The Nouveau Riche

Have you ever wondered why states and municipalities are always in such a precarious financial situation? Wonder no more:

Astute reader R. provides additional insight on public pensions:

I read the latest article. Are You Part of an Elite, and Don't Know It? (July 22, 2008).

A friend told me the other day that a fireman is getting $10,000 a month in a pension. I hear this all the time. Another friend says her 92 year old uncle gets $8,500 a month from being a fireman and he retired 45 years ago.

What people do not realize is this. At today's interest rates on cash at 3% or so, You and I have to save up 3 million dollars to get $90,000 in income per year. We also risk the chance of losing our capital by a fund failure or bank failure and more.

These government pensions are better than winning a million dollar lottery. A million dollar lottery pays less than $50K a year, and stops after 20 years, with no health care.

These pensions are like being a multi millionaire, like having saved, put away, 3 million dollars of after tax money. And we know it would have taken many more millions in order to save 3 million after taxes.

These pensions make people millionaires, or as you said, Elite. But the pensioners never had to save it up. It is one thing to pay someone while they are working, but it is outrageous to pay them that much when they are not working. And they are allowed to work elsewhere, collect other pensions, and earn income from other investments, while the taxpayer continues to support them..

I have saved up quite a bit, and bought income producing assets, but have much further saving to go in order to retire with a decent income from my savings or estate.

When you understand investing and passive income, you realize that the goal in life is to create an estate that pays you income later in life. You live off the income the money or estate generates. You don't spend your savings / capital. Then you can pass income generating assets to your children, or whomever you choose. So as I said, these pensions are like having millions in an estate that is producing income. Something that I have scrimped and scraped and saved to achieve. I rent a house now that prices are falling, and shop at garage sales. I rarely buy liabilities that lose value. Boat, RV, toys, etc. I almost always buy used items. Pensioners live much better than me, and drive brand new cars, boats, RV's and other liabilities.

Even better for example, a woman who marries a male government pensioner, and maybe soon for a man, LOL, is that a woman can come along and marry the government pentioner, then take the equivalent of half the future pension in a divorce, and pay no taxes on it like most divorces, or she can inherit the pension on his death after doing no work at all. Taxpayers then support her for no work ever done. It is insane. The entire government has a spending problem, not an income problem. Yesterday, my accountant told me I owe some more in taxes.