Category Archives: Financial Literacy

Perspective, Issues, and My Potential Role in Congress (Ballotpedia Survey, Part 3)

I have now completed the Ballotpedia survey, although it may take a couple days to show up on their website. For these items, I delve into my perspective, several issues, and my potential role in Congress. For past segments, please see these posts:
More About Me and Key Issues (Ballotpedia Survey, Part 1)
On the Climate Crisis and the Next Decade (Ballotpedia Survey, Part 2)

If you are not a current representative, are there certain committees that you would want to be a part of?

I would love to be on the House Select Committee on the Climate Crisis, which is chaired by Kathy Castor, a fellow Democrat from Florida’s 14th district that includes most of Tampa. Although the Daytona Beach area is also at-risk, the Tampa Bay area is especially vulnerable to stronger and more unpredictable hurricanes that rapidly intensify due to the climate crisis, given that there has been so much development there in the past decade particularly in low-lying areas. In the long run, all of Florida is also vulnerable to sea level rise, and we have already seen this affecting Miami Beach with king tides. We have a duty to the next generation, as well as to current victims such as farmers and climate refugees, to tackle the climate crisis head-on, with all options on the table, such as removing subsidies (including hidden subsidies) for fossil fuels and removing encumbrances for green energy, with a particular focus on storing said energy. There must also be a growing realization that travel and jet-setting needs to be curtailed, particularly among the world’s wealthiest 10% who are responsible for 50% of greenhouse gas emissions. Although my Ph.D. is in Education rather than Climatology, as a scholar I am firmly focused on science and facts and will always deliver cogent arguments and real solutions to the table.

Other committees of interest to me are the Financial Services Subcommittees on Consumer Protection and Financial Institutions and on Investor Protection, Entrepreneurship and Capital Markets, and the Education Subcommittee on Higher Education and Workforce Investment. I have backgrounds in financial literacy education and teacher education, focused on standing up for working-class Americans and teachers to financially educate them and stop big financial institutions from bamboozling them into foreclosure, student loan or other debt, or cash-strapped retirements. I particularly focus on women and minorities who face even greater disadvantages.

Do you believe that two years is the right term length for representatives?

I think it’s too short. Four years would be more reasonable. If you look at the House, you’ll see they are constantly up for re-election. New members from both parties are told that “dialing for dollars” takes precedence over actual governing. Representatives are not allowed to do this from the Capitol or their offices, so the parties have dank cubicles set up in office space a couple blocks from the Capitol where new members are told they should be spending 30+ hours a week of their time calling potential donors. They’re given scripts including the names of the children of the potential donors they are calling, and party leaders update a whiteboard in real-time with representatives’ names and total $$$ procured, in red, black, or green depending on whether they are below, at, or above target. The daily schedule of the House is built around being out-of-session during the valuable lunch hours, and new members are chastised for attending committee meetings during time they are supposed to spend dialing for dollars. It’s a disgrace. I won’t do it. I might still end up being able to pay my party dues (required for committee assignments and re-election support) from social media donations, or fancy events, but if not, then so be it. I am not for sale and I think too many of our politicians are, or were (they were bought and paid for long ago).

What do you believe are the core responsibilities for someone elected to this office?

I think good governance requires looking out for people, and we really aren’t doing it. We have a huge national debt, a world on fire, and the greatest financial inequality in modern history. Congress should not be in the back pocket of wealthy individuals and corporations. Congress could stand up for the poor, the downtrodden, the forgotten Americans—but instead they legislate and prioritize helping the rich attain greater wealth and privilege without paying their fair share commensurate with what they are extracting from American people, government, and public resources and commons. If Walmart or Amazon’s employees are all on Medicaid and food stamps, shouldn’t we be billing that back to Walmart and Amazon? When it comes to the Tax Cuts & Jobs Act of 2017, passed solely by Republicans, it was the greatest robbery in modern history. The Republicans want you to buy into trickle-down economics or that they care about small businesses. It’s one big fat lie. Congress and state governments alike facilitate monstrosities like Amazon, Walmart, and Wells Fargo that crush small businesses left and right. When Apple repatriated all that money from overseas, most of it just went to share buybacks, which are at an all-time high nationwide. Our government needs to work for our people. You should not have to beg for scraps from feudal overlords who will kick you to the curb if you get pregnant, hurt your back, or if they find some way to replace you with a robot.

One of my focuses is Restoring Congressional Authority. I think it goes back to the emphasis on “dialing for dollars”—Congress has abdicated so many of its responsibilities that are written plain-as-day in the United States Constitution. We can’t delegate our war powers to a reckless president. We can’t pass bills written entirely by lobbyists that we don’t even have time to read. The House needs to take control of the purse strings and really take responsibility for budgets, spending, and debt.

Date of birth
August 17, 1991

Place of birth
Daytona Beach, FL

Gender
Male

Religion
Agnostic

Education
Daytona State College, A.A., 2011
University of Central Florida, B.S. in Psychology, 2014
University of Central Florida, M.A. in Applied Learning & Instruction, 2016
University of Central Florida, Ph.D. in Education, 2019

What is your professional career to date?

At University of Central Florida I teach future teachers about technology and I studied the financial literacy of future teachers for my dissertation. I’ve been focused on personal finance, investing literacy, and financial policymaking for many years, and I’ve also become a voracious reader about the climate crisis from greenhouse gases in the past couple years. My wife and I have a handsome, goofy 10-month-old baby boy, which has really got us thinking about the future and what life will be like for him in adulthood. I’m also a bit of an expert on blended learning and worked across disciplines at UCF on National Science Foundation grants for cutting-edge STEM assessment methodologies and helped with the founding of the Center for Students with Unique Abilities by getting their website set up and refined. I’m only 28, so I plan to make a big difference in many areas going forward, even if I don’t win this race.

Please list any professional credentials below.

Besides my degrees I was an editor of a recent Handbook of Research on Emerging Practices and Methods for K–12 Online and Blended Learning, and I’m experienced with statistics having earned an Advanced Quantitative Methodologies in Educational and Human Sciences certificate at UCF during my Ph.D. program, which required completing four difficult statistics courses. I’ve taught nearly 300 students at UCF in EME 2040: Introduction to Technology for Educators, and I’ve graded hundreds of Master’s-level assignments in the same field. I’m Florida teacher certified on the General Knowledge Test, and as an instructional designer have worked with the National Park Service and redesigned a Master’s-level research course. I type 100 words per minute (no joke), am an advanced pianist, used to clean greasy restaurant kitchens with caustic chemicals as a teenager, and as a new husband and father have had many sleepless nights and poopy diapers where the poop goes all up baby’s back onto everything.

What organizations are you affiliated with and how?

Of course University of Central Florida as a triple-alumnus and instructor, but I am also an experienced Toastmaster who was President of Port Orange Toastmasters for a year followed by Treasurer for a year. This gave me wonderful experience speaking, organizing, taking leadership, and managing a 501(c)(3) non-profit chapter of an international organization. I only left because it was too much after starting my Ph.D. in August 2016, which I just finished in December 2019. I’m a current member of the West Volusia Democrats, Port Orange Democrats, and the InfraGard FBI Partnership, as well as a past member of the Association of Teacher Educators, American Society for Engineering Education, Association for Educational Communications & Technology, Academy of Financial Services, and the UCF Daytona Beach Psychology Club.

What qualities do you possess that you believe would make you a successful officeholder?

I’m a firebrand, but I also know how to make sausage (although I am a vegetarian). I’m obviously a total nerd—you don’t become a Ph.D. without being a nerd, but I can distill a complex issue down to a sound bite when needed, or expound on it at the length and depth of a dissertation when the situation calls for it. You also don’t get through a Ph.D. program without dealing with a LOT of bureaucracy and paperwork, so I will be right at home in Washington, D.C. I’m a former Toastmasters president, so I already know a bit about Robert’s Rules of Order and parliamentary procedure. I’m also a voracious reader and podcast-listener capable of competently discussing and seeing both sides to a wide range of issues, but am also able to speak truth to power in recognizing and calling out deceit, trickery, or fallacious arguments.

Although I was born in Daytona Beach, my mother emigrated from the People’s Republic of China. I am profoundly lucky to have been born here and to enjoy the freedoms and opportunities that we take for granted every day. I can put out anti-Trump statements without having to fear being “disappeared,” unlike the authoritarian government in China which has actually gotten worse under Chairman Jinping (do NOT call him “president”—it is a dishonor to the title). Our Constitution is a beacon of light and hope to the world, and I will always respect my oath of office in honoring, upholding, and respecting it. That includes the 2nd amendment, and it also includes restoring Congressional authority over matters they have abdicated responsibility for and that we are seeing a total lack of vision or leadership on. The founders were men of faith, and they recognized that government does not bestow privileges as a king does—rights are granted by God, and governments can either uphold and protect these rights or try to squash and suppress them. To be fair and just, we must endeavor to do the former.

If you could be any fictional character, who would you want to be?

The Doctor from Doctor Who. It would be so exciting to travel through time, although also dangerous with having to foil alien plots to destroy or subjugate humanity, using only a TARDIS and sonic screwdriver.

Announcing the Final Examination of Richard Thripp for the degree of Doctor of Philosophy

It has been a busy season for us with our eight-month-old son and completing my Ph.D. dissertation on the financial knowledge of Florida preservice teachers. Here is my official dissertation defense announcement, due to take place on November 7, 2019.

UCF College of Community Innovation and Education logo

Announcing the Final Examination of Richard Thripp for the degree of Doctor of Philosophy
Thursday, November 7, 2019 at 2:00 PM
University of Central Florida, Main Campus (Orlando)
Education Complex, Room 306

Dissertation Title: A Survey of Investing and Retirement Knowledge and Preferences of Florida Preservice Teachers

This dissertation investigated the financial and retirement knowledge, concerns, and preferences of preservice teachers at the University of Central Florida. The author developed a 39-item survey instrument and administered it to 314 preservice teachers in undergraduate teacher education courses in Summer and Fall 2019, who were primarily female elementary and early childhood education juniors and seniors. Topics covered included familiarity with plans, preference for pension plans versus defined contribution plan or increased salary, concern over pension vesting requirements, knowledge of the Florida Retirement System, anticipated challenges in funding retirement, financial knowledge, concerns about debts, and retirement investment preferences using a mock portfolio allocation exercise. For comparison, an electronic version of the survey was administered to 205 Amazon Mechanical Turk workers for $1.00 each, who were U.S. college students or graduates ages 18–25. Findings showed that preservice teachers had statistically significantly lower financial knowledge and retirement investing literacy; even those who were Age 25 or younger chose to put more than half their retirement money in money market and bond funds, which will almost certainly underperform equities over several decades. Although it may be ill-advised, 54% of preservice teachers preferred a defined-contribution plan over a pension plan. Preservice teachers were not particularly concerned about debts, but anticipated that low salaries will impede their ability to save for retirement. These findings suggest a need for financial education targeting Florida preservice teachers, particularly given that the Florida Retirement System substantially cut its benefits in 2011.

Major: Education Ph.D., Instructional Design & Technology
B. S. University of Central Florida, 2014
M. A. University of Central Florida, 2016

Committee in charge:
Dr. Richard Hartshorne
Dr. Debbie L. Hahs-Vaughn
Dr. Bobby Hoffman
Dr. Shiva Jahani
Dr. Gary Mottola

Approved by Dr. Richard Hartshorne, Committee Chair

The public is welcome to attend.


Keywords: financial literacy, preservice teachers, Florida Retirement System, retirement knowledge, financial challenges, plan preferences, investor behavior, nonwage benefits

Acknowledgments

I extend heartfelt thanks to Dr. Richard Hartshorne, my adviser, supervisor, dissertation chair, mentor, and friend, who gave me timely and valuable feedback, opportunities, and support at each step in my doctoral and teaching journey at the university, particularly as I developed my fervor for financial education and research. He was always patient even when I abandoned projects, missed deadlines, and delivered flurries of ill-conceived ideas and horrendous drafts. I also thank my fiancée, Kristy White, for providing invaluable support, particularly as we are new parents to a handsome baby boy born in February 2019. Working with my other committee members, Drs. Gary Mottola, Bobby Hoffman, Debbie L. Hahs-Vaughn, and Shiva Jahani, has been most helpful and instructive. I am appreciative of the opportunities, support, and resources I have been afforded at University of Central Florida over these past seven years. When in 2012 I set out to go back to school and earn my Bachelor’s in psychology, I had no idea I would end up coming this far. Thank you, Drs. Bobby Hoffman, Atsusi Hirumi, and Richard Hartshorne for accepting me to the Applied Learning and Instruction M.A. and Education Ph.D. programs, as well as Dr. Ronald DeMara from the College of Engineering and Computer Science. My favorite part of my time at UCF was instructing over 250 preservice teachers in educational technology as a Graduate Teaching Associate. Bringing a love of learning to others, at a massive scale, is an integral part of our identity and mission as Knights. Finally, I am profoundly thankful to the UCF students and Amazon Mechanical Turk workers who participated in this survey, as well as Drs. Junie Albers-Biddle, Kelsey Evans-Amalu, Regina Gresham, Marni Kay, Nevine Snyder, Lee-Anne Trimble Spalding, Cheryl Van De Mark, Scott Waring, and Anna Wolford for allowing me to visit their courses, without which this dissertation would not have been possible.

Capital One Capitulates; Issues Checks in June 2019 for $500 OFFER500 Money Market Promotion from October 2018

In February 2019 I had written about Capital One offering a $500 incentive to open a money market account in September–October 2018 under promotion code OFFER500 if one made deposits of $50,000 or more. Capital One’s terms for this promotion did not say that one could not deposit, say, $10,000, transfer to an external bank, and then re-deposit the amount five times in order to meet the requirements. In addition, they had been automatically paying out the $500 bonuses to all customers up until September 24, 2018 who did this, within just 1–2 business days of the deposits being completed, but then halted this even though customers should have had until October 31, 2018 to meet the requirements, and claimed that such activity did not qualify (although they did not claw back bonuses already paid out).

As reported by Doctor of Credit on June 17, 2019, Capital One has now been quietly issuing checks by mail to all customers who they had previously denied the bonus to. Although my continued complaints and threats of suing in small claims court resulted in Capital One offering a settlement arrangement subject to a non-disclosure agreement, my fiancée who also participated in the promotion recently received the letter and check shown below. In fact, she got $6 extra as well:

Capital One check for $506

The text of the letter states:

Attached is a check for your 360 Money Market bonus.

Dear [name],

Late last year, you didn’t receive the $500 bonus that was offered for your 360 Money Market account ending in ####.

This check for $506.00 covers that bonus — plus interest.

If you have any questions, give us a call at 1-888-464-0727. We’re here to help Monday through Friday, 8 a.m.–6 p.m. ET.

Thanks for saving with us.
Capital One

Even customers who did not complain are being issued checks by mail, and those who already complained and were offered a smaller consolation prize (most commonly, $200) are now receiving checks for $306 to make up the difference.

This is another example that putting pressure on corporations who defraud customers can produce positive results. I have no idea how many customers Capital One stiffed, but even if it was only 2,000, that’s $1,000,000 they are now paying out, and it’s possible my complaints to Capital One’s Office of the President, Florida Attorney General, and Consumer Financial Protection Bureau played a part in their decision to capitulate. Obviously, they would prefer to privately pay the bonus only to customers who complain vociferously, but in this case they totally capitulated and decided to pay, 8 months later, all the money they would have paid in the first place had they simply honored their end of the contract.

Capital One is keeping this quiet, not mentioning it by email or in online banking, nor are they depositing the bonuses directly to customer accounts, but instead are issuing checks by mail. Although a customer could just end up throwing out the check by accident thinking it is another credit card or auto loan advertisement from Capital One (the envelope is no different from these), in these cases I am not sure Capital One would get to keep the money or have to escheat it to the state after several years as unclaimed funds. Regarding my continued complaints about Amazon.com stealing customer gift card balances, I am almost positive Amazon is skirting state escheatment laws, however.

Capital One is one of the most heavy handed of credit issuers; no other lender sues more of its customers in small claims court seeking payment. They are a notorious subprime lender that abuses customers with especially high usury interest rates and worthless credit cards with annual fees and no rewards. Of course, the whole industry participates in usury, thanks to a 1970s court case that determined that credit issuers could headquarter in usury-enabling states like Delaware and South Dakota to evade usury laws in their customers’ home states. Even Florida, which does not have a particularly stringent usury law, caps interest rates at 18% annual percentage rate, which is why credit unions who charter in Florida can’t exceed this APR on their credit products, but Capital One and others routinely demand APRs of 24.99% or even higher.

As alluded to in my February 2019 post, in March 2019 I switched from the Republican to Democrat party and will vote for Elizabeth Warren in the Democratic primary (who, incidentally, was also a Republican until age 46). Warren is a professor-turned-senator who has a long history of advocating for consumers in financial matters, including spearheading the founding of the Consumer Financial Protection Bureau. Although I have now learned that addressing the climate crisis is objectively and undeniably more important than financial literacy or advocacy, the broader issue of wealth inequality is related to both financial literacy and the climate crisis, in that the wealthy have manipulated the government and the people into abetting their theft (via tax schemes, collusion, privatizing profits while offloading liabilities and debts onto the public) and genocide (via greenhouse gas emissions), while simultaneously encouraging a culture of self-blame where the victims of plutocracy are indoctrinated to blame themselves for not understanding predatory financial products or failing to recycle plastic cups, instead of demanding real justice and change.

Previously, I had wrote that my flights to California and China to visit family will kill people in 2075 and 2150 due to exacerbating the climate crisis. In fact, I conveniently forgot the many people who have already died and are presently dying from heat waves, flooding, famines, and other disasters caused by humans flying, driving, building with steel and concrete, and other madness (e.g., California wildfires, Hurricane Maria in Puerto Rico, flooding in Bangladesh). The wealthy, and in particular the extremely wealthy, are disproportionately responsible for mass murder, but take no responsibility and in fact have a sense of entitlement that they earned their position and should be enabled and empowered to partake in grotesquely wasteful and unnecessary travel and to possess multiple large residences, without consequences or accountability. This is abhorrent. There should be no doubt among those who have educated themselves on the matter that the climate crisis is the ultimate issue of our times, and there is much suffering to come.

About Retirement Saving and the Florida Retirement System, Part 2

Continued from Part 1

John Mauldin published an article yesterday in Forbes about the coming public pension crisis. Many states and local governments do not have enough funds to pay future benefits, let alone current benefits, and spending on education and public works is being curtailed due to these shortfalls.

In Florida, the pension crisis is not much of an issue because the Florida Retirement System (FRS) is 84% funded based on actuarial projections ($161 billion of assets) and offers a separate, paltry monthly stipend for medical expenses rather than the generous health benefits offered by many other states. In 2011, the FRS also devalued the program in the following ways:

  • New 3.0% payroll deduction (formerly none)
  • State contributes 3.3% to DC plan (formerly 9.0%)
  • DB vesting period: 5 -> 8 years
  • DB salary lookback period: 5 -> 8 years
  • Full DB benefits 33 years / Age 65 (formerly 30 / 62)
  • DB inflation adjustment removed (formerly 3.0% / year)
  • Deferred Retirement Option Program (DROP) participants earn only 1.3% instead of 6.5% APY on deferred benefits

These 2011 changes continue today despite booming stock market returns. Although they did not affect employees who retired before July 1, 2011, employees who started after this date are fully affected by all of the above, and existing employees are still affected by the inflation adjustment removal for work credits earned after July 1, 2011, as well as having to contribute 3% of salary. There are 643,333 working members in FRS as of June 30, 2018, and 1,210,795 total members including retirees and terminated members who can expect benefits in retirement. These include teachers and other public employees such as police officers, city and county workers, higher education, et cetera, although school districts are the largest component of active membership with 314,001 members (49%). (Source: Comprehensive Annual Financial Reports)

There was a time before the Great Recession where the FRS was more than 100% funded even with the previous, more generous benefits. For it to be 84% funded now is quite good compared with pension systems in other states, but still wanting considering we are potentially at the apex of a 10-year economic expansion. As with most pension plans, the majority of FRS assets (80%) are in high-risk assets such as stocks, real estate, and private equity. Although these risky assets are advisable to invest in as growth will be higher in the long run as compared with safe assets like U.S. Treasury bonds, near-term risks are high. If there is another recession the FRS pension trust fund might go from 84% to 60% funded. The 2011 devaluation was used as an opportunity for the state to contribute less—if they would have kept up their contribution levels the trust fund would be over 100% funded now. For example, the 3% payroll deduction was taken as an opportunity for state and local governments to reduce their contribution rates.

Like life insurance, a pension plan puts a metaphorical bounty on members’ heads. Financially, the best thing that can happen to a life insurance company is for all policyholders to outlive their policies’ end dates; the best thing that can happen to a pension fund is for everyone to die off before receiving benefits. With a defined-contribution retirement account like a 401(k), assets pass to a spouse or children at death, but pension benefits do not generally function like this (although survivor benefits may be offered, they are usually small in comparison). Of course, the state is not going to go on a killing spree to save on pension costs, but conceptually the perverse incentives created by a lifetime payment scheme are entertaining to ponder.

With Social Security benefits, Americans are directly presented with a macabre choice—deciding whether to receive benefits at 62, 67, or 70. Waiting until 67 or 70 results in higher total payouts if one lives to about 83 or older. Of course, someone who is delaying to 70 who ends up dying at 69 would have been better served by starting the payouts at age 62. This is basically the vesting problem in reverse. The FRS, like many pension plans, requires workers to attain eight years of service to get a pension benefit; otherwise, the employee’s contributions (3% of salary) are refunded with no interest and the pension fund retains the employer portion of contributions. However, the FRS is unusual for offering a choice between a 401(k)-like plan and a pension, which must be selected within the first few months of employment. The 401(k)-like plan, called the FRS investment plan, vests the employer’s 3.3% salary contribution after only one year instead of eight. Predicting how long one will work for the State of Florida is not easy, and not fully in the employee’s control—what if they are fired with cause or terminated due to a recession?

In the private sector, we see the bounty effect result in employer malfeasance in smaller ways. The employer match to a 401(k) plan typically takes a few years to vest; employers are incentivized to terminate employees before reaching this milestone in order to claw back the benefits. Other benefits, such as vacation time and health insurance, are only offered after one year of service at many employers, with employee turnover serving to make these benefits useful to only a small percentage of hires, and rationales for firing employees mysteriously spike as they close in on attaining costly perks. Indeed, the customer-facing space is no exception; consider my continuing crusade against Amazon, a company that encourages customers to pre-pay purchases by attaining a gift card balance, perversely incentivizing the company to ban customers and steal gift card balances to maximize free cash flow. The larger your Amazon account’s gift card balance, the higher the probability of you being banned. This happens with credit card reward programs, frequent flyer miles, hotel points, and in many other areas, both via theft or forfeiture, hoops to jump through to redeem one’s benefits, and by devaluation of existing balances.

Devaluations of benefits occur within the broader context of fiat currencies. The U.S. dollar loses value continuously, with the Federal Reserve aiming for a 2% increase in consumer prices each year. Anyone with substantial debts, particularly if they are locked into a low interest rate such as a fixed-rate mortgage, should cheer inflation as it reduces their debts in real terms. With the 2011 removal of a 3% annual inflation adjustment from FRS benefits, current members must consider the U.S. dollar’s performance if they seek to forecast purchasing power in and during retirement. We could have several decades of 2% inflation per year, or there could be years like 1979–1981 which had more than 10% inflation per year. If high inflation occurs, FRS members’ benefits decline substantially in real terms, although they remain flat in nominal dollars. Even during retirement, this has large costs.

Many people misconceptualize retirement as a singular moment where one cashes in their poker chips and leaves the casino, but in fact it is a long slog with unknowable costs and pitfalls (many of them health related), and a need for risk-taking. Target-date retirement funds don’t go to 0% stock allocation when one retires; they typically stay around 40–50% for continued potential for portfolio growth as retirement could last 30 years or even longer. Another large unknown that may appear unrelated, but in fact is intensely relevant, is climate change. Planet-wide, humans are continuing their suicide mission to boil themselves alive. We have no idea whether risky assets such as corporate stocks and real estate will continue their growth trajectories as the climate crisis worsens, and this will be coupled with personal costs unrelated to one’s retirement portfolio.

This concludes my two-part series on the FRS and retirement saving, but expect more writing from me on similar topics in the months to come.

About Retirement Saving and the Florida Retirement System, Part 1

For my doctoral dissertation at University of Central Florida (UCF), to be completed in Fall 2019 and entitled A Survey of Investing and Retirement Knowledge and Preferences of Florida Preservice Teachers, I will administer a questionnaire to undergraduate students at UCF who are studying to become teachers. The questionnaire (commonly referred to as a “survey”) asks about their financial knowledge and personal preferences related to personal finance, retirement accounts, and the Florida Retirement System (FRS), as well as financial challenges they anticipate in retirement and in funding their retirement.

Although the background information explained in my dissertation’s introduction and literature review chapters is extensive, I am writing here to explain this information along with important but ancillary points regarding teacher retirement preparedness, the FRS, pensions for public workers, and financial literacy.

Pension plans, which pay a monthly benefit in retirement, are uncommon nowadays in the private sector. Since the 1980s, they have been almost completely replaced by 401(k) or similar accounts that employees fund on their own, manage investments, and draw upon. Although employers may add “free” money to an employee’s 401(k) account (e.g., employer matching contribution), employers do not have to worry about paying an employee for the rest of their life in retirement, or other things such as survivor’s benefits for a spouse or children.

However, pension plans remain common in the public sector, and teachers are the most numerous class of public workers. These plans are managed by state governments or school districts, and over the past decade since the Great Recession of 2007–2009, many states have watered down benefits for existing and new employees, with many even replacing pension benefits with 401(k)-like accounts or adding an option for such an account. The FRS added such an option earlier than most, in 2001. Florida offers both a pension plan and a 401(k)-like plan (“investment plan”). Teachers and other public workers get to choose the plan they want when they start working for the State of Florida. Then, in 2011, the Florida legislature watered down benefits for both types of plans, which continues to this day despite a booming economy and stock market.

The idea of a retirement plan is set aside money to avoid poverty in the third phase of life, after one stops working. This phase (“retirement”) is getting longer as lifespans increase; although life expectancy is 79 in the United States now, about half of people will live beyond this, sometimes for a decade or longer, and women also have longer lifespans than men. Teachers and other public workers face a special challenge; about 40% of teachers won’t receive Social Security benefits (unless they worked another job), because 15 states including California do not participate in Social Security. Such teachers are even more dependent on their employer retirement plan. Florida does participate in Social Security, which means 12.4% of employee wages are sent to the Social Security Administration and Florida teachers will receive benefits in retirement, on top of any FRS benefits. Although private employers must participate in Social Security, opting out is a special option given only to public employers.

Retirement plans receive special tax treatment under U.S. law, which is why it is beneficial to put money in a retirement plan rather than receiving pay as normal taxable wages and putting the money in an account that is taxed for interest, dividends, and capital gains. Retirement is something that must occur after a certain age with respect to many plans; there are penalties for drawing on a 401(k) or individual retirement arrangement (IRA) before Age 59 and six months, full retirement age for Social Security is 67, and employees hired on or after July 1, 2011 in the FRS must work 33 years or become Age 65 before receiving their benefits. Retiring before these ages is also ill-advised for many Americans because they wouldn’t be able to afford it and they would lose their employer-sponsored health insurance before Medicare eligibility at Age 65, although the Patient Protection and Affordable Care Act has enabled early retirement for many financially privileged Americans since 2014, thanks to government insurance subsidies provided to Americans which are means-tested based on income, not wealth, which means that even millionaires can be on the dole if they have manipulated their present annual income to be low by ceasing work.

In a similar way, retirement plans allow Americans to manipulate their annual income, by the blessing of Congress as specified in the U.S. tax code, to reduce, defer, or eliminate payment of tax. For states that assess state and/or municipal income taxes, this may also have benefits (to workers) at these levels of government. There are also tax benefits bestowed on employers if providing nonwage benefits and deferred compensation, such as 401(k) plans, health insurance, stock options, et cetera. Data and research shows that workers, not just in the United States but also across the world, tend to spend money as they earn it, not investing for retirement or setting aside money for financial emergencies. Therefore, retirement plans also benefit workers by circumventing such inclinations, although voluntary plans or plans that allow withdrawals without much penalty or effort (such as IRAs) are less effective toward this end.

Putting money in a low-risk investment such as a certificate of deposit (CD) or U.S. government debt (Treasury bonds) is not an effective way to prepare for retirement because the money won’t grow much over time. One would typically talk about “saving” in respect to a savings account, CD, or government debt, so “retirement saving” is a bit of a misnomer. The term “retirement investing” is more appropriate, particularly for young people, who should have a large proportion of funds in the equities markets, as shares of companies’ stock which represents fractional ownership of corporations. Although events such as the Great Depression of the 1930s, the dot-com crash of 2000–2002, and the Great Recession of 2007–2009 decimated such investments, over several decades the probability of such events being counteracted by investment gains approaches 100%. That is to say, investing is the opposite of gambling; as you do it more and longer, your probability of an increase approaches 100%, whereas with gambling it approaches 0%. When it comes to pension plans such as the FRS pension plan, the government assumes investing risk and pays benefits based on a formula calculated from your employee class, salary, and years worked, regardless of how the stock market performs. When it comes to defined-contribution plans such as 401(k) plans and the FRS investment plan, you assume investing risk and may run out of money if you have bad luck or poor planning.

Continued in Part 2