Thread: The Public Service Sector: The Millionaire Cop Next Door

The Millionaire Cop Next Door
June 1, 2010 - 11:45 am

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.

That $2 million also happens to be the implied booty of your average California policeman who retires at age 55. Typical cities in California have a police officer's retirement plan that works as follows: 3% at 50. As the North County Times of Carlsbad, Calif., explains:

Carlsbad offers its police and firefighters a "3-percent-at-50" retirement plan, meaning that emergency services workers who retire at age 50 can get 3 percent of their highest salary times the number of years they have worked for the city.

City officials have said that in Carlsbad, the average firefighter or police officer typically retires at age 55 and has 28 years of service. Using the 3 percent salary calculation, that person would receive an annual city pension of $76,440.

That does not include health benefits, which might push real retirement compensation close to $100,000 a year.

Who are America's fastest-growing class of millionaires? They are police officers, firefighters, teachers and federal bureaucrats who, unless things change drastically, will be paid something near their full salaries every year--until death--after retiring in their mid-50s. That is equivalent to a retirement sum worth millions of dollars.

If you further ask the question: How much salary would it take to live, save a build a $2 million stash over a 30-year career, the answer would be: somewhere close to $75,000 more than the nominal salary, if you include all the tax bites associated with earning, saving and investing money.

In other words, if a police officer, firefighter, teacher or federal bureaucrat is making $75,000 a year, she is effectively making twice that amount. Implied in her annual pension payout is that she diligently saved half of her annual salary--after taxes--in order to save, invest and build--again, after taxes--the $2 million pot.

So when you hear that government workers now make, on average, 30% more than private sector workers, you are not getting the full story. Government workers make more than twice as much as private sector workers, on average, when you include the net present value of their pensions.

How long can this last? Post your thoughts below.

http://blogs.forbes.com/digitalrules/20 ... next-door/

Until recently I WAS a government worker, and have been several times in the past. There may be a few instances where something like this happens, but for the vast, vast majority of government workers this sort of description is totally untrue.

When they retire with their million dollar booty they don't live next door any longer, they move to an expansive house at Big Bear Lake or similar peaceful area.

BetsyRoss wrote:
"Until recently I WAS a government worker, and have been several times in the past. There may be a few instances where something like this happens, but for the vast, vast majority of government workers this sort of description is totally untrue."

Then I apologize for evidently adding to the general misinformation about this.

No apology necessary. In a few cases, generally where there is LOTs of seniority, strong unions, and other factors such as past prosperity of an area with an overall need and expectation of higher salaries than the rest of America, you may well see these sweetheart deals.

Back before I was hired by the state of Colorado, classified workers used to get automatic step raises so long as they met their yearly directives. As a result, there were technicians who made more than I did, as the step raise system was discontinued shortly before I got there. Still, when we were only getting cost of living raises, their raises were based on what had grown to a higher base salary than what I started at, so these technicians stayed ahead of me even though I had been hired in as a professional and a manager.

Also, you have to look at the employment category of the public worker. In recent years there has been a trend away from having positions be classified and instead making them at-will like in the private sector. This trend started at the top, so that there is now a layer of VERY highly paid professionals in Colorado. They in turn would like to take all state employees out of the classified system and make them at-will. Then salaries could be managed locally and employees could be fired at will, just like in corporate.

BTW it is a myth that public employees cannot be gotten rid of for poor performance. It actually happens all the time. It's just that they have the right, unlike at-will employees, to a certain due process. So it takes a little longer, and has to be documented, but it does happen and Ihave seen it many times. Their positions can also be eliminated out from under them.

Thank you. It's good to have first-hand information from someone who has spent most of their working life in the public sector to overturn some of the cliques which unforunately are repeated endlessly without verification - the mistake I made. I remind myself that I had wonderful teachers growing up at a time when teaching was considered a profession, and that there are, I am sure, as many wonderful dedicated teachers now as then, although currently they unfortunately always are protrayed to us as "members of the teacher's union". Further, I had an opportunity to know the first city planner hired in the small GA town in which we llived. He was young, very well qualified, and worked such long hours that some more experienced men ("local taxpayers" from the private sector) met to tell him that he was going to "burn out" if he didn't begin going home earlier in the evenings and stop coming into the office every Saturday morning.

Yeah, teachers get beat up on too, mostly unfairly. For every bad apple (and there are bad apples!) there are at least 10 thousand heros who spend their personal time and money enriching their lessons and going beyond the job. Teachers can make good money with a Master's degree and a ton of seniority (expecially if there are two of them in the household), but starting out in their careers is another matter.