Cops retiring as millionaires

A Forbes blogger does the math:

It is said that government workers now make, on average, 30% more than private sector workers. Put that fantasy aside. It far underestimates the real figures. By my calculations, government workers make more than twice as much. Government workers are America’s fastest-growing millionaires.

Doubt it? Then ask yourself: What is the net present value of an $80,000 annual pension payout with additional full health benefits? Working backward, the total NPV would depend on expected returns of a basket of safe investments–blue chip stocks, dividends and U.S. Treasury bonds.

Investment pros like my friend Barry Glassman say 4% is a reasonable return today. That’s a pitiful yield, isn’t it? It is sure to disappoint the scores of millions of baby boomers who will soon enter retirement with nothing more than their desiccated 401(k)s, down 30% on average from 30 months ago, and a bit of Social Security.

Based on this small but unfortunately realistic 4% return, an $80,000 annual pension payout implies a rather large pot of money behind it–$2 million, to be precise.

That’s a lot. One might guess that a $2 million stash would be in the 95th percentile for the 77 million baby boomers who will soon face retirement.

Cops have a better racket these days than during prohibition. It’s not just cops, either — millions of teachers, firefighters, administrators, transit workers, janitors and all kinds of unionized government employees are effectively millionaires.

Video: Public employee of the year awards (SNL)

Mish put this up a few days ago. If you haven’t seen it, it’s a must-watch.


This version may play better in the US:

This is why your state and local governments are bankrupt, as well as the national governments of Greece, Portugal, Spain, Italy and probably soon France.

Selling munis today is like selling Greek bonds six months ago — the numbers guarantee default. The only question is whether or not there are bailouts, but like with the GIPSI states, there will be a lot of uncertainty leading to higher rates in the interim, and in the end they can’t all be bailed out.

Look at these rates. Considering the risks, that’s a pretty skimpy premium over Treasuries, even considering the tax advantage.