#1. The Pot of Gold

One day you will retire, sip prosecco on the Amalfi coast, and enjoy your old age without any students asking if 88 is an A-....  It will look just like this:

There is only one thing we need to figure out to make it happen: where exactly is the pot of gold to finance such dreams going to come from? If you have a rich grandmother who will leave you gazillions of dollars, forget about the next 2 pages, you are already set. For everyone else, here is the plan. There are 3 main retirement sources available to Cal State employees: [1]

1.      Source #1 Social Security (aka the US Government’s attempt to pay for my prosecco).

For all the talk surrounding the disappearance of social security benefits, no worries, it is not going away. Obviously I can’t promise you that but from following the evolution of the benefits for the last 10 years, I am pretty sure I shouldn’t be too concerned. There will certainly be changes; we do have the problem of running out of money but it is very hard to believe that it will go away completely. A few tweaks to how it currently works and it will be viable for another 50 years. One of the things I am pretty sure about though is that by the time I retire, the normal retirement age will no longer be 67. It will probably go up, but given that we will all be living to 100 pretty soon, I guess that’s ok. 

Now, if you have no idea how social security works and whether you are even eligible for such benefits, a good way to start is by going to www.ssa.gov and creating an account. Once logged in, you will be able to figure out 2 things: (1) if you were to become disabled tomorrow, would you be eligible for a paycheck and how much would that be? and (2) have you worked long enough to be eligible for retirement benefits and if you do, approximately how much will you (or your spouse) get at retirement?

Generally, you have to work for about 10 years to be eligible for retirement benefits. How much will you get? It depends on how long you worked, your salary, and a few other things but, as of right now, the best case scenario for the max retirement benefit at  normal retirement age is $2,660 per month and the top benefit (if you were to wait to retire till 70) is $3,501 per month. That’s all I am going to say for now but please log in and assess the current situation.  Then, come back once a year and look at the progress of your benefits.

2.      Source #2 The CALPERS pension (aka the State of CA attempts to pay for my drinks). 

This was a “big deal selling point” during my campus visit. Listening to everyone, I thought this pension was going to make me super rich, which, let’s be serious, is not true unless you stay here for a while. How does this thing work and how much will you get? If nothing else is going to happen today, promise me you will log into your CALPERS account. If you don’t have one yet, please register. This is the place where all your pension information is housed. You want to have access to this: mycalpers.ca.gov

Here are a few things to know:

a.       How much will I get? Who knows! I don’t think even the CALPERS employees who put that spreadsheet together can read it. How much you will get will depend on 3 things: (1) the age at which you retire, (3) how long you have worked in the Cal State system and (3) your final average salary (different definitions for different people, depending on when you were hired). The bottom line is: the bigger those 3 numbers, the more you get.

You do need to know your “benefit formula” to be able to figure out what’s going on. If you were hired:

·         Before 1/15/2011, you are what’s known as 2%@55

·         On 1/15/2011 or after, you are 2%@60. I imagine these are the people hired after 1/15/2011 but before 1/1/2013, but that’s really not clear. I, along with every HR in the system has copied the language from the CALPERS chart (see link below). If you were hired in that period or have more knowledge about this to clarify, please let us know this is actually true!

·         On or after 1/1/2013, you are a 2%@62.

Here is the magical chart (in the middle of the page) to visualize the rules: http://www.calstate.edu/hrs/benefits/retirement/  This table is good and the details below it are even better!

  There are 2 good ways to figure out how much you will get:

                                                              i.      Log into your CALPERS account and run an estimation. Once you logged in, go to Active Members/Retirement Benefits/Service & Disability Retirement/ Retirement Estimate Calculator. Answer about 100 questions and you will get an estimate. Obviously, if you are 40 years away from retirement, your inputs are guesses, but give it a try.

                                                            ii.      Read this stuff: https://www.calpers.ca.gov/docs/forms-publications/state-misc-industrial-benefits.pdf  Find your table. Mine is on page 33 because I am a 2%@62 (see, that number is important). Estimate how many years you will work in the Cal State system and what age you want to retire at. Find that number. Here is an example:  Let’s say I am going to be in the system for 10 years and retire at 67+. I estimate my final salary to be 100k. This means, I would get 100k*25% at retirement per year. Why 25%? Because that’s the magic number in the box for 10 years of service and retiring at 67+. Too much work? Log into your CALPERS account and let it do the calculation for you. (see i. right above this).

b.      Do I have to retire? I am a college professor, I don’t work “that” much after all (that’s obviously a joke, please don’t sue me). The good thing is that you can work until you die; there is no mandatory retirement age.

I want to make a point right about now. I talked to a few employees now who are under the impression that as long as they work for 5 years and are vested, they will be rolling in gold. The picture below? That’s definitely not happening with 5 years of service.

Let’s say that after 6 years I get tenure but decide that life in CA is not for me, I pack my bags and move to FL (financially that would make way more sense than living in CA). In that case, I will get a little bit less than 15% of my salary at retirement (assuming I retire at 67+). I am certainly not going to get it at 39 when I leave this job, but one day, when I retire, I will have a few thousand dollars per year (just enough to feed my cat) and that amount will come from my CALPERS pension. However, if I decide to stay here longer and retire in 35 years with that many years of service, I am looking at about 87.50% of my final pay, which obviously, is way better than 15%. Taking the 87k and moving to Jacksonville, FL (my dream place), I am instantly going to become 27% richer, and that doesn’t even include the state tax. How do I know? Here you go, go have big dreams! http://money.cnn.com/calculator/pf/cost-of-living/

3.      Source #3: My own effort to save for retirement (aka, forget about the prosecco, I am so good at this saving thing, I am only drinking Veuve Clicquot when I retire). I don’t know about you but somehow $2,500 per month from social security and who knows how much from the pension (after all, I have no idea whether I will work here for 5 or 40 years), makes me a little uneasy. The last part that will complete my pot of gold is the only part I actually have control over, and that is the money I save on top of the pension. You can do it through an IRA or a Roth IRA (some of us can, but not everyone. It depends on your salary; If you have a working spouse, you may be above the threshold for a Roth IRA). However why would you, when you have choices right here at work and those choices let you save a lot more per year?  

Those choices are: (1) a 403(b) plan, (2) a 401(k) thrift and (3) a 457 plan.  You can save into a traditional (also called pre-tax) account = you pay less in taxes now or you can save into Roth account (post-tax) =you pay the taxes now but whatever you accumulate is tax free when you retire.  We will argue which plan is the most appropriate next time but for now, I really want to drive down the point: this is something we should probably/definitely???? be doing. Unless you know you are going to die before retirement or manage to marry/remarry rich, a little bit of savings will go a very long way, especially if you start in your 30s or 40s. How do you actually sign up for one of these plans? If you want a 403 (b) account, you will need to choose one of the 5 providers (like Fidelity, Met Life, etc.) and enroll directly with them. If you want a 401(k) or a 457 plan, you will enroll through Savings Plus. Next time, when we discuss these choices, I will include the actual links but for now, this is probably enough. It’s time to go watch some House Hunters and eat some cake. You deserve a reward for reading this till the end.

Homework:

1.      Register for a www.ssa.gov account to figure out what’s going on with your social security. Add the log in you just created/already have to your central account password repository system.

2.      Make sure you know how to log into your CALPERS account: mycalpers.ca.gov. If you have never been there, register and take a look. The important stuff is on the first page. Again, add it to your “central logins hub”

3.      Bonus homework: Finally, if you don’t have a central logins hub, please set one up. I don’t care if it is a word document, spreadsheet, a fancy online system like LastPass, or a sticky note, just have one. If you pulled a Gone Girl tomorrow, would you husband/partner/kids/parents/cat be able to figure out how to log into all your stuff and get that money? If not, it’s time to organize all those logins and passwords and tell your significant (or not so significant) other how to find it.

Next time, we talk about the difference between 403(b)/457/ and 401(k) accounts available right here, at work.

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[1] There are always exceptions. For example, you might have amassed a crazy amount of rental properties which you plan to sell in order to finance retirement but for many employees in the system, the 3 sources above are pretty much it.