Sunday, May 11, 2025
Government pensions
The government is considering lowering the pension benefit for federal employees. Almost all private companies did away with pension plans and replaced them with savings plans like 401K’s. The government could remove the pension plan and increase the savings plan and allow these employees to retire at the same income they earned while working and save the government money.
The average federal government employee earns $105,000 as opposed to the average US employee who earns $67,000. Government employees have three sources of income. The first is their pension, which if this employee started working for the government at age 25, would have 37 years of service at age 62. His pension would be 37 times .011 times $105,000 or $42,735 per year. In addition, he would receive $21,600 ($1,800 per month) from social security for a total of $64,335. In addition, the employees have a thrift savings plan where the government matches the first three percent at 100% and then the next two percent at 50%. Assuming the employee took advantage of this it would at 5% grow into $426,000 which at 5% would yield $21,000 per year and he can retain the principal. His total retirement income will be $85,300. His last year working he would net $78,000. This is typical of most employees who have a pension plan. They retire at age 62 with more net income than when they were working. In this case $7,000 more.
In most cases people need less money at retirement not more. The children are grown and for many the house is paid and they have no more deductions for social security and pension. There are currently 20 million government employees and 11 million private company employees who have pension plans and this number is decreasing each year.
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