By Joseph Lichterman and Deepa Seetharaman

DETROIT, July 19 (Reuters) - When Paula Kaczmarek moved to Detroit in 1978 to work for the city's public library system, a guarantee of good retirement benefits was a key sweetener that convinced her to leave her previous job in Boston.

"I basically came here for future security," said Kaczmarek, who retired in 2012, two years earlier than she planned, as the public library was facing potential layoffs.

Kaczmarek is among the more than 20,000 unionized retirees whose pensions and healthcare benefits hang in the balance after Detroit filed the largest municipal bankruptcy in U.S. history.

In an interview, Kevyn Orr, Detroit's state-appointed emergency manager, said restructuring the city's crippling legacy costs is critical to Detroit's recovery.

"We can't pay benefits with money that's not there," he said. "It can't be done."

Retirees and labor officials acknowledged that the city's finances were in shambles and they would have to share in the sacrifice to help Detroit recover. But they said some of the significant benefits cuts reportedly proposed by Orr in talks with creditors would have a devastating impact on their lives.

"I do have some compassion for people who are investors in Detroit, naturally, because a lot of my pension income is based on investing," said 63-year-old retired city librarian Ellen Simmons. "But it's hard to have a lot of sympathy when there are 20,000 real people who are not living high on the hog."

Although city retirement benefits are enshrined in Michigan's constitution, there is no clear road map for what will happen in a Chapter 9 bankruptcy, experts said. The question is made more complicated by the fact that it is unclear who has the legal authority to negotiate on behalf of the retirees.

Orr and labor officials have locked horns over how to manage pension and retiree healthcare obligations. Orr was appointed by Michigan Governor Rick Snyder in March to try to resolve the city's financial crisis and tackle its $18.5 billion in long-term debt.

The city lists about $644 million in unfunded pension liabilities, but Orr has said the number is closer to $3.5 billion if "more realistic assumptions" are taken into account. Other unfunded post-employment liabilities, which include retiree healthcare costs, account for $5.7 billion of the city's outstanding debts.

The city of Detroit's two largest unsecured creditors are the city's general retirement fund and the police and fire departments' retirement fund.

In a court filing, Orr said the city intended to create a committee of retired employees to represent those workers.

"The appointment of a retiree committee is adequate representation for these individuals and to facilitate the city's restructuring of its pension and other post-employment benefit liabilities," Orr said in his filing.

Orr faced three separate lawsuits from current and retired workers trying to bar his attempts to file Chapter 9.

The conflict ratcheted up when Detroit filed for bankruptcy in federal court Thursday just minutes before labor lawyers could block those efforts in another state court located 90 miles (145 km) away.

At this point, it's unclear how much of a haircut, if any, the retirees will be forced to take. Still, they're preparing for the worst.

Simmons, who retired in January after working for the public library for more than 30 years, said she might have to go back to work or even move in with one of her children depending on how much is cut from her pension.

"My married kids, do they want mom living with them? They'll be gracious about it, but that's not what any of us want," she said.

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  • The Caesars Windsor Casino stands in contrast to an abandoned warehouse in Detroit. (Photo by Bonnie Jo Mount/The Washington Post via Getty Images)

  • A tree stump sits among the ruins of the Packard Automotive Plant, a 35 acre site where luxury cars were manufactured until the 1950s on May 2, 2013 in Detroit. (Photo by Ann Hermes/The Christian Science Monitor via Getty Images)

  • Graffiti covers an abandoned building February 24, 2013 in Detroit, Michigan. (Photo by J.D. Pooley/Getty Images)

  • In a photo shot on Tuesday, Feb. 14, 2012, a dog looks out from behind a wall in an abandoned home in Detroit. (AP Photo/Carlos Osorio)

  • Abandoned houses are painted orange as part of Object Orange: Detroit, Disneyland, Demolition, are located off of the Davison Freeway service drive in Highland Park, Michigan on Thursday, May 18, 2006. (Photo by Jeff Kowalsky/Bloomberg via Getty Images)

  • Residents that live in Detroit's east end came out of their homes to watch the third abandoned building fire of the day at the corner of Frederick and Chene. (Photo by Lucas Oleniuk/Toronto Star via Getty Images)

  • In a July 31, 2012 photo, a boat is dumped in a field in east Detroit. Abandoned lots, alleys and neglected parks in Detroit used to be a favorite destination for discarded tires and trash. But over the past few months they have become dumping grounds for the dead. At least seven bodies have been found in some of the most desolated haunts in a half-empty city. (AP Photo/Carlos Osorio)

  • A City of Detroit fire station that was recently closed is seen February 24, 2013 in Detroit, Michigan. (Photo by J.D. Pooley/Getty Images)

  • Part of the Brewster-Douglass housing project site is shown in Detroit, Friday, March 18, 2011. (AP Photo/Paul Sancya)

  • The abandoned Detroit Public Schools book depository

  • Detail of unused books left to rot at the abandoned Detroit Public Schools book depository.

  • The view from the inside of the abandoned Fisher Body Plant in Detroit.

  • Graffiti covers a crumbling building February 24, 2013 in Detroit, Michigan. (Photo by J.D. Pooley/Getty Images)

  • The General Motors (GM) world headquarters is seen February 24, 2013 in Detroit, Michigan. (Photo by J.D. Pooley/Getty Images)

  • Detroit firefighters arrived on the scene of an abandoned dwelling fire at 2645/51 Frederick Street in Detroit's east end. (Photo by Lucas Oleniuk/Toronto Star via Getty Images)

  • A sign advertising building rates is seen on an abandoned building on February 24, 2013 in Detroit, Michigan. (Photo by J.D. Pooley/Getty Images)

  • An abandoned boat filled with trash sits on Conant Street in Detroit, Michigan, on Sunday, April 9, 2006. Detroit eliminated bulk trash pick up three months ago due to budget cuts. (Photo by Jeff Kowalsky/Bloomberg via Getty Images)

  • A man walks past an abandoned house that is painted orange as part of Object Orange: Detroit, Disneyland, Demolition, located off of the Davison Freeway service drive in Highland Park, Michigan on Thursday, May 18, 2006. (Photo by Jeff Kowalsky/Bloomberg via Getty Images)

  • Barbed wire blocks the entrance of the abandoned Michigan Central Station on May 2, 2013 in Detroit, Michigan. The station was opened in 1913, closed in 1988, and has fallen into disrepair since. (Photo by Ann Hermes/The Christian Science Monitor via Getty Images)

  • Steam rises from a manhole at dawn among abandoned buildings and factories along East Warren Avenue on May 2, 2013 in Detroit, Michigan. (Photo by Ann Hermes/The Christian Science Monitor via Getty Images)

  • A man walks past the abandoned East Grand Boulevard Methodist Chruch on May 2, 2013 in Detroit, Michigan. (Photo by Ann Hermes/The Christian Science Monitor via Getty Images)

  • Two abandoned apartment buildings burn on Waverly Street in the declining Detroit enclave of Highland Park. Last year the Detroit Fire Department received 27,000 calls. (Photo by Lucas Oleniuk/Toronto Star via Getty Images)

  • Michigan Central Stationis Detroit's most famous ruin, with the train station last open in 1988. Designed by the same architects as New York's Grand Central Station.

  • An interior shot of the massive Michigan Central Station.

  • A worker measures the former Detroit Fire Department Ladder No. 10 firehouse on Mt. Elliott in Detroit, Wednesday, May 8, 2013. Detroit plans to sell seven unused firehouses and a renovated but long-vacant police facility that once housed horses as part of an effort to raise money and encourage redevelopment. (AP Photo/Paul Sancya)

  • A July 31, 2012 photo shows a memorial to two killed teens whose decomposing bodies were found July 27 in a field in east Detroit. Abandoned lots, alleys and neglected parks in Detroit used to be a favorite destination for discarded tires and trash. But over the past few months they have become dumping grounds for the dead. At least seven bodies have been found in some of the most desolated haunts in a half-empty city. (AP Photo/Carlos Osorio)

  • This Oct. 24, 2012 file photo shows a graffiti-marked abandoned home north of downtown Detroit, in background. (AP Photo/Carlos Osorio, File)

  • Graffiti covers an abandoned building at the former Belle Isle Safari Zoo February 24, 2013 in Detroit, Michigan. (Photo by J.D. Pooley/Getty Images)

  • In this Dec. 11, 2008 file photo, pedestrians walk by the abandoned Packard plant in Detroit. (AP Photo/Carlos Osorio, File)

  • Members of the Detroit Fire Department exit after putting out a fire in an abandoned house in Detroit on Thursday, Feb. 21, 2013. Photographer: Jeff Kowalsky/Bloomberg via Getty Images

  • Shuttered Packard motor car company plant in Detroit.

  • In this Oct. 24, 2012, photo, a broken streetlight lies on a sidewalk east of downtown Detroit. (AP Photo/Carlos Osorio)

  • The abandoned Harbor Light Center, in Detroit, Michigan on July 21, 2012. (Photo By Raymond Boyd/Michael Ochs Archives/Getty Images)

  • The abandoned Hotel Eddystone, in Detroit, Michigan on July 21, 2012. (Photo By Raymond Boyd/Michael Ochs Archives/Getty Images)

  • An abandoned home is seen on February 24, 2013 in Detroit, Michigan. (Photo by J.D. Pooley/Getty Images)

  • The abandoned First Unitarian Church, in Detroit, Michigan on July 21, 2012. (Photo By Raymond Boyd/Michael Ochs Archives/Getty Images)

  • The abandoned Detroit Public Schools book depository.

  • The back of an abandoned building facing, in Detroit, Michigan on July 21, 2012. (Photo By Raymond Boyd/Michael Ochs Archives/Getty Images)

  • Abandoned Detroit Central Depot shot from street.

  • This Oct. 24, 2012, photo shows a broken streetlight base on a sidewalk east of downtown Detroit. When the World Series was broadcast that week, television viewers saw vibrant crowds and skyline shots of the city. Yet beyond the hot dogs and home runs, Detroit is struggling to cross home plate. (AP Photo/Carlos Osorio)

  • The General Motors world headquarters building is shown near an abandoned building March 30, 2009 in Detroit. (Photo by Bill Pugliano/Getty Images)

  • Exterior of abandoned house in Detroit, a familiar sight in many neighborhoods.

  • Detroit Abandoned Buildings

    The back of the abandoned Michigan Central Station on May 1, 2013 in Detroit. (Photo by Ann Hermes/The Christian Science Monitor via Getty Images)

  • An abandoned home in Detroit.

  • An abandoned building in Detroit.

  • In a July 31, 2012 photo, a trashed strewn street is seen in east Detroit. Abandoned lots, alleys and neglected parks in Detroit used to be a favorite destination for discarded tires and trash. But over the past few months they have become dumping grounds for the dead. At least seven bodies have been found in some of the most desolated haunts in a half-empty city. (AP Photo/Carlos Osorio)

  • Graffiti decorates the ruins of the Packard Automotive Plant, a 35 acre site where luxury cars were manufactured until the 1950s on May 2, 2013 in Detroit, Michigan. Sitting on the East side of Detroit, the former automotive plant is now a site for scavengers, urban explorers and graffiti artists. (Photo by Ann Hermes/The Christian Science Monitor via Getty Images)

  • The abandoned Fisher Body Plant.

  • The Fisher Body Plant in Detroit, which is abandoned.

  • Part of the Brewster-Douglass housing project site is shown in Detroit, Friday, March 18, 2011. (AP Photo/Paul Sancya)

  • Aerial photograph of the Michigan Central Station's Beaux-Arts facade in Detroit, Michigan.