Tag Archives: defined benefit

Planning for Retirement

A lot of people, whether younger or older, are anxious about retirement because of the various proposals to change Social Security and because of the number of businesses and governmental entities that are curtailing retiree benefits and eliminating pensions.  With these uncertainties, it makes sense to take advantage of any retirement accumulation programs each of us can manage, and to plan for the future.  The AARP has a Retirement Calculator that I found to be easy to use.  Included is a tool that allows you to make changes to your assumptions and plans to see how they will affect your income in retirement.  For example, the amount of a likely shortfall is adjusted if you elect to retire later, work part time in retirement, put aside a larger proportion of your current salary, or reduce your lifestyle in retirement.

The Social Security Administration has a Retirement Estimator that will work for many individuals.  It assumes that you already have enough work credits to qualify for benefits and that certain other conditions do not pertain, such as already collecting Social Security benefits.  You have to enter identifying information, then you can see what your monthly benefit will be depending on the age that you choose to retire.  The same page has links to other calculators, but they are not derived from your earnings record, as the Retirement Estimator is.  There’s also a link to a document that discusses when to start taking your benefits.

Bankrate, an aggregator and publisher of bank rate information, has made a number of calculators available that allow a person to compare their retirement prospects depending on the retirement instrument he or she uses, such as traditional IRA, Roth IRA, 401(k), 403(b), or annuities.

It may be scary to see what would be needed to have a comfortable retirement, but I think it’s better to know what one’s prospects are rather than be painfully surprised when it’s too late to do anything about it.  Sue Sweeney, Chair, Gerontology Department, Madonna University

Retirement Security

We know that the “three-legged stool” of retirement security has largely become a “two-legged stool” over the last several decades.   The “legs” of pension, Social Security benefits, and personal savings, have been reduced to personal savings and Social Security benefits for many.  Company and public pensions (defined benefit programs) are on the wane, while 401(k) or 403(b) plans (defined contribution programs) have become much more common.     While companies often contribute to defined contribution plans up to a given percent of income, the bulk of the contributions come from the employees, and represent personal savings in a tax deferred instrument. Thus the demise of the “third leg” of the retirement security foundation.

According to the Bureau of Labor Statistics, Monthly Labor Review of December 2012, pension coverage of private industry workers has declined from 35% in the last 1990s to 18% in 2011.  Of those who are covered by a pension plan, 1 out of 5 of them participate in frozen plans.  That is, new employees of their companies are not permitted to participate.  Only 10% of private industry companies offer a pension plan, and 48% of those are larger organizations with at least 500 employees. ( But 52% of U.S. workers are employed by firms with less than 500 employees.)  Among private industry employers, there is great variation in the existence of a pension program by industry sector .  Utilities and banking related industries far exceed any other industry sector in the frequency of including a pension among employee benefits.

The National Institute on Retirement Security is a non-profit research and education organization formed by member organizations who are concerned with retirement plans and policies. The Institute recently conducted a poll to assess the attitudes of American adults toward retirement security.  The poll was administered to 800 individuals aged 25 or older through telephone interviews held between December 3 and December 22, 2012.  The findings were released in a report, Pensions and Retirement Security 2013:  A Roadmap for Policy Makers.

The report reveals that 85% of those polled expressed anxiety about their prospects for a decent retirement income, and nearly as many feel that federal elected officials fail to understand their struggles to save toward retirement.  These attitudes are not limited to Baby Boomers (those born 1946-64).  Millennials  (those born after 1976) also express concerns, and 90% of them believe lawmakers need to make improvement of the retirement system a higher priority.  Sue Sweeney, Chair, Gerontology Department, Madonna University