Sept. 2002 This Active Life -- Cover Story

The Money Crunch

Caught between fixed incomes and rising expenses, many retirees are struggling to keep pace.

Irma Baker's retirement is dwindling away. Baker taught for 23 years in Falmouth, Maine, before her position was eliminated. Her years of service translate into a monthly pension check--once taxes and health insurance premiums are deducted--of 80 dollars.

Health insurance for Baker and her husband, Fred, take the biggest bite. That deduction now consumes $431.69 of her monthly check, 40 percent higher than three years ago.

Then there are expenses closer to home. Baker's local taxes will go up 11 percent this year, and one recent afternoon she visited the local government offices to pay a $4,500 assessment for a new sewer line. That was the same week she learned her car needed $1,600 of repairs. She must cover such expense from her savings account, but, as she puts it, "When you're on a fixed income, you take the money out of your savings but you can't put it back."

To add insult to injury, Maine is one of 15 states where retirees may be adversely affected by a federal provision that curtails the Social Security benefits of those receiving public employee pension checks (see "A Tale of Shrinking Pensions," pp. 8-9). So Baker's monthly check from Social Security is only $88, one-third of what it should be based on her contributions into the system.

Many NEA-Retired members are finding--like Baker--that their pension income simply isn't enough to cover rising expenses. For example, Mississippi member Jewelie Brown, 71, works several part-time jobs. Brown receives a monthly pension of $881 after 36 years as a teacher and assistant principal. Social Security pays about the same amount. But the combined total isn't enough, so Brown earns nine dollars per hour as a county code enforcer in Tunica. Even this source of income is limited, he says, because, as a pension recipient, he is handcuffed by a state cap on the number of days he can work each year.

"I don't have extra money," he says. "I can only work so many days out the week. My house rent is $425, and then there's groceries... I'm trying to cope the best that I can."

Skyrocketing prescription drug costs are the prime budget-buster for Rhode Island member Joyce Fletcher. At 69, Fletcher has gone back to work part-time bagging groceries at the Stop and Shop market. Her out-of-pocket drug costs of $380 a month consume a large chunk of her pension from 24 years of teaching. Even with the part-time job--and splitting housing costs with two sisters with whom she lives--she admits she sometimes has to make difficult decisions.

"The question I face is: do I take the medications or go without the medications?" she says. A diabetic, she has to have her insulin, but she sometimes delays buying her osteoporosis medication until payday if she runs short on cash. Her late husband, a machinist, passed away after a long illness that "ate up every bit of savings we had," says Fletcher, who now worries about her own financial security "When I retired, I didn't anticipate these kinds of expenses."

Rising property taxes and home costs are another drain on retirees' financial well-being. Alan and Elizabeth Hewey of Argenta, Illinois taught for a combined total of 51 years. Their combined pensions total $2,700 a month. But property taxes are taking a bigger bite each year. "We've had a 60-percent increase in the last five years," says Alan Hewey. "It's like rent on a house that we already own!"

Texas member Martha Callaway cites escalating rates for homeowners insurance, owing to recent damaging windstorms and a pervasive black mold problem in her part of the country that is "worse than asbestos." Her homeowners insurance bill may well double this year, she says.

Such stories illustrate some of the harsh financial facts of life for retirees:

• Educators' pensions (which are based, in part, on salaries) are typically not generous. Particularly hard hit are older retirees, who earned lower salaries, may get less of a benefit from cost-of-living adjustments, and may not have the option of returning to work full- or part-time. (One significant advantage for educators compared to most private sector employees is that their pensions almost always come from defined-benefit plans where the pension amount is guaranteed. Defined contribution plans such as 401k and 403b plans subject individual pension recipients to the ups and downs of the stock market.)
• Expenses for health care and prescription drugs--costs that retirees incur at a much greater rate than active members--are shooting upward at far above the rate of inflation. Prescription drug costs, for example, have risen 35 percent in the past two years and are expected to continue to climb at double digit rates. Many retirees, like Fletcher, have considerable out-of-pocket expenses for prescription drugs, and Medicare, the primary insurer for those over 65, does not currently offer a prescription drug benefit.

Seeking Relief, Getting Involved

To provide for healthier and more predictable pensions, affiliates are working to enhance the formulas used to calculate pensions and ensure appropriate cost-of-living allowances. Despite the nation's slowing economy and budget crises in the states over the past two years, some affiliates have won well-deserved increases for retirees.

For example, the New Jersey Education Association recently garnered a 9 percent increase in pensions for retirees, says Roe Jankowski, a retired ESP member. "On a $30,000 a year pension, you're talking about $210 more per month"--which will make a difference in the monthly budget of many of the state's retirees, she says. How did they win the increase? "We are very involved in the political process," says Jankowski. "We invite legislators to our county and state meetings, we go out and work for them, we attend legislative conferences. We also partner with active members on both retired and active issues." Working regularly with legislators is key, Jankowski says, because "in retirement [the legislature] governs everything we get--they govern the health benefits, the pensions. So we make sure to communicate our needs to them."

Arizona Education Association-Retired also scored a recent victory with two significant new cost-of-living adjustments (which they refer to as permanent benefit increases, or PBIs) for participants in the Arizona State Retirement System. The Association took the lead in forming a coalition of groups participating in ASRS and successfully lobbying the legislature, according to Arizona's Barbara Matteson, NEA-Retired vice president. One of the new PBIs boosted pensions by a set monthly amount based on each participant's total years of service. Another, called a PBI enhancement, increased pensions based on the number of years of retirement. The new provisions--which added a total of about $100 a month to Matteson's pension--avoid penalizing older retirees, who retired when salaries where lower. "We were able to get much more support for this kind of benefit, as it gives the older retiree as much as the recent retiree, and the older ones needed the increase the most," says Matteson. The coalition also succeeded in pushing a successful ballot initiative that gives constitutional protection to the ASRS, she adds.

Relief from the debilitating effects of escalating health insurance premiums, co-pays, and prescription drugs costs has been harder to find. Members who retire before age 65, when Medicare becomes their primary insurer, are particularly vulnerable.

Nebraska members benefit from a model health care plan that is keeping costs down. The state created a statewide health insurance purchasing pool that combines smaller insured populations into a larger pool, explains Roger Rea, a retired teacher who has served on a statewide health care committee for 20 years and also been a trustee of the state retirement system. With more participants, the group is in a better position to negotiate for fair costs and strong benefits. The plan now includes almost all Nebraska school districts, and participants include administrators and school board members in addition to teachers and ESP. About 30,000 members and 75,000 total participants are in the group, says Rea.

With health insurers nationwide hiking premiums and cutting back on benefits, "our increases in the past five years have been about one-half the national average," says Rea. The broad participation has another benefit, especially for retirees: "We now have every hospital in the state and 90 percent of the doctors participating" in the plan, says Rea. "There's no member who's more than 25 miles away from a covered facility."

Upon retirement, Nebraska members have the option of continuing with the state plan as a "special services member," says Rea. The policy has the same coverage as for active members, although the deductibles and coinsurance differs. Retirees can use the insurance from the time they retire until they reach age 65, when Medicare becomes their primary insurer. At that point, they can purchase a supplemental policy.

"The number one issue when people get close to retirement is health insurance," says Rea. "Were it not for the fact that our members can continue their health coverage, most of the people would not retire when they're eligible to retire."

What You Can Do

Financial pressures on retirees aren't going to cease, so experts suggest three ways to fight back. One, educate yourself on such issues as pension proposals or health care options in your state. Two, join with others by supporting the efforts of NEA-Retired and like-minded groups such as the Alliance for Retired Americans. And, three, make your voice heard by calling talk shows, writing letters to the editor, and meeting with your state and federal officials to keep their feet to the fire. The problems facing retirees are not intractable, but they do require organized effort and commitment.

Editors' Note--Future issues of This Active Life will explore in greater depth such topics as retirement plan trends, prescription drug reforms, and strategies for making the most of your money. If you have ideas or experiences to share, please contact This Active Life, 1201 16th St., N.W., Suite 710, Washington, DC 20036; or e-mail joneil@nea.org.

A Tale of Shrinking Pensions

Most teachers and ESP can use every retirement dollar they can get.

Unfortunately, many are being shortchanged by unfair federal regulations that penalize those who devote their careers to public service. The Government Pension Offset (GPO) and Windfall Elimination Provision (WEP) cut the retirement benefits of educators (also firefighters, police officers, and other public employees) who receive a public pension. Although the provisions primarily affect 15 states in which educators don't pay into Social Security (see box), there are retirees in every state who are affected.

Feeling the pinch are retirees such as Angie Uhlmeyer, who taught in private schools for 15 years--paying into Social Security all the while--then in public schools for 19. "I called Social Security for two years before I retired asking them what I should expect" in benefits, but getting few answers, says Uhlmeyer. "Three months after I retired, they informed me that because I receive a $1,400 monthly pension from the Denver Public Schools, I could not claim anything from the $630 monthly social security benefit I was due and only about $100 from my late husband's $1,069 monthly benefit." Receiving the benefits she had earned would mean she wouldn't have to struggle quite so hard to make end meet, she says.

"Until you retire, or really begin planning to retire, you don't necessarily realize how much the laws affect you," says Missouri member Martha Karlovetz. But since educators' pensions aren't generous to begin with, the GPO and WEP cause real financial hardships for many retirees. NEA's government relations department has been swamped with letters and E-mails from people like Uhlmeyer testifying to how the lost benefits affect their retirement finances. For example, more than 300,000 individuals lose an average of $3,600 each year due to the GPO--enough to drive some under the poverty line.

ESP are especially hard hit. "The GPO is a disaster for ESP because it hits the poorest of the poor," says Cynthia Moore, an attorney. "It hits a predominantly women work force, those who work part-time--for example, the cafeteria worker who is really depending upon her husband's Social Security benefits, but finds that the GPO reduces it. It's just a horrific result."

Uhlmeyer points out another pernicious effect of the federal provisions: at a time when districts are trying to draw qualified individuals from business and the military to fill vacancies, GPO and WEP are a significant deterrent. "When they hear they stand to lose the social security they earned in their other job, they're going to lose interest," she predicts.

This year, NEA has been a catalyst for bringing attention to the discriminatory impact of GPO/WEP. In May, 150 Association leaders converged on Capitol Hill, visiting more than 200 members of Congress. They gave lawmakers firsthand accounts of the detrimental effects of the provisions and urged repeal. Many delegates to the NEA Representative Assembly in July visited a special Social Security Offsets booth to receive informational materials and send letters and E-mails to members of Congress. At last count, bills to repeal GPO and WEP had 165 cosponsors in the House and 11 in the Senate. This year, NEA will be training a cadre of members and affiliate staff to work more intensively at generating grassroots activities in their states.

Members--even those living outside the 15 identified states--have become much more aware of the pernicious impact of the GPO/WEP in the past year, says Karlovetz, who worked at the Social Security Offsets booth at the RA. "People were coming up to me all day and saying, 'What can I do to help?' That tells me we're making real progress."