Is Anyone Ready These Days: Retirement Savings Is A Thing Of The Past
By Pam Foster on February 9, 2011, 3:11 pm
About 36 percent of early boomers (currently age 56 to 62) alone are at risk of not having enough money to pay for basic expenditures and health care costs through 20 years of retirement. That’s based on an analysis of recent retirement savings, housing equity and other data by the Employee Benefit Research Institute.
Is Anyone Ready
In determining these "make up" amounts, the study excluded people who already have enough money for retirement as well as lower-earning households that realistically can’t afford to boost retirement savings. Looking at the median needs for remaining earners, here are the study’s conclusions about the amounts of extra savings (in addition to current retirement savings) that the three age groups would need to set aside each year by the age of 65 to fund adequate retirements. It also calculated the amounts it said would guarantee retirement adequacy 50 percent, 70 percent, and 90 percent of the time. The ranges within each probability reflect a household’s investment mix, with the higher savings additions needed for households that suffered 2008-09 losses from real estate as well as retirement account holdings.
Federal Employees
Now the noise you hear from Washington is what a drain Federal Employees are on the budget and how highly paid we are. People also assume that we also have a fully funded pension and health care costs. However, upon closer inspection, federal employees are a bargain for the taxpayer. The days of the fully funded pension have been gone since 1986. Any employee who began with the Federal Government since that time as an Individual Retirement Account similar to that in the private sector as their primary source of retirement funding. These are contributions the employee makes to his/her account. Like many private sector employees we do get a partial match from our employer, but this is only a small fraction of what would have been paid under the old pension system. Employees get their choice of mix of retirement funds with different risk levels, but it is a private investment. This along with our Social Security constitutes our retirement savings.
Pension Plans For Private Companies
Most private sector companies have closed their pension plans to new hires and replaced them with 401(k)s. “Even if you are providing the same amount of value, you are transferring risk from the company to the participant when you change from a defined benefit to a defined contribution plan,” says Barry. “It’s really a transfer of risk from corporations to individuals. It’s up to the participant to figure out how to make the money last for the rest of your life.” Creating a secure retirement income without a pension takes some effort. To help your nest egg grow, try to maximize your retirement savings tax breaks and take advantage of any 401(k) match offered by your employer. You will also need to choose investments that will help your savings keep up with inflation and develop a plan to draw down your assets in retirement. Some people create their own pensions by purchasing annuities that provide guaranteed payments for life.
Shared Pension Plan
There is a growing trend toward defined contribution pension plans. These are registered pension plans that specify the employee and employer contributions, but not the amount the employee will receive at retirement. Payout amounts from these plans are based on the returns earned by their investments. If the investments perform well, you could have more income than you expect. If they underperform, you could be left short.
