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Americans Overestimate Federal Benefit Costs

by Carol Schmidlin |

As the possibility of a federal government shutdown loomed over thousands of Americans, the article in CNN, April 2, 2011: “Americans Flunk Budget IQ Test”, was quite intriguing.

According to a CNN/Opinion Research Corporation survey, most Americans think that the government spends a lot more money than it actually does on Government pensions and benefits. 

On average, Americans think the federal government spent 10 percent of its 2010 budget on pensions and retiree benefits; the OMB figures indicate the real number is about 3.5 percent. Another area that is not often talked about is the big difference for federal workers and state workers is that federal employees pay significant premiums for their health insurance.

There is certainly a lot of discussion about how to reduce the federal liability, and part of the solution may be targeting federal employee benefits, but the real take-away should be what I refer to the “Yo-Yo” approach, (you’re on your own).

This is meant for federal and private sector workers. Just think back to the many Americans following the Great Depression: retirement was not their responsibility. It was the responsibility of the company that they worked for and their pension manager. This was known as a Defined Benefit Plan and is what the CSRS and FERS retirement annuity is. A Defined Contribution Plan is what most baby boomers have now, i.e. 401(k), TSP, 403(b), and not only funding but managing this plan is their responsibility.

This looks to be an interesting debate on the budget and federal spending!

 

© 2014 Franklin Planning. All rights reserved. This article may not be reproduced without express written consent from Franklin Planning.

About the Author

Photo of Carol Schmidlin

Carol Schmidlin

Carol Schmidlin is the President of Franklin Planning and has been advising clients on how to grow and preserve their wealth for 18 years. In addition to her financial planning practice, she is the founder of FedSavvy® Educational Solutions, which provides Financial and Retirement Literacy Programs for Federal Employees.

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