Public vs. private pensions.

• Author: Randazzo, Anthony
• Position: Brief article

Mr. Private just moved to California to teach at a private middle school. He discovers that his neighbor, Mr. Public, will be starting his first year teaching at the local public middle school. As both are 26 and have recently completed a master's degree, they are projected to have roughly the same annual growth in salaries--around 3.75%, minus inflation. Their retirement plans are different, though. Mr. Public is enrolled in a pension plan that promises him a fixed annual salary when he retires. Mr. Private is enrolled in a 40i(k), with contributions from himself and his employer, plus he'll have Social Security when he retires. There isn't that much difference between the two when they start out, but by the time they each retire at 65 they will have very different retirement accounts.

MR. PUBLIC

Starting salary $56,830

Final salary $77,395

RETIREMENT INCOME:

Teachers union pension: $71,042/yr. *

Replacement of final salary: 92%

* California public school teachers are not eligible for Social Security. Calculated using the CalSTRS pension benefit formula.

MR. PRIVATE

Starting salary: $46,400

Final salary: $62,098

RETIREMENT INCOME:

Annuity purchased with

401 (k) funds: $9,303/yr. *

Social Security: $26,213 /yr.

Total: $35,516/yr.

Replacement of...