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3 Things That Could Go Wrong With Your Pension
Tweet Share on Facebook November 14, 2008 Comment (5)Workers lucky enough to have pensions generally have a better shot at a secure retirement than their pensionless peers with depleted 401(k)'s. But when companies face hard times, the future benefits workers expect to accrue in their pension plans are at risk. Private-sector pensions have lost almost $1 trillion in equity value over the past year. Individual pension participants are guaranteed to get the benefits they have already accrued because they're insured by the government. But the financial crisis could convince some companies that they no longer want to bear the risks of providing pension plans to employees, according to a recent paper from the Center for Retirement Research at Boston College. Here's a look at the major things that could go wrong with your pension:
Job loss. Financially strapped companies are laying off workers in nearly every industry. Pensions, which are often calculated based on your final salary, will be much lower if you are laid off in middle age. For example, if a pension pays out 15 percent of final salary in retirement, a 50-year-old employee with 10 years at the company who earns $48,000 would be entitled to $7,200 a year at age 65 if he or she was laid off this year, the Boston College researchers calculated. If the same worker continued his or her job until age 65 with a final salary of $60,000, he or she would get $1,800 more, or $9,000 annually, for the rest of his or her life. It's also extremely difficult for workers laid off in middle age to find a new job with a pension and put in enough years to qualify.
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Companies Ask Congress for Pension Relief
Tweet Share on Facebook November 13, 2008 Comment (6)Roughly 300 companies are lobbying congress to temporarily loosen pension-funding rules. The companies, which span multiple industries and include DuPont, Ford, IBM, GlaxoSmithKline, Kraft, Northrop Grumman, Pfizer, and Verizon Communications, say that fully funding their pensions under current economic conditions will lead to widespread job losses and benefit reductions.
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Cashing Out Your Retirement Account
Tweet Share on Facebook November 12, 2008 Comment (50)The typical employee with a 401(k) or similar retirement plan gets a choice on how to distribute the nest egg at retirement. Most workers take the lump-sum option and then reinvest all or some of the proceeds, typically in an IRA. Only about 7 percent of workers spent the entire retirement account immediately upon retiring, according to a recently released 2007 survey by the Investment Company Institute of 600 workers who retired in 2002 or later.
About 70 percent of the retirees reported having a choice of distribution options. Other commonly offered choices include annuities, installment payments, or deferral of the distribution, and some employers allowed a combination of withdrawals. Retirees who chose installment payments often cited strong needs for current income as their reason for doing so. Those seeking a steady stream of income over their lifetimes often chose to annuitize their assets. Here's a look at the most popular retirement fund distribution options:
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Reader: What Will Happen to My Pension if My Company Tanks?
Tweet Share on Facebook November 11, 2008 Comment (16)Dear Planning to Retire,
I am a Ford salaried retiree. Can you tell me in general terms how the U.S. Pension Benefit Guaranty Corp. (PBGC) would take over if Ford dumps their pension liabilities on PBGC? I am sure many specifics would be needed to reply with any specificity, but I am trying to get basic information as to what would happen to my pension if Ford cannot pay. Are there limits to what might be paid out by PBGC? I am 82 and have a pension of about $55,000 now.
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General Motors Cuts Healthcare for Retirees
Tweet Share on Facebook November 10, 2008 Comment (37)Note to retirees: Don't count on your retiree health insurance from your company. Even if you have the agreement in writing, many retiree health insurance agreements include clauses giving the company the right to modify, suspend, revoke, terminate, or change the program at any time. And for many employers, that time has come.
General Motors plans to eliminate retiree healthcare coverage for approximately 100,000 white-collar retirees at the end of this year. Former factory workers, however, have union contracts that prevent the company from revoking coverage.
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Study: Too Many 401(k) Choices Can Lead to More Risky Investments
Tweet Share on Facebook November 10, 2008 CommentThe typical 401(k) plan offered 18 funds choices last year. Savvy investors often relish the array of options and seek out the lowest fees and best returns. But for an inexperienced retirement saver, confusing terms, fine print, and seemingly indecipherable differences between mutual funds can seem daunting. And new research indicates that too many choices in a 401(k) may even lead inexperienced investors to take on more risk than they would with fewer options.
A Rutgers School of Business, University of Texas-Austin, and University of Pittsburgh study found that many employees without extensive investment knowledge will choose a heavier concentration of stocks in their portfolio when confronted with more fund options. A large fund assortment more than doubled investment in stocks among those less knowledgeable, from 29 percent to 60 percent of the portfolio, and decreased bond fund investments from 46 percent to 26 percent. But more investment options had no significant affect on people who said they had investing knowledge.
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Obama's Plans for Your Retirement
Tweet Share on Facebook November 7, 2008 Comment (26)The leading edge of the baby boomers will hit age 65 during Barack Obama's administration. Legislation enacted over the next four years will be key to boomers' economic security in retirement, especially as investors frantically try to recover from massive stock market losses before they retire. Here's a look at the president-elect's major retirement proposals:
Income tax for seniors. Obama plans to eliminate all income tax for seniors making less than $50,000 annually. Obama's advisers estimate this will save 7 million seniors an average of $1,400 apiece annually.
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Survey: Retirees Voted for McCain
Tweet Share on Facebook November 6, 2008 Comment (4)By now, you've probably heard that young people overwhelmingly voted Barack Obama into the White House. But the majority of baby boomers and generation X also voted for Obama. In fact, the only age group that didn't prefer Obama were those age 65 and older, according to final pre-election estimates of likely voters by Gallup released today.
Age 2004 2004 2008 2008 Kerry Bush Obama McCain Under 30 60 40 61 39 30-49 43 57 53 47 50-64 48 52 54 46 65 plus 52 48 46 54 Source: final pre-election Gallup Poll of 3,050 likely voters
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Does Anyone Still Want Private Social Security Accounts?
Tweet Share on Facebook November 5, 2008 Comment (16)Many retirees who have reduced spending power because of depleted 401(k) accounts are thankful that President Bush's plan to partially privatize Social Security was never realized. But the debate over personal Social Security accounts rages on.
The success of private retirement accounts is dependent on the amount a worker contributes, the investment strategy, and the unpredictable whim of the market. Workers who contribute more and get better returns will have more retirement income than those who tuck away less and achieve smaller gains. Social Security benefits, on the other hand, depend on lifetime wages and the age at which benefits are claimed. Workers who retire at the same age with the same earning record generally receive similar benefit amounts regardless of the year in which they claim benefits and the ups and downs in the financial markets.
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Maximize Your 401(k) Match While You Still Can
Tweet Share on Facebook November 4, 2008 Comment (2)Employer matches to 401(k) contributions are an important retirement savings incentive. Many employees contributed the exact amount necessary to receive their employer's full match from 2004 to 2007, according to recently released data about Charles Schwab-serviced retirement plans.
As most businesses have flourished over the past four years, more employers began offering 401(k) matches or increased the amounts of matching contributions. The percentage of large employers with more than 2,500 participants in their retirement plans providing matches, for example, jumped from 78 percent in 2004 to 88 percent in 2007, reports Schwab, a company that has 1.3 million retirement plan participants.
