You were one of the very first financial experts to call attention to the underfunding of the IL State Teacher Retirement system. What do you think is the most likely outcome for teacher pensions in Illinois ? Will current retirees lose their COLA ? Will they have their retirement recalculated downward ? Could the state acquire the ability to declare bankruptcy and dramatically reduce pensions ? (My wife and I are in our late 60's , in good health , and currently invest over 25% of our yearly pensions in Vanguard funds to protects ourselves from a possible pension crisis. )
Any thoughts on this matter would be greatly respected and appreciated.
OK, let’s get a couple of things straight. I assume you are already drawing your pension — and instead of spending all of it, you are investing (saving) a good portion –just in case. And I’m assuming that you are worried about future pension distributions.
And that is a difficult question to answer. There is no precedent for a state to file for bankruptcy (although Puerto Rico may set a new precedent, depending on what is done about their ability to file bankruptcy). Under all existing constitutional law, the state is responsible for paying these pensions, since it has the power to tax. And under Illinois law (which has been upheld by the State Supreme Court), the state cannot change the “terms” of the pensions for existing employees and retirees– such as COLAs.
But surely we have a debt crisis coming. The more you can save to supplement your pension (especially younger people), the more financial security you’ll have in retirement. The Federal government can “print” money but states can’t. The only alternative for states is to raise taxes, or cut spending. Keep an eye on Springfield.