Saving for retirement has always been a part of an American’s life. It has just taken a different road over the last 30 years or so. Remember the idea of working for a company with a “good salary” and “great benefits”? Well, some of those benefits that you would receive included lifetime income for you and your surviving spouse. It was called a pension. According to a recent study, about 19 percent of American workers have a pension, nearly all in the government sector.
As people are living longer, politicians, union executives, and corporate executives failed to consider that the longevity of life included the need to withdraw money for a much longer period. That means they should have delayed the “max” pension benefits and/or had workers personally deposit a greater amount of money into their own pension funds. Both solutions are very politically unpopular. It seems no one wants to be the adult in the pension conversation.
Imagine for a minute that you are a 32-year-old single mother with three children. You work for any number of the government employers that provide favorable pensions (school districts, city, county and federal employers, just to name a few). Your employer comes to you in the middle of the “great pension crisis” and says, “If you want to continue to have a pension, you now have to double the amount you contribute to it.”
After careful budgeting and adjustments to your discretionary spending, you agree. You then find out that a previous retiree, say a 63-year-old who worked for the employer for 32 years, is being paid a near six-figure pension and just returned from an around-the-world cruise. Insult to injury.
Solution: The current pension system for most employers can only survive if one or more of these things occur. First, participants need to add more of their own money to the fund each month. Second, the age at which one is eligible to retire with a maximum monthly pension increases, maybe adding five or six years. Third, the payout to existing recipients doesn’t increase. This means inflation can erode your buying power.
As the expected future rate of return earned by the pension funds has been consistently revised downwards and higher risk investments have failed, the dollars must be made up somewhere. The last resort, taxpayers have to foot the bill so that a small number of workers can have an amazing retirement, while most Americans struggle to work well into their 70s.
Plan on taking care of yourself. Save in your company retirement plan and in the available Individual Retirement Accounts (IRA). Check with your tax advisor or financial professionals. Next, consider reducing any long-term debt you may have so you can free up money for your savings. These two actions alone just might be the difference between living a comfortable life in retirement or working part-time just to pay the utilities.
Remember, retirement is not an “event.” That’s the “retirement party.” Instead, it is a culmination of a life-long development of financial habits and decisions. Those must continue to be reviewed and modified if necessary.
Arif Halaby is a Certified Estate Planner in California and President/CEO of Total Financial Solutions, Inc., a financial and insurance services company in Santa Clarita with offices extending to the San Fernando Valley, Simi Valley, and Antelope Valley. 753-9683