Count On The Pension...Or Himself?

Nick is a school administrator with a pension. He wants to contribute to retirement but also wants to pay off the house. Should he still put 15% in retirement knowing he has a pension?

QUESTION: Nick in Chicago is a school administrator with a pension. He would like to contribute 15% to retirement but also wants to pay off the house. Should he still put 15% in retirement knowing he has a state pension? Dave thinks pensions in general are on the way out.

ANSWER: The 401(k) and the 403(b) have just about replaced pensions. There are a few big companies and certainly some government situations where pensions still exist. I am not a naysayer in that I predict the destruction of a pension or that they fold. There have been some that the company goes bankrupt and the pension is gone. That can happen. It can happen with government if they don’t balance the budget. What happens is if you fight so much to preserve your increases in pension that you destroy the goose that’s laying the golden eggs, you can get yourself into trouble. That’s not a political statement; that’s just a math statement. You’ve just got so much math here that you can do, and if you keep poking the goose, it’s going to bleed to death. While I understand folks want their money that they deserve for working hard—I don’t blame them for that either—you’ve got a math thing here.

In your case, what I would do if I were on the receiving end of a pension, because they’ve been systematically going away and fewer and fewer pensions exist, I would be more and more dependent on something I had done for my retirement rather than something someone else has done, especially if you add into it that it’s a government employee situation and the problem with government being broke at all levels. I don’t think that the existing level of pension is going to go away. But I do think that adding to it and it being increased while these states and the federal government and the local municipalities are all broke is going to be mathematically impossible. The truth is money is finite. Math is finite. There is a certain number of dollars coming in, and there is a certain number of dollars going out. You can’t just make it up just because you’re mad. You can’t just change it whether you’re the governor or you’re the union. It doesn’t matter how mad you are—you can’t change the rules of math.

Were I personally leaning on a pension, I’d be afraid that it’s not going to do it and I’d be over here loading up my 401(k) and my Roth IRA to ensure that I wasn’t counting on the government to take care of me. I would continue to put 15% of your money into your 401(k). If there’s pension money there, that’s gravy money.