Public employees over the nation are facing the crisis of imminent pension reductions. Detroit’s emergency manager Kevyn Orr’s recent attempt at reducing the pension of city workers by a huge 84 percent has left many public employees wondering how effectively their pension plans would be able to cover them.
Besides, public employees are not the only group facing the crisis. Private sector is no more secure than its public counterpart. One example is when Patriot Coal Corp. filed for bankruptcy the previous year, leaving thousands of Patriot miners without jobs or proper pension coverage. 15 months after the bankruptcy declaration, the settlement that parent organization Peabody Energy and the United Mine Workers reached, provided only a fourth of the total health care coverage and benefits that retiring employees were previously set to enjoy.
According to financial planner Clark Kendall who is the also the president of the firm Kendall capital Management, the pension market is not the same it used to be twenty years ago. Now instead of having municipalities or companies take care of their finances, individuals have to take responsibility for their own financial success.
He adds that owing to increasing life expectancy in the US, a majority of pensions are getting underfunded by as much as 20 or even 30 percent.
Ponder over retirement plan before the year ends -
Year end is the perfect time to ponder over financial status, retirement benefits and pension plans says Clark. If people take over now, they would not need to rely on government programs that are untrustworthy and uncertain.
Speaking in favor of the same point, associate director of the New York Life Center for Retirement Income, Jamie Hopkins states that retirement plans provided by the employer tend to be extremely complicated and more often than not, they end up creating a large set of issues and discrepancies for the employee.
He remarks that people who have to work for 10 or 12 years more are especially vulnerable to suffering under employer provided pension plans. According to Hopkins, such people should look at the pension funds of their employer and in that light, ask themselves if staying with the company would be a good idea.
What should employees do?
Employees would benefit from taking out a huge amount from dynamically changing and underfunded retirement plans to purchase private annuity or save the money up in an Individual Retirement Account.
Hopkins suggests focusing on making higher payments towards a 401(k) plan and lower ones towards the pension plans, for employees who don’t have long term plans of staying with their companies.
People thinking of taking an early retirement must speak with a financial adviser before setting on a decision. Investing in emerging markets is the norm of the day and financial advisers will be able to help employees test their financial standing and retirement plan.