from Reboot Illinois |
Changing Actuarial Demographics (or You’re NOT the Problem Because
You Are Living Longer)
As we retirees make 2016 New Year’s promises and resolutions
that might guarantee a few months or hopefully years of enjoyment of a life
well and long lived, let’s be careful not to accept the Springfield political
falsehood that we ourselves are responsible for any exacerbation of the
Illinois pension shortfall.
Now or in the future.
Seven months into a budget stalemate, Governor Rauner may
kick and scream that he’s against unions, and Madigan’s party may lockstep in
their battle against Rauner’s crazed agenda-first demands – but be assured that
both sides would gladly dismantle our pension systems if they could.
There’s money to raid.
Meanwhile, as the embattled and insouciant-appearing
governor plans a Tier 3 with a 401K savings plan to replace a defined benefit,
we should remember a couple of things:
One would be Chief legal counsel Eric Madiar’s reminder to
the Chicago City Club that regardless of the increased costs of pension
benefits over the years, “pay increases were actually less than actuarial
projections…the state’s failure to fund the pensions (is) the main reason we
are in this mess.”
Second would be how they tried earlier when constructing
SB1. Remember?
If not, read this earlier post from 2012.
The oldest individual in Illinois passed away last Monday in
the East St. Louis area of Illinois. An
announcement came on Saturday, coincidentally, while in Chicago the state House
and Senate leadership came to an impasse regarding what to do about breaking
earlier promises of benefits to Illinois’ public sector workers. This includes the COLA, which remains a
particularly sticky problem for the lawmakers who realize the likelihood or
possibility of unfavorable litigation if they alter (i.e., diminish or impair)
the benefit.
Mayette Epps-Miller, born on April 15, 1901, was 111 years
old. Identified in surveys of the
elderly as a “supercentarian,” one who lives beyond 110, Mayetta was considered
by her remaining family to have been the “rock…who pulled everyone together” (http://www.daily-chronicle.com/2013/01/06/east-st-louis-woman-dies-at-111/aupdc7e/). Such an obituary would leave most of us smiling
for the lady. You go, Mayetta.
On the other hand, if you are a lawmaker in Illinois, this
is as frightening as a constituency version of “The Walking Dead,” except the
zombies are feasting on much-needed dollars.
Never mind that the dollars were owed them to begin with.
Talk to any legislator in Illinois, he or she will be quick
to remind you that we are living too long now.
They say that such changing actuarial demographics make the continued
payment of benefits into later years impossible or injurious to payments to
later public sector workers.
Of course, an Illinois legislator won’t tell you that the
real issue is the colossal sums money diverted for nearly half a century, funds
owed but not paid to public sector workers.
Nevertheless, while they would be right to remind that we
are living longer than before, that also creates an even greater need to
maintain the compounded COLA.
Life expectancies are at an all time high according to the
Center for Disease Control and Prevention – 76.5 in 1977 to 77.9 in 2007. The downside is that living longer does not
necessarily mean living better.
The Lancet Journal of Medicine is carrying a study by the
Global Burden of Disease Study, considered one of the most comprehensive
studies in the history of medicine, which indicates medical expenses in
extended life scenarios may be significantly more. Despite the scourge of diabetes, etc., we
continue to live longer and pay more – for medical care.
Of
course the compounded cost-of-living adjustment is not a means to get wealthy
after retirement, unless you of course are raking in more than$25,000
(according to Rep. Kelly Cassidy).
The
real concern with inflation is not increasing your standard of living. Instead,
it's about maintaining it. “For example, assuming a modest 3% inflation rate,
your income would need to increase over 80% from age 65 to age 85 just to
retain the same standard of living. If inflation were 4%, your income would
have to more than double over those twenty years”
Let’s
be honest. In Illinois, where morality
is moot, no argument to preserve a compounded COLA is going to receive any
serious consideration by our politicians.
The only preventative keeping Nekritz, Biss, Cross, Radagno, Madigan and
Quinn from simply swiping it all away is the
foresight of Helen Kinney and Henry Green who gave us a pension protection
clause in 1970.
And
Mayetta? Sometimes the view changes when
we look the other way back through telescope.
Let’s say she was a teacher, just for speculative purposes.
In
1950, when she might have retired, she would have been making about 75% of her
final average salary, which would have been around $4500 annually.
With
a compounded COLA (which of course did not start until we all began paying for
it in 1990), she might have been receiving $11,009.38 (http://www.online-utility.org/math/compound_interest_calculator.jsp?principal=3375&years=40&interest_rate=3). With the “new math” provided by Rep. Cassidy,
it would be $3625 this last year.
Who’s
the Zombie?
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