Millionaire Joe vs. the Teachers

Eagleye Blog ^ | December 11, 2012 | Bethany Stotts

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In a recent column for The American Thinker, Randall Hoven discusses how the value of teachers’ pensions can rival an American millionaire’s retirement–with less insecurity, of course.

“Businesses go bankrupt, governments face default and economic growth slows to a near standstill,” writes Hoven. “Meanwhile, retired public school teachers, who had to work 9 months of the year during their careers, now pull in checks 12 months a year, indexed for inflation and guaranteed by the government, in amounts that often make them millionaires, maybe twice over.”

How does Hoven arrive at this “twice over” number? He takes Illinois school districts’ pension information, assuming that, like Chicago, “the teacher will make about 50% of her final salary if she retires at age 55, or 75%, the maximum, if she waits until age 59.” Thus, a “typical” age 55 teacher with a salary of $85,000 upon retirement will glean $42,500 annually as a pension–an equivalent net worth of $1,062,500. The “typical” teacher, retiring at 59 with an $85,000 salary, would glean $63,750 annually–a net worth of $1,593,750, according to Hoven. His assumptions are that a “pension is 50% of salary if retirement is at age 55, and 75% if at age 59; annual pension is 4% of equivalent net worth.”

“Contrast the teacher’s situation to that of an imaginary self-employed person I’ll call Joe,” continues Hoven. “Over Joe’s career he was able to buy a house, currently valued at $300,000 (not much above average), pay off the mortgage and save up another $1.7 million.” He continues,

“So he [Joe] has a net worth of $2 million when he retires at age 59. Most of us would call Joe successful and we would also call him a millionaire. He now makes money from the capital gains, dividends and interest generated by his savings. Joe now gets to live each year on 4% of his investable nest egg of $1.7 million, or $68,000 per year. That’s not too far different from the pensions of many retired teachers in Illinois.”

Also, it is worth noting that the lifetime earnings for a person with a bachelor’s degree are is ”about $2.27 million” over a lifetime, reported US News and World Report earlier this year. “…[T]hose with master’s, doctoral, and professional degrees earn $2.67 million, $3.25 million, and $3.65 million, respectively.”

Hoven describes two key differences between Joe and the retired public teacher: insecurity and health care costs. “Every day [Joe] has to worry about what dies first: his principal or him,” writes Hoven. “Joe also has to pay for his health insurance premiums, all 100% of them.”

What Hoven doesn’t mention is that Joe, being self-employed, has paid a larger share of Social Security and Medicare taxes over his lifetime, as well. And Joe has to pay capital gains taxes and interest on savings.

“My point is not to vilify public school teachers or other public employees,” asserts Hoven. “My point is that the stereotypes need to be re-visited. Who thinks of retired public school teachers as millionaires on easy street? … Who thinks Joe the Millionaire has the more realistic fear of destitution in his old age than the retired teacher?”