Retirement insights from a Colorado PERA perspective

Issues & Perspectives

How Retirement Systems Like PERA Plan for the Biggest Financial Risks Retirees Face

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Photo credit: Wavebreakmedia/Getty Images

When planning for retirement, it’s important to have a good sense of one’s income sources, expenses, and the various risks to one’s finances over the course of retirement, which could last for two or three decades.

Researchers have identified five major financial risks retirees face: Longevity risk (living longer than expected and running out of savings), market risk (ups and downs in the market affecting account balances), health risk (unexpected health care costs), family risk (financially supporting relatives), and policy risk (potential changes to benefits like Social Security).

Recent research from the Center for Retirement Research at Boston College finds many retirees have an inaccurate sense of which risks pose the biggest threats, which could leave them unprepared. In a survey of about 20,000 people over the age of 50, retirees routinely underestimated their life expectancy and health care costs, while overestimating the effects of the stock market on their finances.

Survey respondents ranked market risk as the biggest risk they face, followed by longevity and health. In what the study author calls an “objective” ranking, longevity risk tops the list, followed by health and market risks.

As people increasingly rely on defined contribution plans like 401(k)s and IRAs for retirement savings, having an inaccurate understanding of these risks can have serious implications for a retiree’s finances.

Defined benefit retirement plans like the one offered by Colorado PERA use strategies that address these risks, particularly longevity risk, to provide retirement security throughout a member’s retired years.

Longevity risk and PERA

PERA’s Defined benefit plan provides a retirement benefit that a retiree cannot outlive. That means when a member retires, PERA will continue to provide monthly income until the retiree dies, regardless of how long they live.

Defined benefit plans accomplish this by pooling funds and thereby sharing risk. All contributions, interest, investment gains and other dollars are held in a trust fund that is used to make benefit payments for members. Because all retirees are drawing income from the same source, they share longevity and market risk. For example, a retiree who lives longer than expected will draw more income from the fund while a retiree who dies sooner than expected will draw less – essentially balancing each other out.

To fund each member’s retirement, Defined benefit plans like PERA only have to plan for the average life expectancy of the group, not each individual’s expected lifespan.

Ensuring the Defined benefit trust fund have enough money to pay retirement benefits for decades to come means making sure PERA has an accurate picture of its membership and potential changes in the future. PERA must be able to estimate how long members will live, how much of a benefit they’ll earn, and other factors.

That’s where actuaries come in. These highly skilled mathematicians have the important task of calculating the plan’s liabilities (how much money is owed to benefit recipients) and determining how much money the plan will need on hand to meet those liabilities.

Read more: Explaining the Role of Actuaries in Retirement Plans like PERA

Among PERA retirees, the average age at which members retired in 2021 was 59, and the average age of death was 83, so PERA may have to pay a retiree benefits for more than 20 years, on average.

Those numbers won’t always be the same, however. Factors such as life expectancy change over time, so it’s important for plans like PERA to periodically review and adjust. PERA embarks on this process every four years with what is known as an experience study, which compares what actually happened in a given time frame against what PERA projected would happen.

PERA last conducted an experience study in 2020, and the Board of Trustees adopted several new assumptions as a result. This process will take place again in 2024.

In addition to longevity risk, PERA can help members plan for other types of financial risk, as well. The PERAPlus 401(k) and 457 plans provide low-cost options to set aside extra money for retirement. This can help with large or unexpected expenses, such as health care or rising costs of goods and services.

By pooling assets and regularly monitoring and adjusting as needed, PERA can help alleviate the stress associated with retirees’ biggest financial risk and continue to provide reliable monthly income they can’t outlive.

Trust fundA fund in which money and/or other assets are held and managed by trustees on behalf of plan participants. PERA maintains trust funds for each of its Defined Benefit Plan divisions (State, Local Government, School, Denver Public Schools, and Judicial).Trust fundA fund in which money and/or other assets are held and managed by trustees on behalf of plan participants. PERA maintains trust funds for each of its Defined Benefit Plan divisions (State, Local Government, School, Denver Public Schools, and Judicial).Defined benefitAlso known as a pension, this is a type of pooled retirement plan in which the plan promises to pay a lifetime benefit to the employee at retirement. The plan manages investments on behalf of members, and the retirement benefit is based on factors such as age at retirement, years of employment and salary history.Defined benefitAlso known as a pension, this is a type of pooled retirement plan in which the plan promises to pay a lifetime benefit to the employee at retirement. The plan manages investments on behalf of members, and the retirement benefit is based on factors such as age at retirement, years of employment and salary history.Defined contributionA type of individual retirement plan in which an employee saves a portion of each paycheck (along with a potential employer match) and invests that money. The employee’s retirement benefit is based on their account balance at retirement. A 401(k) is a type of defined contribution plan.


  1. Bob says:

    A guaranteed income for life is wonderful. A fixed income, not able to keep up with inflation, not so much. My big July increase after 33 years of teaching was $56!! I think that may fill my gas tank once this month.

    • Joseph W Thompson says:

      good plan poor representation for COLA by PERA – please my grouse income after the PERA raise was a whole $43 – I’m sure the PERA board looking out for our interest got bigger raises than PERA members got

    • Ken Hartman says:

      Inflation is a huge risk! This year we had 9% inflation. PERA gave a 1% increase. I now have 8% less purchasing power. The 36 dollar monthly increase I received in July will not come close to covering that gap.

  2. Linda Schmidt says:

    I cannot believe that PERA doesn’t give a cost of living increase for teachers who retired at age 55. The cost of living increase since 2005 has risen astronomically since the. If current teachers now knew this hundreds would be leaving th!!!!!!!e profession.
    I cannot believe that PERA doesn’t give a increase for this. Social security does. What a terrible thing! I guess that is my reward for giving my life to help the children learn and working so hard. What a shame that we don’t get the cost of living in that others do. NOT RIGHT!!!/

  3. Phil says:

    Wow, here you sit on your backside retired at 55. You live in a country where even the poorest person you see on the street is richer than most the population in 3rd world countries. Complaining because your budget is tighter.

  4. Bruce Knight says:

    I can see both sides of this coin related to cost-of-living adjustments (COLA). Supporting the current COLA policy is recognizing how ugly things can get if a pension plan goes financially broke. In PERA’s case members have made a significant investment in contributions with the promise of a retirement income. And participating governments have used tax-payers funds to invest in the “employer portion”. All of those investments and retirement benefits are potentially lost.
    So how fiscally robust is PERA? Common sense might dictate that annual income (employer/employee contributions and investment earnings) compared to annual and projected retirement benefits and operating costs might determine that.
    There is an entity known as GASB (Governmental Accounting Standards Board) that sets policies for how governmental entities are fiscally accounted for. There is a lot of what I call “theoretical accounting” in GASB. Simplistically, one of their rules determined that pension funds should take a worst case position in their annual balance sheet, where all or many eligible members retire at the same time, and I assume some dire projections for investment income . As you might expect, this is not a pretty picture, but I would also argue that while it may be possible, it very improbable that this would occur, But the GASB ruling requires that PERA take this into account in their annual audit. The requirement is also that PERA take steps to resolve this bad economic picture over a number of years, reflected in an increasing contribution requirement for employers and employees, and a limited COLA for retired members – I believe it’s 1%.
    While I have worked in governmental budgeting, I have not worked in any capacity in accounting in general, or PERA in particular, so I may have some of this wrong.
    But here’s the point- rather than many of us getting upset about COLA amounts, and increasing contributions for working members, this should be clearly and distinctly explained to everyone in lay-persons language. At least we would know why things are like they are (not that we could change it as I believe the Legislature control much of what I have written).
    Apologies to all the accountants here if I have this wrong. But disclosing the details would enable us all to have it right.

  5. Ken Holmes says:

    Since PERA takes the place of Social Security, a hybrid COLA / Annual Increase would be fair and equitable. For example, suppose a teacher gets a PERA benefit of $5,000/mo after 30 years of service at a public school (1990 to 2020) with a 1% Annual Increase. Now take a private employee working at a private company at the same pay schedule from 1990 to 2020 who gets $2,500/mo in Social Security with a 10% COLA. It would fair and equitable to give the retired public school teacher 10% on the first $2,500 of her monthly PERA benefit and then 1% on the second $2,500.

  6. Steve Howard says:

    Citizens: While I was typing a reply, this screen froze, so I am starting again.

    Complaining about a very low, or absent C.O.L.A. here, in this forum, is simply not productive. We are living longer, any COLAs going forward will be modest. As I have written before, IF we, as teachers and Colorado employees ALSO worked some “Social Security Jobs; self-employment income,” we are receiving less Social Security, which we paid for. I have written to our two U.S. senators, Bennett and Hickenlooper, and, in my Congressional District, Neguse, and have never received a direct, meaningful answer. I get the typical brush-off,” thanks for sharing your concern.” This is very disappointing and, now, if ever, is our chance to repeal/modify the FEDERAL WEP/GOP provisions, which limit our benefits from Social Security, even though we paid for them, earned them, separate from our (teaching) employment. With a close-to-a-majority party of Democrats in both houses, now is the time to strike. You may have better luck; please write to our Senators and your Rep.s. I would love to hear a response from the Republican side of the aisle. I DID receive a response from former Republican Senator Gardner; it was factually wrong.

    • Ken Holmes says:

      If high or double-digit inflation persists for several years or more, then those PERA retirees who have experienced a deceased Social Security benefit based on their PERA benefit can have their SS benefit recalculated. At 1% annual increases, the PERA benefit will only be worth a fraction of what it was upon retirement. Also, those who are at the lower end of PERA, will probably qualify for the Colorado Old Age Pension (OAP), which has a COLA to match Social Security.

  7. Barry says:

    “When planning for retirement, it’s important to have a good sense of one’s income sources…” This is a quote from the article.
    And, of course planning, and much calculation went into my decision to retire.
    Then, the conditions that were the basis of my planning , were suddenly and drastically reduced in a breach of the contract I, and many others, had every right to expect.
    Some comments here suggest it is just retirees wishing they had more COLA. But in fact, the larger issue is that we don’t want anything that we didn’t earn under the conditions in place at our retirement. I’m not complaining about wanting more money. That is secondary to the issue that, PERA and legislature took away a defined benefit that was already earned. A benefit never called , nor meant to be a “COLA”, but it was called the “guaranteed annual increase of 3.5%”.
    Some on this forum, trying to justify PERA by age-shaming!?! As if it is our fault for “living longer”?? My god, that is absurd, and not technically even accurate. Yes the WEP needs to be ended. Yes, PERA should have made adjustments and put them in place in stages moving forward from 2010. But, to reach BACKWARDS in time and take away earned deferred income from those who planned and retired by the rules in good faith ?! Tragic mismanagement.
    Public servants like teachers, police, judges are the “helpers”, the fabric of society. Their pension organization should always operate under a “do no harm” philosophy. Since 2010 PERA and legislators continue to hurt the helpers. I for one am not asking for more money, just live up to the contract YOU crafted.

  8. Denise says:

    I’m not a lifer PERA employee and this has given me a different perspective. I initially believed I would have to fund my own retirement (supplement SS which I didn’t want to rely on) so I always participated in 401K programs from the beginning of my career. That mindset and saving approach over 35+ years has given me a pool of money that will complement what I will receive from PERA.
    I guess what I’m saying is not having all your eggs in one basket by diversifying and having more than one source of retirement income is a way to offset increases to cost of living.

  9. Margaret says:

    My dad was a CPA and he taught all 6 of us to start saving from an early age. He took me to the bank and I started a savings account and in the little book I received I saw that they would pay me 5%/year on every dollar I saved. When I started teaching I knew I couldn’t count on that salary to take me to old age so I worked summers. I married and my husband came from a very low income family and so every bonus or stock options he got we banked. Unless you got a masters degree or a PHD and became a principal or an administrator of some sort you knew you would not be financially well off.
    Now, when there is a real shortage of teachers the school system and the population needs to wise up and pay teachers better from the very beginning.

  10. Truth says:

    I worked for DPS for 32 years with a MA and many credit hours after my MA.
    This is a record of my monthly income since 2011:
    Note the miniscule increases in my monthly income.
    2011: $4,209
    2012: $4,294
    2013: $4,379
    2014: $4,467
    2015: $4,566
    2016: $4,647
    2017: $4,740
    2018: $4,740
    2019: $4,799
    2021: $4,859
    2022: $4,908
    Are these increases for Cost of living increase?
    These increases don’t come close to the increased cost of living.
    ESPECIALLY Now!! My property taxes in Denver each year and most of the taxes go to DPS.
    And, our increase in pay has not.
    *****READ ABOUT THE DENVER CITY AUDITOR who discovered that the Denver Department of Finance
    Cannot Account for at least $60l million from Federal Aid in 2021.
    The PERA employees should get a fair i ncreases especially for retirement pensions. The money is there somewhere
    SO FIND IT and give retired teachers the Increases they have been denied. LOOK at the income of current DPS teachers now !!!
    . What happened to us? What can we do???

    • Mark says:

      West Metro Firefighters made sure they found it. Why can’t PERA? In fact, they decreased the age to 50 for a firefighter to retire and guaranteed them a minimum COLA for life. This was completed in 2021. They refused to take any excuses. We have retired educators on this site telling us to shut up and take it. Unreal!!!

  11. Suzanne J Kemp says:

    I feel blessed beyond belief to be a member of PERA’s pension plan. So many of my friends are running out of money even though they saved diligently for their retirement. Having a defined benefit really helps me to feel secure in facing the future.

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