Retired California Teachers Receive Lump Sums of $500,000

Oh, those poor, poor California teachers. They only get lump sums of $500,000 when they retire. Wait, what? Oh, you didn't know that? Keep reading.

"Of the 12,568 California educators who retired in fiscal year 2007-08, the median number of years on the job was 29 years. The average CalSTRS pension was $48,180 per year, which was about 62 percent of the average highest salary." See here [Update: link no longer works.]

Assuming a 6% rate of return and 29 years of retirement, you and I would have to save up almost $17,200 every single year for 29 years straight to get the same level of retirement income as an average California teacher. Why? Because most of us would have to buy an annuity on the open market to get something similar to a pension.

To give you an idea of how expensive these pensions are, let's do the math: to get $48K a year for 17 years, we would have to generate a nest egg worth about $500,000. Basically, California taxpayers provide the average California teacher with a nest egg of $500,000 upon retirement--the market cost of paying someone about $48K a year for 17 years of retirement. (Note: Hypothetical assumes you start teaching at the age of 31 and work 29 years, which means you're 60 years old. You then retire and then expire at 77.)

Will most Californians have at least $500,000 when they retire? If not, why are they responsible for guaranteeing the average teacher an annuity worth about $500,000? Also, how many of us can afford to save $17,200 a year? Even if private sector employees maxed out their 401(k)s, they couldn't put $17,200 a year in the account [as of 2011]. And people still think teachers, on average, are underpaid. Perhaps the newer and younger ones are--but that's not the taxpayers' fault. It's the union's fault for creating and enforcing a compensation system that shoves so many available taxpayer dollars in the back-end of a teacher's career rather than in the front.

P.S. Want to do the annuity calculations yourself? Here is one version of an annuity calculator.

Bonus: It looks like I may have underestimated the value of the pension. More here. The Money Blog calculates that as of 3/2011, a $300,000 lump sum would would get you just $1300/mo in annuity payments.

Also, see Margaret Collins, July 1, 2011, “Delay Taking Social Security, Add Annuity to Survive Retirement”: “For example, a contract [annuity] purchased for $95,500 by a 66-year-old couple in Florida may provide $4,262 a year until the death of the surviving spouse and include increases for inflation."

Bonus II: from Joel Klein, The Atlantic, June 2011:

[C]onsider the financial burden that comes with providing lifetime benefits. Given the time between first putting aside the money to fund such a “long-tail exposure” and having to begin paying it, the amount “reserved” by the employer necessarily depends on a host of imprecise assumptions—about the rate of return that the money invested in the pension fund will earn, about how long employees will live, and even about how much overtime employees will work during their last few years, which is normally included in calculations of the amount of the pension. Each dollar set aside this year to cover the ultimate pension exposure must be taken from what would otherwise be current operating dollars.

Consequently, elected officials have had every incentive to make extraordinarily optimistic assumptions about the pension plan—or to simply underfund it—so they can put as little as possible into the reserve. Unfortunately, but predictably, that’s exactly what has happened: most states “assumed” they would get an average 8 percent return on their pension reserves, when in fact they were getting significantly less. Over the past 10 years, for example, New York City’s pension funds earned an average of just 2.5 percent. Now virtually every pension plan in America that covers teachers has huge unfunded liabilities. A recent study by the Manhattan Institute estimated the total current shortfall at close to $1 trillion. There’s only one way to pay for that: take the money from current and future operating budgets, robbing today’s children to pay tomorrow’s pensions.

American Teachers: World's Best PR Operation?

The following status update caused quite a discussion:

If you can't understand basic economics, can't compete against international students in math and science, and think that bigger government can solve our problems, thank a California K-14 teacher.

P.S. students in India, Israel, China, Iran, and Eastern Europe can't wait to compete with you.

EzD: That's a pretty wide brush. I used to be a teacher (not in CA, admittedly) and know that there are plenty of great, bright motivated teachers that find themselves fighting against the District offices and our awful myopic focus on standardized tests. It's not always (or even most of the time) the teacher's failure that causes our educational issues.

SlW: I've been put through the system in Poland (K-5), Germany (6-7) and Canada (9-12). The math I was taught in grade 9 in Canada I already knew in grade 5 from Poland. really sad...

JA: And that's why I attended private school most of my life.

TrB: I agree with SlW--after I returned from 3 years in Germany I got to "coast" for a couple years while the rest of the kids caught up to where I was at. Sad.

MaR: @EzD: no one said that teachers don't work hard or that there aren't any bright teachers. At the same time, it's easy to see that our public school system is failing students when it comes to basic knowledge, especially in math, economics, and science.

(By the way, I was doing a riff on the more common quote, "If you can read this sentence, thank a teacher.")

EzD: My first year of teaching, on my first day I had 36 students, 34 sets of books and 33 desks. We don't set our teachers up to succeed any more than we do our students.

DaC: Why blame everybody and the system when the fault lies with the students themselves. What with the WII and PS3 and modern day toys, does anybody really focus on school. Kids can't wait to get home and play. Parents need to enforce stricter ground rules for the kids also.

RoW: the teachers can only work with what they are given. My dear friend is a third grade teacher and often finds herself spending her own money on school supplies when she is short. She also has to buy snacks/meal substitutes because so many kids get sent to school hungry. If they can't focus because the are starving, they aren't learning.

MaR: I'm not surprised kids don't have sufficient resources. 80 to 85% of the education budget goes into the pockets of teachers and administrators. More here.

ScL: Well, you just hit the nail. It's the same thing killing the university system as well. Bureaucrats and Administrators are a metastasizing cancer that starve the rest of the system of resources but the same can be said of government and large banks. Add in a general unwillingness for an objective rating system for teachers and the whole thing's hosed.

NiP: This was a complaint about PS when I was growing up in Chicago. My parents made sure we were challenged by giving us extra homework. "Not all parents are equipped to do that," you counter. True, but there are all sorts of after school help parents can get for their children, some of it free. Some effort needs to be made to help the teachers teach the students, including imposing some home discipline and a good night's rest.

EzD: Heh, I think you have this image of teachers as being overpaid. Strangely, I (and I think a lot of other folks) have a different experience. I make more working at a small non-profit than I ever did teaching. It may very well be that administrators & union folks are rolling in dough, but I don't see anyone getting rich from teaching. Hardest job I ever had, and second isn't even close.

NiC: Teachers should be paid more, the school year should be longer, and there should be less administration.

MaR: @EzD: you mentioned you did not work in California. In California, teachers are adequately compensated. "According to the CTA's parent union, the National Education Association, California teachers were the nation's top-paid, with $64,424 average annual salary in 2007-08." See here.

Teachers also receive special benefits including pensions, lifetime medical benefits, and job security. If teachers agreed to switch to a private sector retirement plan (i.e., a 403b plan), we could pay them even more. However, as long as teachers receive millions of dollars on the back end (i.e., when they retire), we cannot afford to increase the salaries of newer teachers. I guess we care so much about children we don't mind paying newer teachers less money so we can pay millions of dollars to retired, non-working teachers.

EzD: True, I taught in New Orleans and was not so well paid. Does that job security you list in the benefits include the mass pink slips that districts up & down the State are sending out?

The real reason our system is hosed? Prop 13. If we got rid of Prop 13, our schools would almost instantly improve.

NiC: Really, more taxation is the answer??? Houses can't sell as it stands now. Higher taxes is not the answer. How about not wasting the money we already send to the schools. I agree with MaR.

MaR: @EzD: again, the reason newer teachers are receiving pink slips--which were canceled after states received $26 billion in emergency federal aid--is because we are spending millions of dollars paying retired teachers who no longer work. Until the day money grows on trees, we have to decide between paying millions of dollars to retired teachers or paying millions of dollars to newer teachers. California, much to my chagrin, has decide to focus on retired teachers at the expense of newer teachers.

Also, Prop 13 has been a boon to California's middle class (not just the rich). People who support the repeal of Prop 13 support taking money from the private sector middle class and giving it to government employees and unions. It's hard to sympathize with such an approach when the private sector middle class is experiencing major unemployment and financial difficulties.

AnL: You're tough!

MaR: you think I'm tough? Listen to Chuck Thompson:

"And, yes, poor unappreciated teachers. I did say sweet deal. American public school teachers have the world's best PR operation going. Whining every chance they get about how demanding their jobs are, how many 'extra hours' they put in, how little they make, how much of their own money they have to spend just to do their jobs, how noble they are working this job that nobody ever asked them to do--welcome to the f*cking world...

You think you got it tough? You don't got it tough. American teachers would crumble if they ever had to work the real hours of a cabbie, doctor, bartender, fisherman, truck driver, small-business owner, hotel clerk, mechanic, architect, janitor, musician, surveyor, accountant, or the million other jobs that don't observe weekends, much less every city, county, state, and federal holiday on the docket, almost three months' paid vacation a year, and pension programs funded out of the public trough. How is it we go through school painfully aware that half our teachers are lazy or incompetent or pathological control freaks, then turn around and let them convince us what a bunch of saints they are as soon as we become taxpayers?" (p. 100, Smile When You're Lying)

ZiL: I did K-6 (and some college) back in the old country [Poland]. And yes, the curriculum there was more demanding, esp. in mathematics. But their system sucked (and continues to suck) in many other respects, such as lack of individualized attention and a complete disregard for psychosocial development.

MaR: I agree that psychosocial development and academic aptitude are not contradictory goals, but thus far, our schools have been artificially boosting children's self-esteem with their low standards. From my perspective, families should provide self-esteem, and schools should focus on teaching viable skills so students aren't required to work for the government to enter the middle class.

One could almost describe our current education system as a scam. If schools teach most kids no marketable skills for 18 years, it forces them to rely on the government for jobs. As a result, most kids become adults who are forced to vote to expand government, which means teachers and government unions get even more money...for teaching kids no viable or useful skills.

CTA Issues Press Release from Fantasyland

Prior to losing millions of dollars in federal aid because it refused to accept educational reforms, the California Teachers' Association (CTA) had issued a hilarious press release (see here). I couldn't help but laugh at this line: "It's alarming that the president wants to focus on a competition system that creates winners and losers." Are you kidding me? Welcome to the real world, CTA. The 88% of schoolchildren who don't end up working for the government will eventually enter a system that creates winners and losers. Sheltering students from reality or protesting methods that evaluate academic progress doesn't help anyone.

Also, when teachers' unions view the public's desire for accountability as a threat, something is obviously wrong with our educational system. No one but California teachers would ever dream of accepting $50 to $62 billion each year and then crying foul when taxpayers want to see results.

I never thought I'd see a Democratic president stand up to the teachers' unions in my lifetime. Thank goodness President Obama cares more about children than teachers' unions.

Bonus: most people don't know that most California teachers are adequately compensated. See here:

According to the CTA's parent union, the National Education Association, California teachers were the nation's top-paid, with $64,424 average annual salary in 2007-08...Because of its huge student population and its high-priced teachers, California spends 44 percent more on K-12 public education than does Texas, the next highest-spending state, $59 billion versus $41 billion.

Tenured teachers also receive unique benefits including pensions, lifetime medical benefits, and job security.