One of the most important questions facing people close to retirement is, ‘how will I derive income in retirement?’ After all, retirement expenses can be as much as preretirement expenses, if not more; new retirees often travel extensively, eat out more often, and indulge in expensive leisure pursuits and hobbies. When you’re not drawing a steady paycheck from work, it’s easy to draw down your savings quickly.
Companies usually offer their employees various retirement savings plans; more and more, companies are offering 401(k) plans, which are a category of defined contribution plans. According to such plans, an employee determines how much money he or she wishes to set aside each month, and the funds are placed in individual accounts, monitored and adjusted by the employee. The account grows, and the final nest egg will vary in size, depending on how wisely the employee has invested, market fluctuations, and other factors. All the investment risk lies with the employee.
However, many longstanding companies as well as state and federal government agencies still offer a traditional defined benefits plan. According to such a plan, one still sets aside a certain amount of money each month — deducted automatically from one’s paycheck — and, in return, the company or agency promises to pay a retirement annuity that is predetermined, sometimes adjusted for inflation and often with a survivor benefit, such that payments continue to be made to the employee’s spouse should the spouse survive the employee. According to such plans, the company or agency is responsible for investing the money it collects each month from employees toward their pensions, and thus assumes full investment risk. The company is obliged to make full annuity payments to retired employees regardless of how its pension fund has done in the market.
Government employees are offered particularly favorable pension plans, often collecting as much as 80 percent of their full salary in retirement. Retired military benefits are similarly generous. Perhaps these generous plans are in compensation for public service rendered at lower salaries than could be earned in the private sector, doing similar work. Additionally, the government allows employees to contribute to Thrift Savings accounts, in which tax is payable only on withdrawals, plus keep their health insurance benefits in retirement at no increased cost in premiums. Government and military retirees are fortunate indeed. A similar situation exists in most countries worldwide; particularly in developing countries, government jobs are highly sought for their outsized benefits, and bloated and entrenched bureaucracies are often the result.
Private sector pension
The situation is not as rosy in the private sector, as more and more companies are switching to 401(k) plans. As of August 2010, only 17 of the United States’ Fortune 100 companies still offered traditional defined benefit plans. These include General Electric, Exxon Mobile, AT&T, Verizon, Ford, Johnson & Johnson, Proctor & Gamble, and other large companies. Other companies have found it too difficult to maintain pension funds, especially if they have a method to pass on the risk to their employees in the form of 401(k)s. Large pension fund defaults are not common, but in one celebrated case from the mid-2000s, United Airlines was allowed to do just that, forcing 134,000 retired United Airlines employees to have to settle for 50 to 75 percent of their pension checks. Many pundits see a looming crisis in pension fund defaults.
Whether you have a traditional defined benefit plan at your place of employment or a 401(k), you need to do your own advance planning for your retirement. If your company pays retirees a traditional pension, monitor your company’s overall performance carefully, particularly as it applies to the company’s pension fund. If you see trouble ahead, be quick to voice your concerns with your personnel department and with other employees. If enough employees express concern, your company may be prompted to covert an underfunded pension fund to a 401(k) system, whereby employees will at least have control over their own retirement funds.
What is a Bond Calculator
If you want to find out the current value of your bonds and how much interest they are paying you, then the fastest way is to use the Bond Calculator. Different people opt for different options to assess and estimate the outcome of their saving bonds investment. Home Loan calculators helps to detail you the exact information related to your saving investment.
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