Thursday, July 20, 2017

Have You Prepared Well Enough?

This is a hot-button issue. All of the literature regarding saving for retirement suggests that there soon may be a glut of aging bums on the streets.

But, is that a realistic outcome?

Statistics suggest "Yes".

First, I have to point out that retirees are divided into two major groups:

  • Those with pension plans that will provide a specific amount of money each month (called Defined Benefit plans). Those with these plans include:
    • Police, Firemen, and other government workers
    • Teachers and full-time workers in schools
    • Military - it may not be a BIG benefit, but it is a stable one
    • SOME workers in larger corporations
  • Those with pension plans that do not guarantee a certain benefit (called Defined Contribution plans). Most people have these.
    • These include 401(k)s and other tax-free contribution plans
    • Many employers will match or even double the contributions made by their workers. Too many people don't even make minimal contributions in their early years, if at all.
    • If people leave their job, too often, they cash out the plans (well, to be fair, many of them desperately need the money to pay their bills)
The stories that talk about the HUGE amounts of money you will need to retire are primarily talking about the second type of plan. Even with that pile of money, you can be at risk of losing everything if a health crisis hits.
The Defined Benefit plan is less vulnerable to being lost in a financial crunch. It's not, generally, a large income, but it is steady. And, it cannot be touched by bankruptcy, nursing homes (if you are a spouse), or other things that threaten Defined Contribution plans. If you are divorced by someone with a Defined Benefit plan, you can't even lose your spousal share against your will (you CAN negotiate it away, but you can't be forced to give it up).

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