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California plan for retirees

By Jennie L. Phipps · Bankrate.com
Thursday, February 23, 2012
Posted: 11 am ET

Retirement planning is particularly difficult for people who don't have an employer-sponsored retirement plan.

California State Sen. Kevin De Leon, D-Los Angeles, is offering an innovative plan that will help solve that problem -- starting in his home state, a place where trends often start.

De Leon proposes to set up a voluntary and portable retirement savings plan that workers could move from one employer to the next. The California state treasurer's office would manage the program, setting the contribution rate at a minimum 3 percent, possibly more. The California Public Employees' Retirement System would manage the money conservatively. Unlike 401(k)s and other defined contribution plans, benefits would be guaranteed. How much would be based on how much a worker saves.

The plan would require employers with five or more workers to either enroll their employees in the savings program -- and deduct the contributions from paychecks --  or they could offer their own retirement plan. Self-employed workers and those employed in even smaller companies also could participate.

"This plan is universal, affordable and portable. It allows people to take personal responsibility for their own retirement at no cost to taxpayers," De Leon says.

It would help people like my sister-in-law, who is a hotel housekeeper in Florida. I did her taxes yesterday. She makes minimum wage -- $7.65 an hour -- or about $16,000 a year. When she reaches 66 in two years and qualifies for full Social Security, she plans to retire and live on her $900 a month check. If she had participated in a savings plan such as this, she might have another $60,000 or so to make life more comfortable.

With that money, she could buy an immediate annuity. At the rates quoted today by ImmediateAnnuities.com, she'd earn a guaranteed $350 a month. Added to her Social Security, her monthly income would be $1,250 per month or $15,000 a year, which is close enough to what she's making now. Not a princely sum, but she gets by.

You might reasonably ask, "Why buy an annuity?" The answer is that if she has this much savings, she will be disqualified from some state and federal poverty benefits such as help with Medicare Part B and D and food stamps. By locking up the money in an annuity, she probably will continue to be eligible for this extra assistance.

When you are as poor as she is, you have to take what you can get.

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4 Comments
EIEIO
February 24, 2012 at 10:10 am

Ditto and amen to Dmitry. I am a California native but left there decads ago. Even though my current state is not perfect (no place on earth is), it's way better than California.

America is known as "the land of the free and home of the brave". I wonder if that is still applicable today? Emphasis placed on "free".

T. Coe
February 24, 2012 at 3:12 am

No way!!! I live in California. Any human with half a brain will manage her money better than the broke state of California.

Have we not learned our lesson with giving the government out Social Security money??

Both parties raided the funds and spent them

No thanks I'll do just fine by myself please.......

Dmitry
February 23, 2012 at 4:01 pm

There is so much wrong with that plan , I don't even know where to start.

1. Defined benefit? REALLY? Defined benefit did not last 60 years and major drain for any organization that still has one?
Why don't we start issuing bonds now to cover the shortfalls for this future fiasco?

2. "voluntary and portable retirement savings plan" that "would require employers with five or more workers to either enroll their employees in the savings program -- and deduct the contributions from paychecks"? How does voluntary equate with required? Like voluntarily handing over your money at the gun point?

3.Why Calpers? What makes this money black hole qualified better than ANY private company?

4. Did De Leon bother to ASK his sister-in-law if she can even survive with 3% cut on her minimum wage earnings? What about others? Are you assuming they don't save because they don't want to? Force them to do what's good for them? I recall living on a very rigid budget back in my early 20s. A well wisher like you would have forced me from decent area single apartment into scary area where my car could be stolen (and I loose my job and/or can't go to community college) or get shot (and I loose my life). Thanks. Any more good ideas?

5. Where the hell $60000 comes from? His sister-in-law is 64. I bet she did not make same amount 45 years ago. Mr. De Leon, please go back to your drawing board and recalculate using proper historical numbers of minimum wage. Then tell us how much she could have and what annuity payment she could buy with it.

6. For 20 year old by retirement (at 65) $60k will be equivalent of
$25k today with 2% and $16k with 3% annual inflation rate.

7. "The California Public Employees' Retirement System would manage the money conservatively." - in other words you want to FORCE people into low return investments? Those who have little to save you want to lock into poverty by taking their money away AND giving them low interest return? That's just evil.

8. How is this forced savings plan is different from Social Security? Why do we need 2 plans (with 2 overheads) that do same thing - take your money when you work and give you money when you're old?