Friday, May 03, 2013

The Death of Pensions

Pensions used to be the mainstay of retirement income. For many companies, pensions were a good retirement option.   Only current payments to retirees were an expense, and pensions expenses could be paid by future income instead of current income.   However, the use of pensions has been declining as requirements for estimating pension liabilities and funding pensions were created.  These requirements revealed that the majority of pensions were way underfunded.

New Rule Signals Kiss of Death for Pensions reports that a little rule change passed by Congress will revise the calculation for pension liabilities and allow companies to contribute even less to pensions, increasing the underfunding issues.  According to one economist, "This proves that pensions are pretty much dead."

The significant decline of pensions as a retirement option is not a surprise to me.  In my part time job that had a state pension, I figured out that my estimated pension far exceeded the contributions by my employer, me and a 7% investment growth.  In addition, according to the pension rules, I could significantly increase my retirement payments even further by taking steps to increase my pay during my final three years before retiring.

After reviewing the pension option, I decided it was too good to be true and not sustainable.  Soon afterwards, our state reduced pension benefits for current employees, but probably not yet at a sustainable level, in my opinion.
For more on  Reaping the Rewards, check back every Friday for a new segment.

This is not financial or retirement advice. Please consult a professional advisor.

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1 comment:

Shawn James said...

Recently I also read about the problem in pension and other finances that would occur due to divorce. It's becoming harder day by day to safe-guard our own hard-earned money.