Who are America's fastest-growing class of millionaires? Police officers, firefighters and teachers, Forbes publisher Rich Karlgaard noted recently.
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.
Based on a 4% return, an $80,000 annual pension payout implies a rather large pot of money behind it — $2 million, to be precise. A stash of that size would probably fall in the 95th percentile for the 77 million baby boomers who will soon face retirement, Karlgaard notes.
Many cities and counties offer its police and firefighters a “3-percent-at-50” retirement plan, meaning that emergency services workers who retire at age 50 can get 3% of their highest salary times the number of years they have worked for the city. It’s not unusual for the average firefighter or police officer to retire at age 55 with 28 years of service. Using the 3% salary calculation, that person would receive an annual pension of $76,440.
Unless things change drastically, our new millionaire class of police officers, firefighters, and teachers will be paid something near their full salaries every year — until death — after retiring in their mid-50s. That’s equivalent to a retirement sum worth millions of dollars. As Karlgaard notes, the question is, how long can we afford that?
