April 2008
Take steps to protect your retirement income
Don’t be caught off guard by changes to your pension that might result in less income in retirement. Here are a few steps
you can take to help smooth out any unpleasant bumps in the road ahead:
Save more now. Use tax-deferred or Roth-type savings vehicles, such as 401(k)s and Individual Retirement Accounts. Contribute at least what’s required to get the maximum employer match, typically 5 or 6 percent of your salary. If your pension has been frozen or switched to a cash-balance plan, many employers provide more generous matches for older workers nearing retirement to help make up for some of the losses; take advantage of that if it applies.
Unite against take-backs. If your employer has pension cutbacks in the works, get together with fellow employees to lobby for benefits that will mitigate the losses—a “soft” instead of a “hard” freeze, grandfathering older workers in the traditional defined-benefit plan, or more generous company matches to a defined-contribution plan.
Conduct a pension checkup. If your company is having financial problems, check how well your pension is funded by examining its federal 5500 Form, which is required under the Employee Retirement Income Security Act. You can find those documents at www.freeErisa.com.
A fact sheet explaining how to read the numbers is available from the Pension Rights Center. If a plan’s assets cover 80 percent or more of its liabilities, that’s considered good. If the company seems headed for bankruptcy and you’re expecting a relatively large pension benefit, check the “maximum monthly guarantees” that the Pension Benefit Guaranty Corp. will pay if it takes over the plan.
Take the buyout. If your company is trying to cut costs by terminating the pension plan and offering you a buyout, consider this option seriously. You might be better off taking the package and finding another job if you can.
Spend less. If it looks as though you’ll have less income than you planned on, start cutting back your spending.
Plan a longer work life. The longer you work, the more you can contribute to your retirement savings. If your health allows, continue working until at least 66 or 67, when you’ll be eligible to collect full benefits under Social Security.
Save more now. Use tax-deferred or Roth-type savings vehicles, such as 401(k)s and Individual Retirement Accounts. Contribute at least what’s required to get the maximum employer match, typically 5 or 6 percent of your salary. If your pension has been frozen or switched to a cash-balance plan, many employers provide more generous matches for older workers nearing retirement to help make up for some of the losses; take advantage of that if it applies.
Unite against take-backs. If your employer has pension cutbacks in the works, get together with fellow employees to lobby for benefits that will mitigate the losses—a “soft” instead of a “hard” freeze, grandfathering older workers in the traditional defined-benefit plan, or more generous company matches to a defined-contribution plan.
Conduct a pension checkup. If your company is having financial problems, check how well your pension is funded by examining its federal 5500 Form, which is required under the Employee Retirement Income Security Act. You can find those documents at www.freeErisa.com.
A fact sheet explaining how to read the numbers is available from the Pension Rights Center. If a plan’s assets cover 80 percent or more of its liabilities, that’s considered good. If the company seems headed for bankruptcy and you’re expecting a relatively large pension benefit, check the “maximum monthly guarantees” that the Pension Benefit Guaranty Corp. will pay if it takes over the plan.
Take the buyout. If your company is trying to cut costs by terminating the pension plan and offering you a buyout, consider this option seriously. You might be better off taking the package and finding another job if you can.
Spend less. If it looks as though you’ll have less income than you planned on, start cutting back your spending.
Plan a longer work life. The longer you work, the more you can contribute to your retirement savings. If your health allows, continue working until at least 66 or 67, when you’ll be eligible to collect full benefits under Social Security.
