About That Sanitation Worker Earning $285,000 a Year From a Pension

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[pullquote]A former sanitation department honcho is pulling in an astonishing $285,047 a year pension – more than twice what he was making on the job according to newly released data.[/pullquote]

The New York Post was all over the story on February 20. →

Reading on, we discover that Eugene Eagan, the garbage hauling agency’s long time director of labor relations, worked for 60 years. Assuming that he started work at age 26 and he retired at age 86 we expect him to live until he is 91.8 years old. Therefore he had 5.8 years of remaining life when he retired. Assuming a 5% discount rate the present value of his pension is about $1.4 million.  (We don’t know if he is collecting Social Security.  But he falls generally into the cohort of public employees that were allowed to opt out of that system.  I’ve assumed no Social Security payments.)

By comparison let’s consider a typical employee of the state of California. This employee was born in 1946 and retired in 2011. He started collecting Social Security five years later in 2016. Monthly pension payments or $6800 per year and his monthly Social Security payments are $3100 per year. He expects to live until the age of 85.7. Using the same 5% discount rate the present value of his before tax pension is about $1.5 million.

A couple of details of relevant here. First, should the sanitation worker make the same as the California employee? Well, the sanitation worker only get about another five years to enjoy his pension. The California employee gets 20 years. Fifteen more years of life is not a bad deal.

Another issue is why the sanitation workers expected lifetime is about six years longer than the California employee. The answer, of course, is that the sanitation worker is still alive at age 86. Actuarial tables take into account not only your gender and the date you’re bored but your current age is well. The average life expectancy of someone born in 1932 is about 60 years. In other words, Mr. Egan has already beat some pretty long odds.

So maybe Mr. Egan isn’t being as overpaid as we might’ve thought.

 

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About Tony Lima

Retired after teaching economics at California State Univ., East Bay (Hayward, CA). Ph.D., economics, Stanford. Also taught MBA finance at the California University of Management and Technology. Occasionally take on a consulting project if it's interesting. Other interests include wine and technology.