Looking at my pension... and how it works

With pensions and local governments in the news, I thought i'd take sometime to explain how my City's pension formula works.

Right now I make $17.98 an hour, 80 hours a paycheck, 26 paychecks a year. That makes my base salary $37,398.40 a year.

My Retirement formula is 2.7% of my highest 12 month base salary if I work until i'm 55 years of age. I can retire as early as 50, but then the % is a lot smaller, I think its 2%.

As long as I retire after May 8th, 2041 I'll receive the full 2.7% of my salary because that's when I turn 55. My Pension formula can never be changed, but what can be changed is the amount I have to pay for these benefits. At max, it can be 8% of my salary. Right now, 3% of my salary is put towards my pension, while the City pays the other 5%. Over the past few years the trend has been to make employees may more money towards their retirement gradually. I wouldn't be shocked if next year the pension requirements were 4% employee 4% employer or higher.

In today's dollars, if I were to take 2.7% of my salary that comes out to be $1,009.75. I then am supposed to take that amount and times it by how many years i've worked for my city (currently, I have slightly over 5 years without purchasing anything). When i'm 55, that will be 36.005 ( again not including any time i'm buying right now or may in the future). = $36,356.29 which is 97.21% of my current salary.

Now, I am purchasing around 0.8 of a year of service credit from my 2 years working part time when I was a teenager. Most people my age change jobs, and don't stay with a company long term. I'm different. I still work for my very first employer and while i picked up jobs in addditon to the one I have now, I stayed. The 0.8 of a year was calculated by adding up every hour I worked before I was enrolled in CalPERS.

If I tack that on to my service credit, I'd have 36.805 years of service & I then get a check for $37,163.84 a year, or 99.37% of my current salary.

If I were to work an additional year and 2 months from my hire date, i'd end up with 38 years of service and it would be pointless for me to continue working because all pensions are capped with 38 years of service.

So If I were to retire on July 20th, 2042 my unmodified pension would be $38,370.50, or 102.5% of my current base salary -- more $$$ then i'm currently making right now. I'd get a raise to retire.

I also have the option of purchasing that same year with my own money and not having to work it, thus retiring at 56 with the same pension on July 20th, 2042. They are changing how much it costs to be able to buy additional service credit as of 2 days ago, so i'm not sure if this would be a good trade off for another year of working. I'll run the numbers for it in November when the new calculators go online that reflect the price changes. I have my old estimate saved so i'll be able to compare the difference in price to see if its worth it.

Essentially, if I stay and continue working and retire with a pension, i'll have worked for the City for 41 years, since i started right after my 16th birthday. Hypothedically thinking, the average college grad graduated at 24-25.. if you tack on the 41 year i'll have worked for the company, that would put it at a more understanding 66 years of age for retirement.

Guess sometimes it pays to be old fashioned. Mind you all these dollar amounts are based on me never getting another raise in my life and never receiving a promotion.