It is well known that California has a pension problem that offers a challenge for public officials and current and future retirees alike. Even if people aren’t aware of the details, it has been talked about for quite some time that there are underlying aspects of the public retirement system that need to be addressed, sooner or later. The fact of the matter is that such problems can’t be ignored by the State forever; and what is perhaps more important to me, as one who professionally helps people secure their financial futures, is that the beneficiaries of these public pensions need to understand what is going on and work to prepare themselves for what is ahead.
Thus, the purpose of this short overview of the problem is to help awaken people to their own unique scenarios, to inspire them to make the proper moves before it is too late. Everyone is in a different situation and there is no one-size-fits-all approach to figuring out what one should do personally; but hopefully after considering the following, the reader will be encouraged to reflect deeper on how the pension crisis may affect their futures.
The first thing to understand is that California’s public pension system is made up of a conglomeration of “6 state plans, 21 county plans, 32 city plans, and 27 special district and other plans” according to the Independent Institute Senior Fellow Lawrence J. McQuillan (McQuillan, page 3). The majority of these operate on a “defined benefit” model, which means that, upon retirement, these plans pay a specific amount per month for the rest of the retiree’s life. By far, the three largest of these 86 CA pension systems are CalPERS (1.68 million retirees), CalSTRS (868k retirees), and UCRP (253k retirees). For the remainder of this article, we will refer to these as the Big Three.
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