Poll:Prefer One, Two, or Three Legs?

[M Paquette]

Prefer One, Two, or Three Legs?

Most have only worked for the federal government and don't really have an understanding of what the work environment is for everyone else. Many of them have a sense of entitlement concerning their very generous benefits.

I think you will find that this is true for most employees at all but the smallest employers. Only a small portion of employees realize that their contribution to medical insurance coverage or pension plans that might exist are only part of the actual cost of those plans, and that employers might be making a significant contribution to those plans.

That said, many employees do recognize that part of the incentive for taking a particular job are the benefits in addition to the salary, as part of the total compensation package that they agree to work for. In general, when one person agrees to perform tasks for another person in exchange for compensation, they are entitled to that compensation upon performance. It is more than a mere sense of entitlement. The employee is legally entitled to that compensation in most jurisdictions.

That's why, when terminating a pension program, a company makes some alternate compensation to employees vested in that pension such as a lump sum distribution. This is also why employees may litigate such changes should the alternate compensation be viewed as inadequate.

 

[haha]

It is good to have some sort of annuity to mitigate your longevity risk. Otherwise you will tend to leave too much on the table when you die because you will be afraid of running out.

Que horrible!

 

[youbet]

Megacorps have been converting from defined benefit plans to defined contribution plans for years. (The megacorp that suddenly ended my pension plan already had a defined contribution plan which I participated in, because as I said above, I was diligent about saving for retirement.) Those already retired continued to receive their pensions. Those who were eligible to retire but who hadn't yet retired weren't screwed, but I don't recall the details. I do recall that there was quite an upward cliff for those who were eligible to retire. The rest of us got a fairly paltry payout. I rolled mine over to an IRA. It could have been worse; I could have been much closer to retirement.

I understand what Megacorps have been doing with pensions. I was just pointing out that with some gov't pensions now being reduced for those already retired, replacing DBP pensions with DC retirement plans in the private sector doesn't seem so bad........ at least by comparison.

But in either case, those types of actions are good reason to have your personal retirement savings completely under your control and substantial. No one cares about you like you. Not the owners at work, not the polticians you elected, not the public. Watch out for yourself.

 

[MichaelB]

As for the military pension change, I believe that it reduces the COLA to 1% below inflation until age 62. That's a reasonable change for what is a very generous system. It may very well be restored by Congress, anyway. (I would support restoring it for disability retirements only.) Compare that minor change to what has been happening in private industry for the past 25 years, where pension plans have been completely disappearing overnight, as happened to me.

One of the wonders of the Internet is that it only takes a few seconds to inform ourselves. Federal government retirees receive no free health insurance. And they receive no free insurance while they are employees, either. In all cases they pay premiums.


I'm sorry that the promise made to you by your company was not kept. That's hardly a reason to wish the same fate for others.

Did your company go bankrupt? I don't know of any private pension plans that "completely disappeared overnight" in the past 25 years. Some closed to new credits/earnings but I think all still maintained credits already earned or pensions already being paid unless they declared bankruptcy. Even then, the PBGC covered all or most of what the annuitant was to receive.

It's gov't pensions (think Illinois or the military) where the already earned pensions of annuitants are being reduced.

I'll not pass up an opportunity to say +1 @ samclem and youbet

I never said I wished the same fate on others. Please do not put words into my mouth. I do think, however, that a reduction in a COLA for a federal pension is hardly the same thing as the complete and sudden elimination of a pension plan.

The two are not comparable. The COLA reduction one party has the resources to pay but breaks the contract after the other has fulfilled the conditions. Private pensions go broke but none to my knowledge have done this.

 

[audreyh1]

Although ds just started a private sector job that still offers a pension, it wasn't one of his search criteria.

I wonder how many pensionless people really would buy an annuity to create the third leg.

Not me.

I was in a high growth modern industry that didn't pay pensions - at lest not the newer high tech companies.

I believe in my industry there was a tradeoff - if you worked for one of the older more established companies you might be able to earn a pension, although even that was an ongoing battle for many employees as many plans were frozen of the years. But a lot of the non-pension companies granted compensation in the manner of stock options which in some cases really paid off big time and allowed early retirement for those who were lucky and had good timing.

So, in my case focusing on path D meant early retirement and a healthy investment portfolio (i.e. personal savings), whereas relying on a pension available at retirement would have mean't working another 15 years (say until age 55 at least), and SS available at retirement until age 62 minimum.

 

[anethum]

It's gov't pensions (think Illinois or the military) where the already earned pensions of annuitants are being reduced.

I think there is a very big difference between getting a reduced cost-of-living increase in the future, versus an actual reduction in an annuity now. Or a private sector retiree suddenly being told that they will no longer be getting health insurance as part of their retirement benefits. That has happened to plenty of people.

I don't know the details of pension changes in Illinois, but I would not want to be a Detroit, Michigan retiree right now.

 

[Walt34]

The elder law attorney we are dealing with for FIl's issues and now the estate referred to me as a "financial dinosaur" because we do have that 3-legged stool of a COLA'd pension, SS in the near future, and savings/investments. The county government I retired from is financially stable, the pension is fully funded, but my crystal ball is as cloudy as the next guy's. Nothing is guaranteed.

While the savings/investments are decent, it certainly is not enough to support us in retirement unless we suddenly developed an affection for cave-dwelling, noodles and rice. While I would like to see more there, I also had to start over from scratch at age 35 because of the divorce.

And while we do have HI through them (I pay 30% of the premium) they have always maintained that while they intend to keep it, they can and may eliminate that in the future for retirees so we don't take that for granted. So there's that sword hanging overhead too.

But this was the deal they made when I started there in 1973.

 

[Spanky]

For some people we had a choice on this in our actual situation. That is, when DH retired he had the choice of receiving a pension or have receiving actuarily same lump sum which basically becomes like personal savings. In his case, he took the lump sum. (One problem I had with the poll was that it talks about a pension, but doesn't address the situation where one could take a lump sum).

We were in a similar situation. I pick c (SS-> savings).

 

[Danmar]

Que horrible!

Yes, if I leave anything I would rather it be a conscious decision (before I die) and spend while I am alive accordingly.

 

[youbet]

I think there is a very big difference between getting a reduced cost-of-living increase in the future, versus an actual reduction in an annuity now.

Not as much as you're implying. If one's retirement was based on having a COLA'd pension and that COLA is reneged on, the prudent annuitant begins spending less of his pension now in order to have a larger portfolio to use for withdrawals to offset inflation later. If the annuity monthly payment is reduced now, the annuitant spends less now. Either way, the annuitant spends less now.

In any case, the point is that the annutant worked X years under a contractual relationship that called for some value of pension. After retiring, the employer said "oh sorry, I was just kidding" and reneged.

I experienced the same situation as you. I worked for a MegaCorp which froze the DBP pension and transitioned to a 401k only situation. I didn't like it but at least the situation didn't effect the the pension I had already earned up to that point and I had my remaining years until retirement to react. It would have been worse for them to not announce a change and then, after I retired, told me I'd be getting less than expected.

This "who's getting screwed worse" can be batted back and forth all day long. The fact is that change, especially near or during retirement, makes it hard to plan and can make a good decision into a bad one. I don't wish it on anyone.

 

[youbet]

yes, if I leave anything I would rather if be a conscious decision

My guess is that you, in death, won't have enough consciousness to give a sh*it one way or the other........ If you do, come back and let us know!

 

[Danmar]

My guess is that you, in death, won't have enough consciousness to give a sh*it one way or the other........ If you do, come back and let us know!

Not sure what you are getting at? I would like to plan any bequests well before I lose consciousness and also plan my remaining spending (also well before I lose consciousness) accordingly. If I gave the impression this planning would be postmortem, I apologize.

 

[Calico]

Two things:

1. Anyone who has Social Security at the beginning of retirement has not retired early.
2. This is aim-high's first post. How long will it take before the annuity ads commence?

Aim-High has been posting since August 2013, and has 90+ posts.

 

[Katsmeow]

Your suggestion of splitting things up with 1/3 in each is biased towards expecting an unusually long lifespan, so it's not the optimal choice.

This wasn't my suggestion. I was explaining to someone else that that is how the OP had set up the question. That is all of the choices weren't meant to be the same NAV.

From a personal standpoint, I would prefer to have SS and personal savings which is what we have. DH actually could have a pension but chose a lump sum instead.

 

[growing_older]

Well, there are complications inherent in the question.

When I worked for companies that had a pension plan, I was included. There was no choice. When those companies "revised" their plans to pay out a miniscule token amount in place of the pension promise, there was also no choice. I'm glad I didn't count on a pension for retirement, as I would have been very disappointed by what happened.

Likewise I have no choice about participating in Social Security. Have made my contributions, I prefer to get my benefits, but if I had had a choice I would have preferred to invest the money myself. It was not a choice that was available.

 

[Danmar]

Well, there are complications inherent in the question.

When I worked for companies that had a pension plan, I was included. There was no choice. When those companies "revised" their plans to pay out a miniscule token amount in place of the pension promise, there was also no choice. I'm glad I didn't count on a pension for retirement, as I would have been very disappointed by what happened.

Likewise I have no choice about participating in Social Security. Have made my contributions, I prefer to get my benefits, but if I had had a choice I would have preferred to invest the money myself. It was not a choice that was available.

Good point. When I retired I had a choice of rolling my retirement allowance into an enhanced pension. This I did. This greatly increased my pension. I am glad I chose the pension as the increase in annual pension I am now receiving ended up being almost 10% of the retiring allowance? There was a 5.5 year period from retirement to pension start. In today's low interest environment this turned out to be a very good decision. Annuitized income is a great foundation for retirement.

 

[samclem]

I have many friends who are federal employees and a few who are retired federal employees. . . . Many of them have a sense of entitlement concerning their very generous benefits.

In general, when one person agrees to perform tasks for another person in exchange for compensation, they are entitled to that compensation upon performance. It is more than a mere sense of entitlement. The employee is legally entitled to that compensation in most jurisdictions.

Yes. Anethum's friends probably feel entitled to their benefits because they actually are entitled to them. They earned them.

I experienced the same situation as you. I worked for a MegaCorp which froze the DBP pension and transitioned to a 401k only situation. I didn't like it but at least the situation didn't effect the the pension I had already earned up to that point and I had my remaining years until retirement to react. It would have been worse for them to not announce a change and then, after I retired, told me I'd be getting less than expected.

Your experience seems to be the way most private employers have done things when they changed their systems from DB to DC. Maybe this is what anethum is characterizing as "pension plans completely disappearing overnight." Employees experience it as a cut in the anticipated value of the pension benefits they will accrue in the future, but their already-earned benefits remain unchanged. It's bad news for most employees, but at least they are free to make adjustments (including a new employer) going forward. That's very different from reducing retirement benefits that have already been earned (something that does happen sometimes in the private employment sphere, especially for high-earners when an employer goes bust and the PBGC gets involved)

 

[haha]

The two are not comparable. The COLA reduction one party has the resources to pay but breaks the contract after the other has fulfilled the conditions. Private pensions go broke but none to my knowledge have done this.

This depends heavily on what you mean by "has the resources to pay". It is fairly obvious that unless the federal govt starts modifying various entitlements we do not actually have the resources. Our continual huge deficits speak loudly about this. From a simplistic bookkeeper's POV, perhaps we do, since the theoretical taxing power of the feds is endless. From an economic POV, we are already far behind the 8-ball.

Ha

 

[Chuckanut]

Regardless of where one falls in the pension debate, I think we have to realize that any corporation or government entity that is in bad financial shape, is most likely not there ONLY because of the employee pension plan.

I find it hard to believe that a company or government entity that is having problems funding its pension system, did everything else with great honesty, accountability and precision, but somehow all those skills evaporated when it came to the pension plan. It is most likely there was gross mismanagement in many areas that lead the problem, not just pensions. I offer Illinois and the 'old' General Motors as two prime examples.

We should all be wary of setting precedents for retroactively taking away the benefits of a person's labours. Remember this quote from A Man for All Seasons

"What would you do? Cut a great road through the law to get after the Devil? ... And when the last law was down, and the Devil turned round on you – where would you hide, Roper, the laws all being flat?"

 

[anethum]

I think there is a very big difference between getting a reduced cost-of-living increase in the future, versus an actual reduction in an annuity now.

Not as much as you're implying. If one's retirement was based on having a COLA'd pension and that COLA is reneged on, the prudent annuitant begins spending less of his pension now in order to have a larger portfolio to use for withdrawals to offset inflation later. If the annuity monthly payment is reduced now, the annuitant spends less now. Either way, the annuitant spends less now.

You left out my next 2 sentences in quoting me. I wrote:

I think there is a very big difference between getting a reduced cost-of-living increase in the future, versus an actual reduction in an annuity now. Or a private sector retiree suddenly being told that they will no longer be getting health insurance as part of their retirement benefits. That has happened to plenty of people.

Suddenly losing company-provided health insurance in retirement is far more detrimental to a retiree's finances than merely receiving a smaller COLA in retirement in the future. What might happen to Detroit municipal retirees could be calamitous to their lives. A 1% reduction in the amount of an increase is not calamitous.

 

[RockyMtn]

The fact that I have A was the motivating factor to ER when I did. I had enough in personal savings to fully fund my chosen lifestyle for life. Having a pension and SS coming at 65/66 that will cover close to 100% of my living expenses is the piece of mind that I needed to pull the plug on w*rk.

 

[Meadbh]

Aim-High has been posting since August 2013, and has 90+ posts.

Please see my apology in post #34.

Pardon me, I made an error. I mistook post #1 in the thread for post #1 of the poster. Still unfamiliar with the details of the new app. Apologies, aim-high!

Sent from my iPad using Tapatalk

 

[Chuckanut]

I offer this to help get this thread back onto track. In order to diversify my sources of income I went so far as to buy 5 more years of service to get my pension closer to 1/3 of my retirement income (after SS begins). Most people thought the cost was to high, (which it probably is) but I view the price as long term insurance. My 2 ¢.

 

[timwalsh300]

...But in either case, those types of actions are good reason to have your personal retirement savings completely under your control and substantial. No one cares about you like you. Not the owners at work, not the polticians you elected, not the public. Watch out for yourself.

Well said; this sums up my argument for voting #4: personal savings. Retain the option to invest, withdraw, or annuitize as much as you want. I struggle to understand why so many people are voting otherwise, unless they are interpreting the question differently.

A majority of people here would actually prefer to have a large portion of their savings managed by politicians or executives at a previous employer, rather than managing it for themselves?

Tim

 

[rescueme]

I wonder how many pensionless people really would buy an annuity to create the third leg.

I would (and I did) at age 59 when I retired, in 2007.

It was part of the plan before I retired, not as an afterthought.

In my/our case (it's a joint life SPIA with a guaranteed payout), the intention was to provide a private pension (I didn't have one), in order to provide an income base beyond our investment portfolio, and allow us both to delay SS until age 70.

How did it work out, some 6+ years later? Well, I reached FRA yesterday , DW will do so in May. In mid-March, we'll go to the SS office to submit my file/suspend and at the same time DW will submit a restricted application to claim 50% of my FRA benefit when she reaches FRA in May.

BTW, one of the concerns was when I/we applied for the SPIA was the then reduced interest rates. Who would have thought that the rates would have actually fallen, and stayed there for an extended period of time (so much for luck ).

While the SPIA was purchased with the intent to provide a floor income for the 11 years between retirement and drawing SS, it worked out better than expected. After we both draw SS in four years at age 70, that SPIA will just be icing on the income cake for the rest of our years.

In answer to your comment - yes there are some people that will purchase an SPIA to create that third leg (and very happy they did)...