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Hoping for the Best, Preparing for the Worst

February 16th, 2010 at 05:05 pm


Maybe somewhere deep down I'm a pessimist, but most of the time I'm a woman who thinks the glass is half-full. But when it came to financial planning and retirement, I covered all the bases.

I am one of the lucky ones who retired with a state teacher's pension. This is touted as "safe" and provides an annual 2% COLA. Participants in this pension system are not eligible for Social Security, however.

But being ever so wary of what could go wrong, and always wanting to be prepared for left curves life throws at us, I also did the following:

1) Contributed annually to my 403b accounts and also to Roth IRAs when I was eligible. So far, I have not had to touch this money;

2) Invested in the stock market. The "star" of my portfolio is AAPL which I bought at ~$6 a share in 1996. I stopped investing in stocks years ago, but I have fun tracking this asset. I don't know if I will ever sell any of it, but it's there if I need it;

3) I also have a stash of cash... some in CDs, some in ING, and some barely earning any interest elsewhere. It would help me survive for several years if my pension dried up.

4) I have avoided debt like the plague, except for a small mortgage.

So, why I am writing about this? Well, yesterday a good friend...also an educator... called and lamented she may have to work until she's 64 or 65. You see, her teacher's pension just won't be enough for living in retirement if she retires any sooner. And even when she does retire, she'll have to make "drastic cuts" to her lifestyle (like no more travel).

Don't feel too sorry for her. Most Americans have to work until 66 or 67, but many teachers we know like to retire around 60 or 62. My friend, though, never saved for retirement because she figured her pension would be enough. And in reality, it should/could be. And it is "safe." But what if...


7 Responses to “Hoping for the Best, Preparing for the Worst”

  1. ceejay74 Says:

    I so admire you for covering many bases like that. Out of curiosity, when did you start diversifying and putting away so much extra? Are you a lifetime saver or was there a turning point?

  2. Analise Says:

    Actually, both. I am a life-long saver, and started my first IRA in my mid-twenties. But I was able to sock away the most in the 15 years prior to retirement. By then my daughters were independent and my income took a big leap because I went into administration. The more I earned, the more I saved.

  3. Joan.of.the.Arch Says:

    Yep, the big "what if!" I have those all the time. I even think about the possibility that the pension system fails. Ours is independent but backed by the state, ultimately. States have been known to fail in their obligations, too....

    Love your cartoon. I like your blog generally. Smile There is a lot of information and a lot of experience shared within.

    Does your teacher friend who must continue working also have a partner whose earnings, investments/pensions might make it easier for them? Even in states where teacher pay is lower than in CA, if partners plan _together_ they are much more likely to be able to retire more or less securely.

  4. Analise Says:

    Joan - my friend is married and her husband, who is older by about 7 years, is already retired (also a former teacher). Her calculations take into account what he gets from his pension.

  5. nance Says:

    Most state pensions are extremely generous. I don't understand why two people can't live on them, and live well. Drastic cuts? My mother in law lives on a meager Social Security monthly check, and she is a widow. I can't feel sorry for two people who have state pensions.

  6. patientsaver Says:

    I think the "traditional" retirement age in the US is 65, but I think i've read statistics that many people retire sooner, not by choice or because they planned to, but because they were forced to following a late-life layoff or medical issues.

    I don't personally know any teachers, but i think they're generally making a lower income than many in the corporate world, at least in the early years of their career. So in that case, if i were a teacher, i would take pains to save early and save a lot, as you have done.

    I am very hopeful of retiring at age 60, even despite my current situation. Numbers-wise, I have a ways to go. I think you have diversified your investments very wisely, and kudos to you!

  7. Jerry Says:

    I think that you were very wise to diversify like that and lead yourself into a better situation. My mother just retired from teaching, and although she wanted to do another couple of years they changed the pension plan, and she would have lost her medical insurance if she delayed. Still, she and my father are getting along fine because they are frugal and much wiser about money than they used to be.
    Jerry

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