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~Why your state pension won't be enough~

 
Those of us who are faculty, Ed Tech 2s & 3s, and administrators are all part of the Maine Public Employees Retirement System (MEPERS).
 
There is a perception that we have an incredible state pension system that is going to take care of us when we retire.  Unfortunately that isn't the case.
 
First, Maine's pension system is quite poor in terms of employer contributions.  Compared to other states, school districts in Maine contribute relatively little to fund employees' retirement.  This is, in part, because school districts in Maine don't pay into the Social Security system on behalf of faculty, Ed Techs 2s & 3s, and administrators.
 
Secondly, Maine does not provide adequate cost of living adjustments once employees enter retirement.
 
To make the math easy, take an employee who works 25 years, and retires when the average of their highest three years of salary was $100k.  Their pension in retirement would start at $50k a year.
 
You might think that this $50k payment would increase each year to keep up with the cost of living, like Social Security payments do, but that's not the case.
 
Back in 2011, the LePage administration made several changes to the public employees pension system.  One change put a limit on the amount of our pension that gets a cost of living adjustment.  So if you were a retiree this year and your pension was $50k, only about $25k of that would get a cost of living increase:  https://www.mainepers.org/retirement/cola/state/

It gets better.....  The LePage administration also reduced the maximum annual cost of living adjustment from 4% to 3%.  While the Mills administration recently changed this back to 4%, this is still inadequate.  
 
For example, in 2021 the rate of inflation was 5.4%, but the inflation adjustment cap of 4% meant that retirees saw their standard of living decline significantly.  Not only was the adjustment less than the inflation rate, but remember, currently only $25k of one's pension actually gets a cost of living adjustment.  So this meant that the retiree earning a $50k pension in 2021 actually experienced a standard of living decrease of more than 3%.  
 
And that's just in one year.  Inflation will eat away a significant portion of your pension every single year.  Let's say one's pension loses to inflation by just 1% per year.  While this sounds insignificant, after 20 years, one's pension would be worth about a fifth less than it was at the start of retirement.
 
The good news is that there are at least two things you can do about this.
 
First, you can help yourself by investing in an appropriate portfolio through traditional and Roth retirement accounts, with low-cost providers like Fidelity, Vanguard, or Schwab.
 
Secondly, you can contact the governor and your state representatives and urge them to change state law so that school employees can enjoy the retirement that they deserve.
 

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May 9, 2024

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Scarborough, Maine