![]() and it’s expected to get even worse over the next several years. Currently, they are more than $48 billion in debt. But even the PBGC is facing its own financial problems. This federal corporation takes over pension plans when the company that offers the pension plan (or plan’s sponsor) can no longer provide the benefits they promised to their employees and retirees. 4, 5īack in the 1970s, the government made a safety net for workers and retirees by creating the Pension Benefit Guaranty Corporation (PBGC). Sears and General Electric have made national headlines over their struggles to meet their end of the deal. 3Īnd then there are workers and retirees wondering whether or not they’ll be getting their pensions at all because their companies are going bankrupt or facing financial problems. Department of Labor, there are hundreds of pension plans across the country that are in danger of being unable to meet their pension obligations. First off, many pension plans are either underfunded or in danger of becoming underfunded. There’s another problem: Pension plans are not always a sure thing-not anymore. Many pensions also don’t adjust for inflation, which means as the years go by and things get more expensive, your monthly checks won’t be able to buy what they used to.īut that’s not all. Just look at state pension plans, which have an average rate of return of between 7–8% while the stock market averages between 10–12%. But there’s a flip side to that: Investment returns for pension funds usually underperform the stock market. You’re also not responsible for investing the money or any of the costs of managing your investments-that’s on your employer or whatever company is running your pension plan. Some folks hear that and think “financial security.” And there is something reassuring about that. So the biggest advantage of the lifetime monthly benefit is pretty obvious: You’re going to have a steady income stream for the rest of your life. Simmons! What are the advantages and disadvantages of a lifetime monthly payment? Simmons figures out he will receive $2,500 each month for the rest of his life from his pension. Divide that annual benefit by 12 months and Mr. Simmons will be getting $30,000 each year from his pension. STEP 3: $30,000 lifetime annual benefit / 12 months = $2,500 monthly benefit STEP 2: $1,500,000 x (2% benefit multiplier) = $30,000 lifetime annual benefit So now all he has to do is plug in the numbers: Simmons’ average final salary over the last three years was $50,000 and the pension plan uses a 2% benefit multiplier to figure out what someone’s annual lifetime benefit will be. He’s planning on taking the monthly lifetime benefit, but now he’s wondering how much money he’ll receive from his pension each month. Now he’s ready to call it quits and move to Florida like he’s always dreamed about. He’s a teacher who just turned 65 years old and he’s worked at the same school for 30 years. So let’s go through an example so you can see how this plays out in real life. (Years of Service) x (Your Final Average Salary) x (Benefit Multiplier) So what’s the actual formula? Here it is: This is just a percentage (usually between 1–2%) that pension plans use to figure out the size of your benefit. Some places will take the average of the three to five years of your highest salary and use that number instead. But in most cases, companies will use your final three to five years of salary in the formula. Depending on what state you’re in, this number might look a little different. Pretty straightforward! The longer you’ve worked at your company, the larger your monthly benefit will be. If you worked at the company for 25 years, that’s the number that will be used in the formula. How is that amount calculated? In most cases, pension plans will use a formula that looks at three things: And yes, you do need to pay taxes on your pension payments. So if your monthly lifetime payment is $1,000, then you’ll get $1,000 each month like clockwork. The monthly benefit will always be the same amount each time. Traditionally, this is how pension plans-also called defined-benefit plans-usually work. If you choose your pension plan’s monthly lifetime payment option, that means you’ll get a benefit check every month for the rest of your life after you retire (kind of like an annuity). Don’t worry, we’re going to walk through your options together so that you can make the best choice for your retirement future. We get it! It’s a big decision, and you want to make the right call. Maybe that’s the choice you are facing right now and you’re not sure what to do. #If food planner pro monthly or one time purcahse proMarket chaos, inflation, your future-work with a pro to navigate this stuff. ![]()
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