have too much, we wanted even more. The culture we live in is constantly in our face about purchasing items that are supposed make us happy; new clothes, beauty products, cars, toys for your kids, electronics, apps for your phone. The never-ending assault on our desire for more is relentless. Our home was bursting at the studs with things we didn’t need and all of that stuff was causing stress. So we decided to get rid of it. Anything in our home that is not useful or doesn’t bring us joy is sold, thrown away or donated. And, we have begun to use the same criteria for our purchases. We are spending less money on things that have no lasting value and using those resources to focus on experiences and priorities that truly make us happier. We are still in the beginning stages of this journey, but it’s amazing how much less stress we have.

Create an emergency fund.

According to a recent survey by Bankrate, 57% of Americans don’t have enough cash on hand to cover an unexpected $500 expense. Now that is stressful! Sticking money into an account and resisting the urge to touch it can be tough, but here is a quick hack I have used for years to help with this. Create automatic transfers from your checking account into a savings account. Most of us now have our paychecks directly deposited into our checking accounts and most banks allow you to set up automatic recurring transfers. So, set up money to transfer every payday to a savings account and you will likely not even notice it’s gone. It doesn’t have to be a large amount; it will feel great just to get started!

Make a plan.

Simply having a plan in place to manage your finances can be a huge weight off of your shoulders. Knowing your monthly income and essential expenses is the first step in figuring out a budget and sticking with it. When my wife and I decided she would leave her career and stay home with our girls a couple of years ago, we both lost sleep over the financial impact this would have on our family. So, we sat down together and calculated our monthly income and bills. From there we identified some expenses we could easily reduce (like our satellite bill) and figured out how much we would have left for discretionary expenses (it wasn’t much). Having this plan in place made us both feel better and gave us some peace of mind knowing we could make this work as long as we stuck to the plan.

Talk about money.

Perhaps the most important thing you can do to ease financial stress is to talk to your spouse or significant other about money. These are not always easy or fun conversations and they may even end with one person being upset. But don’t give up. It is vitally important for you and the person you are sharing your life with to be on the same page about finances. A seemingly simple rule my wife and I have always used is that we will ask the other person before we make a purchase that is over a certain threshold. When we were first married and had very little in the way of financial resources, the limit was $50. For example, if I wanted to buy new decoys for turkey hunting and they were going to be more than $50, I had to run it by my wife first. While our threshold has grown since we were newlyweds 12 years ago, we still have this rule in place. It may seem silly, but it is a subtle way to ensure we are both on the same page about how the family’s money should be spent.

Visualize your future.

Your future self wants to be financially independent. Taking steps now toward that end will ease stress today and have a lasting impact later in life. What does your future look like? What do you want do? What will you be doing when you are 65, 75, 85? A great first step in planning for your financial future is to visualize the life you desire. This will help you to know if you are on track today to achieve the life you are picturing. My wife and I frequently talk about our dreams for our life after work and what we want to do. Sometimes these conversations are just two people dreaming together and sometimes there is a little more planning involved, but either way, it is helpful. Be kind to your future self, take action today to reduce stress now in order to avoid tension in the future. Read my blog about this here.

 

Stress can kill. And financial problems are one of the leading causes of anxiety. There are many money problems that may be fixed using simple hacks like the ones above, but for serious issues, you may need to talk to a professional to get help. The key is to take control of your money and allow yourself some better nights of sleep!

 

Jeff Kempker
Manager of Member Services

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Pension Reform Should Not Focus On All-Or-None Solutions

Remember the good ole’ days when retirement planning for most Americans involved income being illustrated as a three-legged stool where the legs of the stool represented 1) income from a pension, 2) Social Security, and 3) personal savings? The thought was that as long as the stool has three legs it will be strong enough to support the person sitting on it. Take one of those legs away, and the stool becomes much less stable. Take two of the legs away and you end up on your back.

So why is it that every time I read about pension reform the proposed solution is always an all-or-none scenario where the pension will be shut down in favor of individual 401(k) accounts? This solution completely removes one leg of the stool (the pension) and reduces the retirement readiness for everyone affected. At LAGERS, we believe everyone who works hard and plays by the rules deserves a secure retirement and that this is best achieved by the three-legged stool approach.

When 401(k)s were first conceived in the late 1970’s, they were never intended to replace pensions, but to supplement the pension plan while allowing employees to defer taxable income. This was originally a great concept – one that furthered the notion of the three-legged stool. But over time, employers have eliminated their pensions and gone completely to the 401(k). The supplement has now become the main retirement income vehicle for many Americans. And it isn’t working. Even if their employer offers a 401(k), two-thirds of Americans aren’t using it to save for retirement.

One of the reasons Americans aren’t saving more is because investing as an individual is hard. Nearly seven of ten Americans cannot pass a basic financial literacy test. The average American worker is just not equipped to know how much to invest, what to invest in, when to re-allocate, and then how to turn their savings into a lifetime stream of income. Also, many Americans simply don’t have the means to go-it-alone in 401(k) accounts. The recommended retirement savings rate for an individual without a pension plan is north of 10% of income. For low-to-middle income workers, this is a daunting, if not impossible task. Pension funds, on the other hand, are invested by professionals and benefit from pooling so that one individual is not taking on all of the market risks.

Watch: Pension vs. 401(k), What’s the Difference?

One argument for moving away from pension plans in favor of 401(k)s is that the individual accounts cannot create unfunded liabilities. This couldn’t be further from the truth. Both pension plans and 401(k)s can create unfunded liabilities. An unfunded liability is established when liabilities exceed assets. In other words, the money you owe is more than the money you have on hand. The presence of an unfunded liability is not necessarily a problem so long as there is a steady, predictable, and disciplined approach to making the required contributions. Individual savers create unfunded liabilities when they fail to save enough for their retirement. When more and more individuals enter into retirement without adequate savings and huge personal unfunded liabilities their only option to sustain themselves in retirement will be to seek public assistance.

The bottom line is this: we need pensions and we need 401(k)s (and similar programs). We should not be seeking solutions that eliminate any one leg of the stool, but rather, to make those legs work together to provide a more stable base for all Americans.

 

Jeff Kempker
Manager of Member Services

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50 Years of Retirement Security and Counting…

50th-2-no-textMissouri LAGERS is preparing to celebrate 50 years of providing retirement security to Missouri’s local government workers!

LAGERS was created by the 74th general assembly in 1967 and officially opened its doors the following year. During its first year of existence, the young system was administered through a contractual agreement with the Missouri Municipal League and added its first full time staff member in 1969.

By June 1969, 70 Missouri local government entities had joined LAGERS with a total of 4,600 member employees and $2.1 million in assets. Today, LAGERS is the largest pension system for local government employees in the state of Missouri, covering over 680 employers, 33,000 active members, and 19,000 retirees, with over $6 billion in assets and an overall aggregate funding level in excess of the national average.

Missouri LAGERS believes that a secure retirement should be for everyone who works hard, and that retirement security is the foundation for building strong communities across the state. LAGERS is an integral part of providing local communities with the tools they need to attract and retain the high quality workers necessary to making communities a great place to live, work, and retire. LAGERS has helped thousands of local government workers retire with dignity and security over the past 50 years and looks forward to carrying our mission into the next 50 years and beyond!

LAGERS is planning to celebrate its 50th birthday in several ways:

New Vision Statement

LAGERS Board of Trustees recently adopted a new vision statement: “A Secure Retirement for All.” Our vision is the very essence of why LAGERS staff gets up and goes to work each and every day. We strive in everything we do to ensure that our members can someday retire with dignity and security.

 

New Responsive Website

Coming in July 2017, LAGERS will be rolling out an all-new responsive website. The new website will feature enhanced user navigation; new, interactive content, and even more great ways to connect with your LAGERS system. LAGERS remains committed to ensuring that you have the best access to information you need about your benefits!

 

A History of LAGERS

Stay tuned on our social media channels throughout the year as we look back at a complete 50 year history of the LAGERS system. Beginning as a dream in 1967, LAGERS has grown into a nationally acclaimed pension system, setting the gold standard for pension administration across the county.

 

LAGERS Annual Meeting

Don’t forget to join us at our annual meeting as we return to the site of our very first LAGERS Annual Meeting at Lake of the Ozarks.

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I Wish I Could Bottle Up the Holidays

 

This time of year is sometimes a mess. It’s dark when we go to work and dark when we head home, the weather is cold, dreary and unstable. And the kids secretly plot against us and take turns deathtostock_slowdown1being sick (I swear they do). We’re all especially busy and should be at our wits end.

But we aren’t.

To me, this time of year always seems different. My most enjoyable part of the holiday season is the almost random consideration that seems to overcome most of us. At this time of year we as a society seem, for whatever reason, to look beyond the surface of our fellow man and actually see the commonality of goodness we share. Whether at the gas station, store, at work or even passing each other on the street; we look at each other differently. We don’t look past each other as we scurry on our busy paths. We actually look into each other’s eyes – past that outward shell and actually SEE each other; maybe even say “hello”.  Have you noticed? So simple, yet so wonderful.

Whether a kind word, a thank you, a smile or even a simple nod of the head – signaling we appreciate the smallest of gestures. Even though we should be more stressed, we’re actually all a little more happy than normal during the holidays. Really. If you haven’t, noticed I urge you to keep an eye out on the way home from work tomorrow. You may experience the kind of subtle kindness that I’m talking about. It is so refreshing.

If I could bottle the holidays I surely would. If we could somehow carry that over to the rest of the year what great things we could accomplish. That’s my thought for the New Year.

From all of us at LAGERS, we thank you for the honor to serve you and we wish you the very best this time of year, and all year round!

 

Robert Wilson, Asst. Director

Robert Wilson, Asst. Director

Top LAGERS News of 2016

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It’s hard to believe 2016 is coming to an end and 2017 is closing in on us like a blustery Missouri cold front. In case you missed it, a lot happened with your retirement system over the last 12 months! Here is a brief compilation of the top news-worthy events.

Important Legislation was Passed

The 2016 Missouri Legislative Session saw the passage of HB 1443, a bill that LAGERS proposed. This important legislation allows local governments in Missouri who are running their own pension plan to choose LAGERS as the administrator of that plan. This will permit these smaller plans to take advantage of LAGERS’ expertise and economies of scale, resulting in lower administrative costs for the local entity and ensuring that these plans maintain financial stability. LAGERS staff has been working diligently to begin accepting these new plans since Governor Nixon signed the bill. Read more.

LAGERS Members are Living Longer

Every five years, LAGERS takes an in-depth look at our membership to take stock of changing demographics and other trends. One of the key findings from the 2016 study was that LAGERS members are living longer, which is great news! A 60-year-old male is now expected to live to age 84 and a 60-year-old female to age 88! Because of this, LAGERS’ Board updated the mortality tables we use to reflect the longer lifespans in order to ensure benefits will be properly funded. Read more.

LAGERS Funding Level Reaches 94.7%

Pension funds often measure their financial stability using a “funded ratio.” This is simply a measure of the fund’s ability to meet all of its obligations to members and retirees now and into the future. All pension plans strive for a 100% funding ratio. At 100% funded, a pension plan has all the assets it needs on hand to meet all of its liabilities. This is kind of like being fully paid up on your mortgage. If you paid off your mortgage, you could say your home is 100% funded. Being under 100% funded as a pension plan is not necessarily a problem because all of the participants in the plan won’t need to be paid on the same day. What is important is that there is a dedicated method to pay the liabilities and that the plan is moving toward 100%. A pension plan that is above 80% funded is normally considered to be on stable financial ground. Read more.

12 New Employers Joined LAGERS in 2016

LAGERS continues to be an attractive option for local government employers looking for ways to recruit and retain high-quality workers to serve their communities. Seventy-five local governments have joined LAGERS in the last five years and half of these switched from 401(k)-type plans to the stability and security of LAGERS’ defined benefit approach. Why the switch? We are increasingly hearing from government officials the need to enhance the services of their communities by hiring and keeping the best people to fill those jobs. I attended a city council meeting recently and heard from one official, “We are a service-based industry and to provide the best service to the citizens of this city, we do that through the people we hire.”

The last year was an exciting one for LAGERS and as we look forward to 2017 and LAGERS’ 50-year anniversary we expect nothing but continued success in helping Missouri’s communities accomplish great things!

Jeff Kempker Manager of Member Services

Jeff Kempker
Manager of Member Services

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Being Thankful for Public Service

Thankful message Some fall leaves and retro pocket watch with text A Time to give Thanks

“Never doubt that a small group of thoughtful committed citizens can change the world; indeed, it’s the only thing that ever has.” ~Margaret Mead

I’m guessing you don’t often think about your job like this. But this quote really resonated with me. When I think about public service, and our members who dedicate their lives to this endeavor, I realize that even though this group is not normally celebrated and honored I am thankful for them none the less. Public servants truly do change the world for the better, every day.

Here’s why:

  1. They keep our communities running – public sector employees are the glue that holds our communities together. They maintain the books, make sure the roads are smooth and easy, our water is clean and our trash is taken at the curb. From libraries to public works to the county clerk, these jobs might not be glamorous, but without them where would we be?
  1. They protect us – EMTs, fire and police personnel work crazy hours and do the job of protecting the citizens without expecting thanks or gratitude. Most calls they receive are humbling and thankless as well as dangerous. We are safe because of them. Don’t forget that.
  1. They are dedicated – this group of individuals is truly dedicated to their work. They do their jobs out of a genuine love for their city/county/township and a desire to serve the people that are their neighbors and friends. They don’t do it for the recognition, because they do not get enough of that! Wanting to serve is the reason why.
  1. They are experienced – part of the dedication of this group leads them to be incredibly experienced at their chosen occupation. During my time at LAGERS I’ve traveled around Missouri and met with public servants in many parts of the state. I’ve been fortunate and impressed to meet people who have dedicated 35 and even 45 years to their community working for local government in some capacity. That amazing dedication leads to incredibly hard working and experienced workforce.

Mohammad Ali said “Service to others is the payment you make for your space here on earth.” Local government employees have given me lots of reasons to be thankful, and their sacrifices every day for the rest of us are admirable. They are definitely paid in full.

See how LAGERS is Getting it Right every day to work to give them the secure retirement future they so deserve. 

Being Thankful for Public Service

The Unfunded Liability Nobody is Talking About

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You hear a lot in the news these days about the looming pension crisis and their mounting unfunded liabilities. When I try to imagine how I would react to these headlines if I did not work in the retirement industry, I imagine that the phrase ‘unfunded liability’ would sound absolutely terrifying, and that if I ever heard that phrase being thrown around when it came to my employers’ retirement plan, I would be concerned. At that point I would probably do what any normal person would do when they hear about something this scary: I’d Google it.

So this morning, I decided to do a little experiment: I typed ‘unfunded liability’ into my trusty search engine just to see what would come up, and the results were undoubtedly alarming. Headlines reading: “Unfunded public pension liabilities near $5.6 trillion”; “How pensions pass the buck to future generation”; and “$60 billion unfunded liability looms over Pa. as lawmakers move toward pension vote” were just the beginning of a laundry list of stories listed on the topic.

Now to be clear, I believe that every pension plan should have sound plan design with a solid funding policy, so that, like LAGERS (and many other well-run pensions across the county), the promised benefits are fully funded today and plan participants can go to work and retire with the peace of mind in knowing that their retirement will be secure. Pension plans that are not doing this should be fixed. But what I found most disturbing about my search was that in all the results that popped up about unfunded liabilities, there appeared to be one major unfunded liability that nobody is talking about….yours.

‘My unfunded liability?’ you may ask. ‘I don’t have an unfunded liability.’  And that is where many of you would be mistaken. Like most Americans, you are probably planning to retire at some point in your life – either at a time of your choosing or perhaps for reasons beyond your control, such as failing health.  And when that time comes, you’re going to need to have income to live off of for the rest of your life.

In order to be able to quit working or to reduce your work hours in retirement, you need to be saving every month to ensure your nest egg will be large enough to sustain you for the rest of your life. Savers (especially those without pensions) who fail to set aside enough money each month for their retirement are creating a huge personal unfunded liability – a gap between how much they have saved and how much they will need in retirement.

According to the National Institute on Retirement Security, 45% of American households do not own any type of retirement account, with a disproportionately large number of low-income households saving nothing for retirement. Even more shocking, of households that do have retirement savings accounts, the average balance for individuals nearing retirement (age 55-64) is a mere $104,000; and if we included the households that are saving nothing, that average drops to just $14,500 saved by those who are at the doorstep of retirement.

This means that most Americans will be facing their own unfunded liabilities at retirement, and that presents a big problem. If I’m an average saver with $104,000 and I need to draw out $1300/ month to survive in retirement, my savings would not last 7 years…and that’s not even taking into account inflation or any unplanned expenses (such as a big medical bill). If I live 20 years into retirement, I need to have saved at least $312,000; and if I live 30 years, I better have $468,000 in the bank. Since I only have $104,000, I have a personal unfunded liability of over $360,000. While granted, my math is simplified, take that average times the estimated 80 million people who will be retiring over the next twenty years and you get upwards of 30 trillion dollars in unfunded liabilities in Americans’ personal defined contribution accounts.

I can’t help but think to myself, “What is going to happen when these folks can no longer work? What are they going to do when they cannot afford to retire?” As we usher out the era of private pensions, what is going to happen as more and more individuals enter retirement without adequate savings and with a huge personal unfunded liability? What is going to happen when they lose their home because they can’t make the mortgage payment, or go without food to be able to afford their medication? As a society and as taxpayers, what are we going to do?

It seems to me that many are suggesting that the solution to these pensions’ unfunded liabilities is to replace them with even bigger personal unfunded liabilities by forcing people to plan for retirement on their own. Pensions that have sound plan design and solid funding policies work, and they work well. They don’t pass cost onto future taxpayers because the liabilities (benefits) are prefunded, and participants can take advantage of longevity risk pooling and professionally managed investments. And while LAGERS members receive only a modest monthly benefit that often still requires some additional personal savings, their pension is the foundation of their retirement security, and it’s one they can count on.

The switch from pensions to defined contributions plans (e.g. 401(k)s) may indeed seem like a simple fix to all the mounting pension headlines, but until we start quantifying the unfunded liabilities in individual retirement plans, many Americans are going to be in for a big surprise when they are ready, but cannot afford to retire.

Elizabeth Althoff Communications Specialist

Elizabeth Althoff
Communications Specialist

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The Significance of Your LAGERS COLA Benefit is Larger Than You Think . . .

This year LAGERS retirees will receive a COLA (Cost of Living Adjustment) of around 1%. This increase will be reflected on October 1st and it means much more than just a slight increase to your monthly benefit. It shows the strength and overall financial security of your LAGERS pension system.

By now you know you’re rather fortunate to have a defined benefit pension plan as the foundation of your financial future. As a retired local government employee, LAGERS provides you with an exceptionally strong and secure pension plan. However, the added stability of your COLA is also something to be thankful for. More and more, we find other pension plans are not able to provide this to their retirees, ever, much less on a yearly basis, as LAGERS has historically been able to do. This means as time goes on; your benefit keeps pace with the economy and spending levels on goods and services, and won’t lose value every year.

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Source:NRTA Pension Education Toolkit

“LAGERS cost of living adjustments are granted annually based upon the retirees date of retirement and applicable changes in the ‘consumer price index’ (CPI). Though this process may seem unnecessarily complex, I am extremely proud to share that 100% of LAGERS retirees have received increases equal to the CPI thereby maintaining 100% purchasing power in retirement,” says Keith Hughes, Executive Secretary.

Below are some things to understand about the benefit of having a COLA with your LAGERS benefit:

  •  It is based on inflation and the consumer price index and is designed to keep your benefit at 100% purchasing power.
  • The LAGERS board meets annually to determine the COLA adjustment based on the financial solvency of the system. The COLA is not an automatic benefit, but don’t worry, LAGERS is fiscally sound and even though it isn’t automatic every year, LAGERS has historically been able to provide this to retirees consistently. In order to continue to keep benefits at a high level of strength and security for years to come the COLA will never be over 4% in a year. However, if the CPI is higher than 4% in any given year, this will be considered and additional increases will be given in future years to “catch up”.
  •  The LAGERS plan is exceedingly stronger than other plans of similar nature – Without going into the weeds on the specifics, just know that the fund we use only for paying our retirees’ benefits is slightly over 100% funded. Yes, you read that right. Overall, LAGERS is around 94% funded when the industry average for similar plans is around 73%. This means LAGERS is in a better position to meet all of our obligations to retirees for decades to come.
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Source: NRTA Pension Education Toolkit

To give you a real life example of the power of having a COLA, the oldest of our members currently receiving a retirement benefit is 107. She retired in 1979 at the age of 70 and is currently receiving more than three times her original base benefit with accumulated COLA’s applied.
While this is obviously an extreme case, as we won’t all live to 107, it does show the significance of your COLA and how it affects your purchasing power in a positive fashion.

More good news, right? Keeping your benefit at pace with inflation is significant, especially when looked at over the lifetime of a retirement. So while the annual number may look insignificant, now you know that over time it matters much more than at first glance.
ALL retirees will receive a paystub in October showing your individual increase.

 

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