Retirement Blues

 

 

"We really do need to figure out a way to keep the golden years golden, and not blue..."

I have been thinking quite a bit (and reading quite a bit) about retirement lately. How it is changing. How it has changed. What the future of retirement is. If it is going in the right direction. So I decided to jot down a few thoughts.

Defined Benefit Plans - If you are working someplace which still has a defined benefit retirement plan, count your lucky stars. Unless you work for the government, there are precious few of these plans remaining. When I started working in 1975, they were common in large (and some not so large) companies. When I retired in 2008, not so much.

With the generation before mine, company pensions were very common. My Dad retired in 1985 and started drawing a pension. After he died 11 years ago, my Mother was entitled to part of it. To this day, the pension dollars still come into my Mother's account, and will until she dies. My Mother retired in 1983 and started drawing a pension. Because she worked part time, the pension was not very much. However, she is still drawing it today. And she will keep drawing it until she dies (she is now over 96 years old).

It is for reasons like this, that companies quit offering defined benefit plans. Way too hard to estimate. Many actuarial tables were wrong. People started living much longer. Plans became way too easy to underfund. Many companies now offer a "you are on your own" plan. A 401k or 403b for non-profits. These plans are excellent if we all knew the stock market was solid and would be going up forever. However, many of us experienced the volatility of the market in 2000 (dot com bust), 2001 (terror attack), and 2008 (great recession).

If you work for the federal, state or local government, chances are you probably have a defined benefit plan. Those are safe, right? Not really. Many are severely underfunded. If your plan is with the Federal Government and the plan's assets fall below 65% (or whatever the threshold is) money is just borrowed from the Treasury to make up the gap. In other words - it adds to our monstrous debt. If you plan is with the state, local or public unions, there is a risk your plan could be curtailed or go bust. Only the Feds can borrow or print more money.

One of the big problem with the remaining (non-Federal) retirement plans is the rate of return was predicated upon 1990's type of interest. 8% per annum was common. Many plans still use that. If anybody knows where I can get a steady and guaranteed 8% these days, please call me. Some financial people believe the underfunded municipal pensions are a ticking time bomb as large if not larger than our debt bomb.

I really do feel bad for the next generation in how they will do retirement planning. I would be clueless if I was trying to plan my retirement today. We need clarity and reason to plan. That seems to be in short supply today from what we are hearing from Washington. It is not too late to turn this thing around. However, if we keep ignoring the path we are on, rocky shores lie ahead for all of us - defined benefits or otherwise.