Michigan Teachers’ Pension: A Scary Retirement Risk?

We have all known that colleague. She was one of the “older” ones on the staff when we started. And no matter what, she was always positive, not only with the students. She was always there as a mentor with a listening ear and gave us advice when Jimmy wouldn’t sit still, or when Susie wouldn’t be quiet no matter what the seating chart was.

Fast forward and now our favorite fellow teacher has been retired for 18 years. A quick trip to the grocery store for her turns into an hour-long excursion because of all the chats and hugs from former students. She truly was excellent at what she did. She’s great, isn’t she? She sure is! However, did you know that her Michigan teachers’ pension is$4000/month? $4000 a month! Let’s do some quick and sloppy math. Taking into consideration she retired at age 66 and is now 83, and she has had some COLA’s over the years, the public-school system has paid her at least $500,000 over the course of her retirement. Let me tell you, she’s worth it! However, $500,000 to a single individual? It is not surprising why the Michgan Teachers’ pension fund is under-funded and in danger!

What’s The Problem With Michigan Teachers’ Pensions?

Even though the Michigan legislature did some revamping in 2017 to address the concerns of the taxpayer liability to school retirees, as of 2018, the amount needed to fulfill pension promises was still at a staggering $30.7 billion. There is some good news though. In both 2017 and 2018 the state of Michigan contributed more to the fund than required, and there were more stringent reforms passed

So, What About My Michigan Teacher’s Pension?

What does this mean for you as an educator who is retired or will be retiring soon? Well first, your Michigan teacher’s pension is not going to look like this. Let’s face it: she got in when “the gettin’ was good.” Also, depending on your dates of service, your pension  Retiree worried about her Michigan Teachers' Pension will look different than your colleagues. Currently, there are over 8 different plans you could have. Couple this fact with the decision of how you should take your pension. (Should you take survivor benefits, and if so what percentage?) There are a lot of factors that go into this decision, and it certainly shouldn’t be made in a vacuum.

This discussion is not to “open your worry box.” You worked hard for that pension, and as of now you have it! Most folks today will not have the option of contributing to a defined benefit plan, so congratulations! It is important to note though that no pension plan is bullet proof. There have been instances of local government entities falling on hard times and not being able to fulfill their obligations. In other words, bye bye pension. Luckily, most of you have not placed all your eggs in one basket when planning for retirement. You may have been able to contribute to a hybrid plan where some of your money is now in a 401k. Many of you have also contributed to other IRA’s along the way. See the options with your 401(k) here.

What Should I Do about My Michigan Teachers’ Pension?

in 2018 to help pay down the underfunded debt. Read more about Michigan Pension underfunding problem here. Whether you are already retired, or will be retiring soon, it is important to plan for the “distribution” phase of your financial life. Become a student and learn about your Michigan teacher’s pension, how it works (or will work), and have a contingency plan in case the unforeseen happens. That way, if it is “bye bye pension,” there will be no “hello tension!”

If you would like further information on planning for or reevaluating your retirement, or simply want to chat, give us a call at 231-421-7391.

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