Has Your Retirement Stool Got All 3 Legs?
By Jim McPartland, Sr. Specialist, Personal Financial Planning, TrueNorth, Linn County LIVING WELL Magazine
So, how did it turn out for you, this roller coaster ride we experienced in the financial markets this year? Has it made you wonder about how this could affect your retirement?
For the last 30 years I have been hearing about the “3 legged stool” of retirement planning, always referring to pensions, personal savings, and Social Security. You remember pensions: The employer paid for them and made the investment decisions; most often the longer you worked the bigger the benefit, no matter what the stock market was doing or the Fed had just done; and, when you retired, you got a check every month for the rest of your life!
However, according to 2009 Department of Labor Statistics Survey, only 16% of private industry workers were in active defined benefit “pension” plans. The rest of us are kind of on our own – adding to our IRAs or the company 401(k) plan that may have a matching benefit that we can take advantage of.
This means that we are responsible for the decisions on how much to set aside out of each paycheck; and how to invest what we set aside; and finally, how to use the money without losing it or using it up before our time is up (maybe 30 years of retirement!).
So, if you aren’t lucky enough to have a “pension,” I ask again, how did it turn out for you this year?
It has been a volatile year and volatile century. That is what makes the “3 legged stool” so important. We will need the Social Security leg, and we will need that emergency fund the personal savings leg provides. But we will likely need much more because of the fact that almost everything continues to cost more every year we live, and statistics tell us that on average every couple at age 62 will have at least one still living at 92.
Now let’s go back to the replacement for the “pension leg” – the 401(k) or defined contribution plan. Since you are in charge of what to invest in, how did you do this year? Did your stomach hurt during the wild swings of stocks? Did you pull out and sit on the sidelines? When, if at all, did you get back in?
Since you are in charge of how much to invest from your income, are you near the maximum contribution levels? Or did you stop sending “good money after bad” as some did in 2008?
Since you are in charge of how much to take out of the account once retirement starts, so that the account will continue to provide income for as long as you live, have you figured out how much that is? And if the 401(k) runs out, will personal savings and Social Security be enough to live on?
The answer for us could be the insurance industry’s latest generation of insurances available with annuities, whose essential affect is to create a kind of floor under, but not a ceiling over, the 30 years of retirement income you and I are likely to need. These insurances may be more psychological devices than financial devices, but they provide what we want from pensions: certainty as to the minimum income, removal of the affect of volatility in the market on your income, and certainty as to the longevity of the income.
Some would call these insurance products “private pensions” and I think that is accurate. Best of all, these are available to all who have done the work to build up their nest eggs before retirement. With the help of these plans it truly is possible to insure you won’t outlive your “pension” income!
For more information, contact TrueNorth Companies at 319-364-5193.