It’s always nice to see a fresh-faced 22-year-old begin a teaching career with eagerness, but is this happiness actually due to the fact that they have just entered an economic utopia where there is no concern about inflation, retirement, job loss, long hours, vacation time, job stress, health care and raises in income for doing exactly the same job? Let’s look at what a teacher starting at $40,000 per year has to look forward to.
By John Sullivan
Assumptions: Disputable and must be adjusted for local contracts, but “in the ballpark”.
Beginning salary of $40,000 per year
Benefits of fifty cents per dollar of salary, including 12 paid sick days, 2-4 paid personal days, 6-10 paid holidays, medical, dental, prescription, eyeglasses, disability insurance, life insurance, etc.
Eight months of work per year. Three months off in the summer, two weeks off in the winter, two weeks off in the spring, five hours per day of class time and three hours per day of work outside of class.
Calculations do not include significant taxpayer subsidies to teacher retirement healthcare insurance.
Teacher salaries, including cost-of-living, rising at 6% per year.
No access to Social Security or payments into Social Security. Non-teachers receive Social Security, fund Social Security, and pay for 98% of any shortfalls in this program. It is substantially self-funded.
Retirement age of 60. (actual average is 58)
No end-of-career additional salary increases. (The reader should try not to laugh!)
Teacher pensions based upon 75% of ending salary and increasing at 3% per year.
No raises for additional education. (A masters degree adds the equivalent of a one-time bonus of about $250,000)
Life expectancy of 84 years.
Cost of money of 5%.
Finally, the sense of entitlement on the part of teachers that, having worked one day, none of the
conditions that are in effect on that day can ever be changed as long as they live.
$40,000 Starting salary
$20,000 Benefits
$60,000 Total for eight months of work
$90,000 Annualized at 1.5
$47,130 Pension expense per year for 38 years to fund pension. (Calculations follow) (1)
$137,130 Total compensation on an annualized basis (and 10% less than the King of Siam).
How does this compare to a college graduate in the private sector who typically receives 25 cents per dollar of salary in benefits? Well, if his starting salary is $36,568 plus benefits, his total compensation is $45,710 – exactly one-third of what a teacher starts at, and above the median income ($33,000) in this country. Guess what? He can actually be fired if he does a poor job! Guess what? He has to pay the teacher salaries out of that amount when he makes a third of what they do!
Guess what? It gets worse! At age 40, when total compensation for the teacher above is $304,021, the private sector counterpart gets $77,818 – a fourth of the teacher compensation. At age 60, when the teacher is retiring, total compensation for the teacher is $871,013 – 6.2 times what his counterpart in the private sector – who doesn’t get full Social Security for another seven years – gets ($140,548). You see, in the private sector, people don’t get paid more in real wages for doing the same thing. They are lucky if they can keep up with 3% inflation. Guess what? It gets worse! Productivity improves every year in the private sector while student test scores have been declining for decades.
Compensation
Age 22 $137,130 – calculations above
Age 40 $304,021 – $90,000 increasing at 6% per year compounded for 18 years plus the annual $47,130 pension payment.
Age 60 $871,013- $90,000 increasing at 6% per year compounded for 38 years plus the annual $47,130 pension payment.
Salary
Age 22 $40,000
Age 40 $114,173 – $40,000 increasing at 6% compounded for 18 years.
Age 60 $366,170 – $40,000 increasing at 6% compounded for 38 years.
Pension (1)
$274, 627 – beginning pension at 75% of final salary.
$542,000 – pension payment at age 84 with a 3% increase every year compounded.
$9,454,438 – total pension payments with a 3% increase every year for 24 years.
$5,076,422 – lump sum equivalent (income stream discounted back to age 60 at 5% cost of money)
$47,130 – annual payment needed getting a 5% rate of return for 38 years to have $5,076,422 at age 60 to fund the pension while still receiving a 5% rate of return throughout retirement.
(1) In fairness, it is true that some teachers pay up to 9.4% of their salary into their pension plan, Early Retirement Option, and death benefit. In this example, this would be $3760 of the $47,130. In many cases, the School Boards have kindly agreed to let the taxpayers reimburse the teachers who have their contribution deducted – by increasing their gross pay. In any case, the overall teacher contributions to their pension plans are not significant when compared to the taxpayer contribution and pension amount.
Wow! No wonder why this 22-year-old teacher is so happy! He stands to receive $5,436,168 in salary and $2,718,084 in benefits over the next 38 years. Then, over the next 24 years, he will receive $9,454,438 in pension payments and significant retirement healthcare subsidies from various taxpayers. The accounting term for this is “not too shabby” for a part-time job with no promotions, no additional responsibility, smaller class sizes, more assistants and staff support, lower productivity and lifetime job security.
Even the King of Siam would be jealous!
But what of the School Board? Where does their “fiduciary duty” lie? One would think that there is not a single taxpayer who would conclude that the School Board members are exercising a fiduciary duty towards them, particularly when so much of this compensation is unfunded and will have to be paid by those who are currently students. Surely, the taxpayers would say that not one additional teacher should be hired under these conditions. Compensating teachers somewhere near their counterparts in the private sector would allow the Board to cut their budgets in half and lower property taxes at least 30%. Is there some reason why they should not?
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