Pension or annuity: Fighting words

Years ago I was on a TV panel of alleged media “experts.” The host interviewed us about our jobs and the beats we were then covering. My area of “expertise” was the federal workforce.

I didn’t know much more than they did, probably. But I was mostly raised in Washington, D.C., and my mother was a government worker from GS-2 to GS-14. Not, as they said back then, bad for a woman!

The host surprised me when he asked what is one thing outsiders could ask a federal bureaucrat — his word, not mine — that would make them angry. I told him that bureaucrat was sort of a putdown, like calling a newspaper reporter a hack or a public relations representative a flack.

But the one way to anger many feds, and I learned this the hard way, is to tell them or remark that they are lucky to have such a good pension — then stand back. Many feds have told me, and others, that they don’t get pensions in the traditional sense. A pension, they feel, is a gift or grant from the employer, something the company pays you out of the kindness of its heart after 30 or 40 years of faithful.

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Feds resent the term because they do contribute to their retirement benefit. Hence it is an annuity, something they purchase now for use later. That’s true up to a point. Feds do contribute toward their retirement. And in most cases it is 100% more than most of us private sector types ever kick in if we are still lucking enough to work in a place that still offers pensions. But the amount of the contribution represents only a tiny portion of the total benefit they will receive over lengthy retirement. Especially if it is indexed to inflation in whole, like the Civil Service Retirement System benefit, or in part, like the Federal Employees Retirement System. By some estimates employees recoup, or get back in benefits, all they contributed within 18 months to two years. Maybe you can do the math in your own case.

Anyhow, for decades now I’ve carefully avoided saying pension in word or print because I know it bothers people. But it confuses some, too, for good reason. I got a reminder of the pension versus annuity distinction last week. A reader in Washington state said she like the column on the best times to retire, but that I had made a mistake by referring to the federal CSRS and FERS benefits as an annuity rather then a pension. Here’s what she sent me:

“A pension is paid to the company/government and is later (upon retirement) paid out from the company/government to the individual. An annuity is an agreement or contract with an insurance or investment company that then agrees to pay out a certain amount each month or year. These can be arranged by paying monthly payments to the company monthly to a one time lump sum payment, such as cashing in your Thrift Savings Plan for a lump sum annuity. In my opinion, they are very expensive and right now have a super low return on your ‘investment.’

“Both can go away when you die or have a percentage go to a spouse or dependent child for a cost … Here is an example: TSP single life annuity calculator with a $500,000 lump sum payment from your TSP upon retirement, age 62-100 and level payments.”

And she’s right. I wrote her back telling her I appreciated the info, and that while she is correct, I’m sticking with annuity versus pension for obvious reason. She said she understood and was looking forward, someday, to get an annuity from her government job.

Case closed!

Nearly Useless Factoid

By Amelia Brust

Button down shirts have a loop between the shoulder blades, known as a locker loop, because originally Navy sailors needed a way to hang their shirts without a closet and keep them looking nice. Then the GANT clothing company adopted the detail for their shirts marketed at the Ivy League set, and the locker loop became a kind of status, and relationship, symbol. Many male students removed their loops to signal they were taken.

Source: Southern Living