*First things first - eliminate the word "problem" from your vocabulary.
(Just typing that word into the headline above nearly caused me to break out in hives.)
Small thinkers use the "p" word. Those of us who want to advance to greater in all areas of our lives will learn to eliminate that word from our lexicon.
(Just typing that word into the headline above nearly caused me to break out in hives.)
Small thinkers use the "p" word. Those of us who want to advance to greater in all areas of our lives will learn to eliminate that word from our lexicon.
I prefer to use the word "challenge." It almost always works as a direct replacement for the "p" word. Using the word 'challenge' connotes that the issue is resolvable, that it is overcome-able.
The other word does not carry that built-in solve-ability connotation.
As we advance to greater we learn to focus on controlling what goes into our brains and what comes out of our mouths.
So - how to plan your retirement if you have a pension?
I have a pension. It makes planning for retirement both easier and harder.
If you do too, you know what I mean.
Here's how to incorporate a pension into your retirement planning.
First, you have to gauge, guess, estimate, and investigate how likely you think it is that your pension will still exist throughout your lifetime and be able to fulfill its promises to you.
If you work for a private company in a terribly-inefficient industry, like airlines, you could reasonably guess that your pension is not something you can count on.
If you have a pension from a government, your pension is likely more reliable - after all, the government gets its money no matter what. They skim taxes right off the top of the economy.
Further, if money gets tight, they can cut programs, raise taxes, or both, to help fund themselves.
Further, if money gets tight, they can cut programs, raise taxes, or both, to help fund themselves.
Even governments, though, can and will cut pension promises if necessary. And governments often do a worse job of stewarding the money that they are responsible for than private companies.
All that boils down to say that you need to assess the probability that you believe that your pension will be able to fulfill its promise to you when it is time for you to collect.
Next, you need to decide, based on your assumptions above, if you need to discount your pension in your retirement calculations.
After all, if you plan your retirement perfectly but then your pension cannot pay you what you had planned on receiving from them - you may have to delay retirement, cut your retirement lifestyle, or go back to work. None of those are what you planned for.
If, as in the example above, you have a pension from an airline - you might choose to discount it by 70% - and plan on receiving only 30% of what you were promised.
If you have a very safe and secure pension, you have determined that it is well managed, well funded, and secure in every way, then you might not discount it at all. You could say that you expect to receive 100% of what they promise you.
Finally, it is time to do the minor math to assimilate your pension into your retirement planning.
Each year while you are still working, you should receive from your pension a Statement of Estimated Benefits, or something like that. On it, you should see an estimation of your monthly payment from the pension based on your eligible retirement date(s).
If you need to discount your pension's ability to deliver on its promises to you, multiply the estimated benefit amount from the statement by the appropriate percentage. If you said you thought you'd only get 30% of it, multiply it by .3 to see what you are expecting to get from the pension. If you estimate 50%, multiply by .5.
If the amount you expect to receive from your pension covers your expected expenses in retirement, then you are done. Your pension should be enough! Now you just have to wait to collect it. Avoid getting fired - and make sure it is being properly stewarded for you.
If the amount is below your expected expenses in retirement, then you need to determine what the shortfall amount is.
Let's use an example to illustrate this:
Let's say you expect to spend $2,500 per month in retirement. (That's normal plus a little bit of cushion)
That means your yearly expenses will be about $30,000.
Using the normal rule of thumb for retirement planning of 25 times your expenses, you'd want to have $750,000 in your retirement account. (That amount allows you to take advantage of the 4% Safe Withdrawal Rate rule of thumb.)
That means your yearly expenses will be about $30,000.
Using the normal rule of thumb for retirement planning of 25 times your expenses, you'd want to have $750,000 in your retirement account. (That amount allows you to take advantage of the 4% Safe Withdrawal Rate rule of thumb.)
Since you have a pension, though, that needs to be accounted for.
If, using the illustration from above, you have a pension which you believe you might only receive 30% of what you are promised then you take the estimated benefit from that Statement of Estimated Benefits - say $4,000 per month, and multiply it by .3.
That gives you $1,200 per month that you are willing to count on from your pension, anything above that will be a welcome benefit.
That means that you are willing to count on $14,400 per year from your pension.
Multiplied by 25, that gives the pension a value of $360,000.
If your needs are $2,500 per month, then we need to save enough on our own, outside of the pension plan, to make up the difference. $750,000 minus $360,000 = $390,000 that is the shortfall you expect.
Let's use the same numbers from the Bitchin' Budgets post that I did recently - assuming you earn $48,000 a year. Using the guidelines I established there for the DISCs, you would be putting $9,600 per year into your investment accounts. That's $369.23 per paycheck (assuming you get paid every two weeks).
If you put that into your investment account for 22 years and only earn an average of 5% per year on it, you have your pension's shortfall covered.
If you earn 7.5 percent, it only takes 18 and a half years to make up for the shortfall.
At a 10% return, it is just 16 and a half years.
That gives you power and control!
Start saving and investing now!
**As a further aside, I believe that it is incredibly valuable to see to it that any money that is stewarded on your behalf in a pension, or a company-controlled retirement plan is being properly managed. There is likely a committee of employees which are elected by their colleagues to sit on a Board of Trustees to oversee that the management is done well and properly.
Attend those meetings. Ask questions. If anything is going on which you do not understand, ask more questions and consider running for election to that Board at the next election cycle!
What you will learn as a Trustee is incredible and it certainly will help you Advance to Greater.
Let's use the same numbers from the Bitchin' Budgets post that I did recently - assuming you earn $48,000 a year. Using the guidelines I established there for the DISCs, you would be putting $9,600 per year into your investment accounts. That's $369.23 per paycheck (assuming you get paid every two weeks).
If you put that into your investment account for 22 years and only earn an average of 5% per year on it, you have your pension's shortfall covered.
If you earn 7.5 percent, it only takes 18 and a half years to make up for the shortfall.
At a 10% return, it is just 16 and a half years.
That gives you power and control!
Start saving and investing now!
**As a further aside, I believe that it is incredibly valuable to see to it that any money that is stewarded on your behalf in a pension, or a company-controlled retirement plan is being properly managed. There is likely a committee of employees which are elected by their colleagues to sit on a Board of Trustees to oversee that the management is done well and properly.
Attend those meetings. Ask questions. If anything is going on which you do not understand, ask more questions and consider running for election to that Board at the next election cycle!
What you will learn as a Trustee is incredible and it certainly will help you Advance to Greater.
