VOL. 127 | NO. 229 | Thursday, November 22, 2012
Rays of Wisdom
Dana and Ray Brandon
Is Your Pension Plan Safe?
By Ray and Dana Brandon
Ray’s Take While most companies have abandoned pension plans for 401(k) programs, there are still countless employees counting on their pension plan to fund their retirement years. The question is: Will that pension plan still be around when the time comes?
It’s a legitimate concern. The same Great Recession that took a massive bite out of individual investments did the same thing to pension funds. Plans sponsored by 1,500 of the biggest companies in the country went from a $60-billion surplus to a $409-billion deficit in just one year. While the picture has improved since then, it’s still cause for concern.
There is a government safety net to take over failing pensions. The Pension Benefit Guaranty Corporation (PBGC) insures participating pension plans. The bad news is that it had to take over 134 underfunded pension plans in 2011 alone that covered some 57,000 individuals. And, that’s just in one year.
With pressures like that, the PBGC is experiencing funding problems of its own, just like Social Security. By law, it already has pension benefit caps in place that reduce payments to some. There’s every reason to think that as more pension plans fail and the PBGC is forced to take them over, those caps could go significantly lower and impact even more people.
It’s not just market fluctuations affecting pension plans, however. Longevity risk is hurting them, too. Average life expectancies continue to rise. That means pension payout levels are becoming higher than the fund originally expected and planned for. Even a small increase in longevity can create solvency issues for a pension plan.
Social Security pensions are facing all these same problems, too. Some changes will eventually be made to this program as well. It’s just a question of how much, to whom, and when.
Add all this together and you can clearly see that when it comes to financial security for your future the tide is shifting to more personal responsibility.
Dana’s Take Inflation has been relatively low the last decade or so, but it still exists. Over time, it will have a major effect on the amount of money you need to live comfortably in retirement.
Look at it this way, if you retire at age 65, you could quite possibly live 30 more years. Now think for a moment what a loaf of bread cost 30 years ago, or a gallon of gas, or a movie ticket. I’m no financial planner but my guess is that most those prices have gone up – a lot.
With so many people receiving early retirement packages from their companies these days, there’s never going to be a better time than now to bite the bullet and make a plan. If facing that future overwhelms you, hire someone to help.
A little less money in your pocket today could make your life better at a time when you have the fewest options.
Ray Brandon is a certified financial planner and CEO of Brandon Financial Planning (www.brandonplanning.com). His wife, Dana, has a bachelor’s degree in finance and is a licensed clinical social worker. Contact Ray Brandon at email@example.com.