Do You Have Pension Envy?

Do You Have Pension Envy? Maybe you have a friend or relative, someone you know, who  just lets it all hang out and flaunts it. Or maybe you sneaked a peek at some correspondence to now know they have a bigger source of guaranteed retirement income than you do. All because of a pension.

Are you feeling a little less endowed? Relax. Few people these days are endowed with a pension. That showy number you see now may have you feeling a bit small in the Financial Independence (FI) and retirement area. But most folks who are truly on the FI journey are Growers for when it counts, not Showers. It is easy to get over pension envy when you look at all the facts and rethink things.

Signs of Pension Envy

  • They showed you theirs but you won’t display yours. That is your financial plan or current retirement funding status.
  • You feel regret that you didn’t pick a career with a company or a government position that offered a pension benefit.
  • Whenever there is a news story or you hear about a company freezing, reducing, or defaulting on their pension plan you crack a smile inside. Taking secret pleasure in others pension woes is a sure sign of pension envy.
  • Whenever there is talk about a government employee pension plan (police, firefighters, teachers, etc.) being underfunded you begin to angrily worry. Worry about you as a tax payer having to help make up the deficiency though tax increases.

Nice Pension Pal. No wonder you are so confident.

People who purposely choose a career or company that offers a public or private pension benefit have to commit to 20 to 30 years or more to staying with that same entity to get it. Think about this for a moment. Those promises made to give that pension were made decades before. Now company private and even public pensions are under financial pressure. Making the future look grim or at least less than fully guaranteed for pensioners to collect their full promised pension amount for the rest of their lives.

Public Pension Woes

When pension deficiencies come up for the State or any public pension plan we all know tax payers will be on the hook for paying it one way or another. The Pension Envious scream no-way. They scream against pension promises. Even though they benefited from lower taxes due to the lower salaries paid (think teachers). When the time comes for these employees to retire and collect what is promised you hear from the pension envy crowd:  “I don’t have one so they shouldn’t either”.

Due to voter Pension Envy, many predict that even public pensioners will now be subject to reduced benefits if their pension plans go south. These pensions often fail due to the poor choices made by those in charge of the pension plan. You only have to look at the court wrangling going on in New Jersey 2015 to see it coming.

Private Pension Protection by the PBGC

Private company provided pensions have some protection provided by the PBGC. But even though someone’s pension payment is below the maximum payment allowed at the time of a default, that pension amount you are looking at, that amount causing you the pension envy, will be reduced. Reduced based on the pension recipient’s age at time of default and/or the plan’s underfunded level. What you peeked at now won’t necessarily always be the same as what you saw.

There is even concern that the PBGC has been stretched too thin. Stretched by all the pension defaults over the past few years and is itself in trouble. There is just no pension relief.

Do You Have Pension Envy? Pension Pluses and Minuses.

  • Minus- That Pension amount looks big and showy now but most don’t grow any bigger when it counts. Like in your old age. As rare as pensions are, pensions that pay any cost of living increases due to inflation are even rarer. The spending power of that pension amount decreases yearly and significantly over a decade and decades.
  • Plus+ Having that showy pension guarantees a date. You know when you reach your milestone age and years of service to become pension eligible. You can mark the date down and do all the necessary things to pull off an early retirement. Like saving, investing, budgeting, and being debt free.
  • Plus+ Having a guaranteed payment in retirement regardless of what the market is doing is a very powerful chill” retirement benefit to have. It also allows you to be a bit more aggressive with your other investments. That could help cover for inflation. Of course that is if the pensioner saved any side money for their retirement.
  • Plus+ Having a pension benefit while working gives some peace of mind knowing you will have something to retire with.
  • Minus- Pension peace of mind while working is a double-edged sword. Most folks I know who have a pension benefit feel too comfortable about it.  They don’t save much more to go along with it. When I was ramping up my savings rate to 50% of my post-tax salary for retirement I was an oddity. I knew few future pension eligible people who tried to save more than 10% to 15% of their pre-tax salary for retirement. Many saved even less. For some, the reason for a low savings rate is they earn less salary because of having a pension benefit. They just have little left to save. I know teachers in this situation. For others, having that sense of being well-endowed pension wise causes a bad case of retirement overconfidence and savings neglect.
  • Plus+ If a pensioner lives a smart frugal and balanced life and saves something, Saves anything reasonable while still working. Then the monthly pension payment and what was saved will work. The worst case is having to wait until they qualify for Social Security before they can retire.
  • Minus- Those who were overconfident because of having a pension benefit and over-spend and under-save won’t be able to retire. Even with their pension and Social Security. Not without steep lifestyle downsizing. I know plenty in this boat.
  • Minus- If the pension plan is underfunded then that feeling of well-being may be a bit stressed throughout your retirement. Wondering and worrying if and when there will be changes or reductions in your retirement pension income.
There are no real guarantees

There are some pension guarantees although not reliably enough to leave all pensioners  unscathed and whole should the worst occur.

But then there are no guarantees with investing either for non-pensioners.

It appears that Life is risky no matter what we do. So we pick our poison and make the best of it. Given the uncertainty with pensions today there isn’t a reason to waste any of your life feeling envious.

Pension Benefit Trade-off

People who didn’t select a profession or career that included a pension benefit know they had to save for their own retirement. Hopefully they take advantage of every benefit and savings opportunity possible.

When on a dedicated FI journey, people without and even some of those with a pension learn to live a lifestyle that will result in financial independence and freedom. As far as working a career with a pension or not there are trade-offs to both approaches.

  • Less salary and golden-handcuffed to a company or government entity with a pension benefit.
  • Higher salary with job movement freedom and do it yourself retirement savings planning.

When a pension plan is fully funded then having a pension check come to you every month is the greatest way to retire. But those pension plans are getting very scarce these days. Even more so as time moves forward. A lot of the existing pension funds, both private and public, are sinfully underfunded. They should/will cause concern to anyone within those plans.

Even with a pension benefit, retirement saving is still necessary. Everyone struggles to find that balance and make enough money doing what they do to live their life and save for their future older-self.

In Closing

It is best that we focus on what we should and can be doing with what we have instead of being envious of someone’s pension benefit. Or being envious of someone’s anything for that matter. After all, pension envy isn’t going to be changing anyone’s financial situation or retirement readiness for the better. Envy is a waste of time.

If we have done what we need to do on our FI journey we can have just as much retirement pleasure as pensioners. It is done by living within our systematic or bucket withdrawal strategy from our retirement portfolio. We can always introduce an annuity into our retirement funding strategy if receiving a monthly guaranteed check is that important to us. FI means having options. Pension envy is not necessary.

Do You Have Pension Envy or any other feelings about those who have pension benefits?

8 thoughts on “Do You Have Pension Envy?

  1. I see what you did. Funny guy. I don’t have pension envy. My biggest knock about pensions is there is usually a Union somehow involved. Some of them are as self serving as the executives, the two sides of a greedy self serving coin. Not saying that Unions are the only cause of over promising on pensions because the paying side had to agree to the terms. Whether they ever intended to keep those promises is another story. I wouldn’t start a job and trust a pension promise as far as I can spit.

    1. Hello Franklin, thanks for the comment. I have been thinking about your comment and yes it seems that companies with a union presence are ones that have or had pensions. Even the Government pensions have union representation for workers (teachers, police, fire fighters, etc.) which says something about benefits and pay for the workers in America. It takes two self-serving entities fighting it out to get any worker retirement benefits. Maybe the subject of another post. Working somewhere that offers a pension benefit and that pension is fully funded would be killer to have, union or not if your time working there was where you wanted to be. I worked in both union and non-union environments and the union presence wasn’t at all that bad. Having to work somewhere 20 or 30 years and hating being there isn’t worth sticking around for a pension promise that far out.
      Tommy

  2. We don’t have pensions, but we LOVE them for one simple reason: both of our sets of parents have them. Military pensions, to be precise, which feel a whole lot more secure than private sector pensions. We are beyond grateful that our early retirement plans don’t have to include supporting aging and aged parents, since they have guaranteed income and health care for life. Phew!

    1. Thanks for the comment. My in-laws have pensions, my mother-in-law a federal pension that takes the place of Social Security and my father-in-law a public pension that is under the control of the PBGC due to United Airlines defaulting during their bankruptcy. His pension was reduced down to under $900 after 35 years of working there and that cut hurt them changing a lot of their retirement plans. I see your point completely. They had enough with his social security to get by OK and gives us the relief of worrying about their finances. He has recently passed away and fortunately that united pension was a full survivor benefit for my mother-in-law.
      Tommy

    1. Thanks for the comment Abigail. You did take it one step farther. I just finished a side hustle as a contractor the end of April with the same issue, no 401K match. I did sock away as much as possible in the 401K plan anyway. It is sad that even 401k match is getting rarer these days too.
      Tommy

  3. Yes hearing the size of others pensions after 30+ years of hard work is part of the retiree experience. It is frightening to think of the generation that has neither a pension nor saved 20% of their income. On my spreadsheet I put pensions, Social Security and annuities in the “guaranteed” column-knowing that the guarantee is debatable-but diversified. It has to be supplemented by the stock market returns for the growth to offset inflation.

    1. Thanks for the comment James. Having a pension that is from a sufficiently funded plan is indeed a rare occurrence these days. Corporate powers ended pensions all together or stopped sufficiently funding them years ago. I hope that the political powers get together to make sure the Social Security we all paid into for our retirement doesn’t become a rare occurrence also. We will be looking at annuities in the near future to add something to our “guaranteed” column. Seems that “guaranty” is extremely fluid and is only as good as the existing government administration and what the heavily funded lobbyists dictate.
      Tommy

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