Ways to Prepare for Retirement Without a Pension
By Anthony Rhodes
First, there were the airlines; understandable, when you think about it, after all, the industry began bleeding profusely after 9/11, so the decision to halt their pension plans not only made good business sense, but was actually essential to keep some companies afloat. But what began as the obligatory exodus of a few necessary companies, now resembles an all out migration of the masses, as even corporations from healthy segments of the economy have lined up to abandon their defined benefit plans, in exchange for the less capitally demanding requirements of their defined contribution counterparts.
Within this environment of uncertainty, many employees are left to wonder just how safe their own pension plans really are. Primarily because, while the number of American companies willing to forego their pension obligations continues to increase, the remaining financially stable corporations will have to seriously consider following suit—if for no other reason than not to give way to strategic advantages by their competitors. So, the message being sent by employers is loud and clear: the days of expecting corporations to assist with your retirement needs are indeed numbered. And that if today’s workers are to enjoy many of the monetary advantages afforded to their predecessors, one thing is most certainly assured; you will have to take a more active role in the management of your own finances in which to do so.
Benefiting From Other Benefits
When advising workers on the ways to best handle this new reality, first and foremost, I propose addressing the situation with a clear head, and to confront it without resorting to panic. Quite honestly, if your employer decides to cancel your pension, there’s very little that you can do to prevent this from occurring, so spiraling towards angst will serve no beneficial purpose. Next, begin to take ownership of the circumstances and prepare yourself by learning as much as you can about your existing retirement plan. While all defined contribution plans provide tax-advantaged benefits, many offer other potential advantages, which vary from plan to plan, and company to company. For example, some plans offer exceptional internal benefits, such as matching contributions or discounted prices on company stock purchases. Others may provide continuing education benefits, or assistance with external pension funding. The truth of the matter is that many companies offer benefits which are quite comparable to pensions, but some of their employees never take out the time to examine them, and as such, fail to maximize on all that they have to offer. Learning about all the benefits of your employer sponsored plan (and contributing to them), could very well augment your retirement reserves, and in some cases, might actually prove to be more beneficial than your would-be pension ever would have been.
Managing Funds and Fund Managers
Without the comforts of a pension to fall back on, the ways in which you manage your investments will take on a greater importance, and will ultimately determine just how secure your retirement will be. Most investors understand this principal in theory, but putting it in actual practice is a completely other matter, indeed. I’m often amazed at just how cavalier many individuals are when it comes to the management of their retirement assets. Many couldn’t name 5 companies which reside within their mutual funds, and most have no idea how much money they are paying out in fees to fund managers. These attitudes have to change within our new post pension reality. My advice is to take out a certain amount of time everyday to simply learn as much as you can about your portfolio; concluding with the examination of all available mutual fund options, and the selection of the best choices from amongst them. It would also be a good idea to watch various investment related shows, and reading about investments over the Internet, so that you can make more informed decisions. Equally important is to make sure that you are taking full advantage of all supplemental retirement plans in which you qualify for. There can be no more wavering on the question of whether you should have an IRA or not, today’s workers will not only have to have one, but must make sure that they maximize all of their contributions, as well.
In this world, it is said that nothing is inevitable but death and taxes, though we’d be wise to add change to that list as well. Perhaps in our comfort of working for large corporations, and helping to contribute to their bottom line, we sometimes feel immune to the forces of change, and inclined to believe that certain aspects of that employment are indeed, etched in stone. But every now and then, we are abruptly reminded that the conditions of the future—our future—are charted by the actions and preparations, which we make. And that placing that responsibility in the hands of someone else, regardless of their strength or resources, is a mistake, which will certainly continue to repeat itself.
(Anthony Rhodes is a Registered Investment Advisor and owner of wealth management firm The Planning Perspective www.theplanningperspective.com )