Pension Smoothing, Potholes and Pork

Generally I keep politics out of this blog. Then I heard about pension smoothing. It is the latest sleight of hand trick in government and don’t worry, it is equally loved by all political parties and even many labor unions. On the surface it appears to be a victimless maneuver only affecting the millions of people counting on a future pension payment from American companies. So, what is pension smoothing?

Simply put, pension smoothing allows companies to defer making mandatory contributions to defined benefit pensions plans in order to use that money for any reason they choose. Pension smoothing was added to a recent transportation bill that covers repairs to highways, bridges and subways saving the Highway Trust Fund from bankruptcy. Just to make the entire situation more complicated, in addition to funding the highway work, this bill also saves 700,000 American jobs.

Here’s the risk: To solve the short-term issues of maintaining the nation’s road infrastructure; companies do not have to fully fund their pension plans which may mean more plans won’t have the money to meet their obligations to pensioners later. According to a survey by Pensions & Investments, a money management newspaper, the largest 100 U. S. pension plans were underfunded by $122.3 billion in 2013 and that was an improvement!

Companies today put much of the retirement burden on the employees by focusing on 401(k) plans where workers cobble together a DIY strategy to save for the future. However, there are millions of employees counting on employer-paid defined benefit plan payouts for at least a portion of their wealth when they are too old to work. Pensions are in trouble as city and municipal workers in Detroit, Stockton, CA along with Pennsylvania school districts and other public employees across the country realize. Private sector pensions are no better as the retirees of Hostess Brands, who bring us Wonder Bread, Twinkies and other goodies, learned in 2012 when the company filed bankruptcy. The PBGC, Pension Benefit Guaranty Corporation, a government agency had to step in and rescue their plan.

The concept of the PBGC is itself an oxymoron. The same Congress that is encouraging companies to delay funding their pensions has a safety net for 44 million workers covered by defined-benefit private pension plans, the PBGC. When private sector firms cannot meet their liability, the PBGC pays an amount less than the company-promised benefit, but it is something. The problem is that in their July 3, 2014 annual report, the PBGC says it is “90% likely to run out of funds in 2025.” The biggest birth year of Baby Boomers will be 68-years-old in 2025 with plenty of life ahead of them, but maybe not as many job prospects.

The Early Retirement Myth, Part Two

Early feedback from part one of this series was clear, retiring early is a myth of youth. The more years we work either as an employee or an entrepreneur, adults realize retiring at forty or fifty-five years-old is an illusion. An e-mail I received this week summed up the myth, it read:

“...if you have the smarts, passion, energy and focus

to achieve the financial resources needed to retire at 45 or 55

and live another forty years; you are by definition a driven person.

The same goal-oriented, successful individual is not going to be

satisfied with what you term a “3-G” retirement...”

Many times “early retirement” is a euphemism for trading in an unsatisfying job or career for work that is more meaningful and rewarding. It is not about ending employment to spend forty years on the beach relaxing; it is about reinventing yourself and discovering happiness in the second half of your life. Life after fifty looks different for everyone and the options are endless. You can continue to work if you like your job and the company values the expertise of mature employees. There are more options to work from home as technology improves or to have a flexible work schedule if you must go into an employer’s building. All of these changes make it easier to continue working into your 60s and 70s if you choose.

Over the years, I began to view the retirement life stage more  holistically including health, financial well-being, satisfying relationships, meaningful activities whether they are paid or unpaid, physical activity and spirituality. As the global economy sputters towards recovery, the financial impact of retiring early cannot be ignored. According to the Census Bureau in 2010 nine percent of U. S. senior citizens lived in poverty. A global income study, Elder Poverty in an Ageing World, by a team of researchers (Smeedling et. al) was published in 2008. In their study, the United States had 25% of seniors over age 65 in poverty leading Australia, United Kingdom, Italy, Germany, Sweden and Canada with 6 percent based on 2000 data.

I know many workers experienced forced “early retirement” through a lay-off, company shut-down and unexpectedly being terminated from employment in their 40s and 50s. “The element of surprise is the worse feeling,” according to one 50+ blog reader that emailed me about their small town plant closing last summer. The human resources professional did not see it coming. New owners acquired the manufacturing plant two years ago and assured the senior management team their operation was performing satisfactorily two weeks before filing the WARN Act (impending plant closing) paperwork. Recently I received an e-mail through LinkedIn. The 54-year-old former HR Director found work at a higher salary after a four month job search, lots of networking and earning certification in her HR specialty. In the past few months, more experienced workers are finding good jobs again. One blog reader recently purchased a franchise after reading the post in July, performing their research and contacting Jim Gleason.

http://workinglater.blogspot.com/2012/07/buying-franchise-is-it-right-for-you.html

Maybe early retirement is an oxymoron. What is your plan for your life after work? Retiring early? Share your views in the comments section anonymously if you prefer.  I'm interested in hearing from you.

 You have 168 hours, make it a great week!

The Early Retirement Myth

                           The Early Retirement Myth: Why I am Not Retiring Early
                                                    and Neither Are You

I have a friend named Fred who constantly asks me when I’m going to retire. This is simultaneously a compliment and it is annoying. It is a compliment because obviously Fred imagines as a single mom/head of household for nearly twenty years; I am financially savvy enough to make the numbers lineup to retire at age 55. It is equally annoying because:

(a) The numbers are FAR from lining up despite my best efforts

(b) I enjoy working and the social engagement that comes from interacting with others

(c) With my genes I could easily outlive the Institute of Medicine’s forecast for U.S. women’s life expectancy of 80-85. My grandma died at home in her sleep at 104 of no particular disease and other family members are living well past IOM’s predicted expiration date

(d) All of the Above.

At forty-three years old, Fred has a rockin’ career, 2.0 young children, a wife, suburban home and seems to be on the trajectory to “Dream Street.” He assures me when he’s my age—he’s closing his office door for a life of 24/7/365 leisure. With a 401(k) approaching seven figures, Fred thinks his future is going to be an endless vacation. This is the point when I bring out the stick pin to burst the bubble of Fred’s Early Retirement Fantasy. If you are reading this in your 40s (and I know some 20s & 30-somethings read this blog even though I tell them there are secrets spilled here you have to be at least 40 to comprehend), let me guarantee you this: Barring some extraordinary life event, 99% of employees and business owners will not retire by choice at 55. There is a good reason for this. Fred, take notes.

Most of the people who talk about early retirement only focus on the financial aspects. From researching and interviewing people who have retired well and marginally before starting this blog; the happiest retirees approach leaving work from a holistic perspective. If you aspire to the traditional 3G retirement lifestyle of Golf, Grandkids and General Practitioner with no extra revenue being earned; it is very expensive. In 2012, according to Fidelity Investments, a 65-year-old couple is estimated to need $240,000 to cover out-of-pocket medical expenses not covered by the Medicare plan in place today. Imagine carrying the weight of all your family's health care needs on your broad shoulders at 55—you might even still have kids in college!

When I was consulting a financial planner in the roaring 1990s—she said I would only need 70-80% of my income when I retired. What did she expect me to give up? Driving? As I was shredding her proposal a few nights ago, I realized her projections were before Starbucks, iPhones and DirectTV were even in my budget. Anyway, the retired people I interviewed said in the early years of their retirement, they spent much more than when they were working. Many retirees wanted to travel and never had time when they were employed full-time. Other retirees found time to indulge in hobbies and it cost money to pursue these activities—even gardening can become pricey. You have your first grandchild and lose your mind buying “stuff” even the most boring grandparent will donate money to their namesake’s College 529 plan. Uber-cool grandparents splurge on the $$ (not available in stores) 6V Hello Kitty Quad ATV scoring it on eBay.

It doesn’t matter how much is in your 401(k) in 2013 or if your company is the rare one with a defined benefit pension plan. At fifty-five you’re walking away without the full company benefit that kicks in at 62 or 65 anyway. If Fred thinks he can retire at 55 and then cruise into Social Security with a reduced benefit at 62—oh please! When he turns fifty and joins AARP their website will warn him of the folly associated with that strategy. Claiming social security benefits early is the right choice for only certain situations. Still not convinced? In Part II we’ll cover that other non-financial reasons, you may want to nix the early retirement idea and think again. Forward this to someone!

The Best Free Retirement Advice You Will Ever Receive

 "In the business world, the rearview mirror is always clearer than the windshield. " Warren Buffett

 After reviewing the financial literature on retirement, interviewing 60 to 80-year-olds retired from two to eighteen years and observing the national and global economic and political landscape closely; I can distill my retirement advice to you in one word: DON’T. And while, I am sharing advice you did not ask for and may not want to hear, there’s more. Remember the financial advisor who told you that once you stopped working, you would need 60-70% of your working income to live in retirement? My 70-year-olds said, “Fire that guy!” Between out-of-pocket health care cost, fluctuating gas prices and having lots of time on their hands to go places and do things; the 70+ crowd tells me their expenses are the same if not more than when they worked.

If you have a job you enjoy, stay there. If you have a job that is tolerable and you have health benefits and a safe work environment, hang in there. If you like your work, but not the people running the company---stay there too, unless it is family-owned; your senior leadership team will probably get promoted or recruited away by some other unsuspecting firm. If you hate your job, have pangs of anxiety on Sunday night thinking about the week ahead or are planning to fake your own death because you are running out of PTO; then by all means start networking, post your resume on LinkedIn and look for a new job.

The Case for Staying Put

The Bureau of Labor Statistics (BLS) numbers for June 2012 were released last week and fewer workers 55+ were unemployed (6.2%). The summary from BLS says, “Recent history has shown greater employment stability as age increases.” Don’t believe that for a minute! The truth is—those workers 55+ gave up looking for a job because no one would hire them. Remember the unemployment numbers count people actively in job-search mode and receiving unemployment compensation from their state. I know people 55+ that piece together a living working 2-3 part-time jobs unable to afford benefits at any of them. They are not technically unemployed and not reflected in the BLS data. What happened to the 55+ workers not in the labor force?  Some participate in the “underground economy” working for cash, others start their own business, and some are supported by their families until they reach age 62 and begin collecting a reduced social security benefit while others tap into their 401(k) accounts incurring early-withdrawal penalties if they are not 59.5 years old. In February 2010 nearly half (49.1%) of the 55+ workers were unemployed over 27 weeks. Now, it takes over a year for workers age 55+ to find a new job (approximately 56 weeks).

So you are younger than 55 reading this and thinking, this does not apply to me. Think Again! Are you 45-54? 6.3% of your age group was unemployed in June 2012. The BIGGEST LOSER of my readers? The 35-44 year old suffered 7% unemployment. It may be partly due to the Age Discrimination in Employment Act (ADEA) defining workers  40+ as a protected class---so in job actions (i.e. downsizing, lay-offs, reorganizations, and reductions in force) an adverse impact analysis is performed by the company or their third party consultant to minimize legal action. The 35-39 year olds are not protected and it may skew the 7% number.

Take a look at these newly released numbers from the Federal Reserve: From 2007 to 2010, the wealth of the average American family plunged by 40 percent, taking it down to the levels of the early 1990s. That's not just for 40+ people-that impacts everyone!

Here’s my point: The employment situation is similar to a game of musical chairs right now. If the music stops, you want to have a chair (job) and if you are left standing and you are older---your time on the sidelines becomes a lot longer.  AND, when you do get back into the game; it may be in a part-time job; 1099-contractor employment situation or as a temporary worker. Most experienced workers at 40+  find their salary drastically reduced after a period of unemployment. BLS economists call it underemployment.

I have a friend that just started a fabulous new job at age 60-great salary, company car and all the perks. That is the exception, not the rule. She networked and found an organization that valued experienced workers. Even then, it was an ongoing process. My friend met the guy who recommended her for the job several years ago and when this position became available recently; he thought of her first.

What is an experienced worker to do? Let me know your thoughts in the comment section below. You may comment anonymously, if you prefer. And remember to "follow" the blog and receive automatic notification when there's a new post. Follow me on Twitter: @workingover40. I'll follow you too.

Why You May Not Be Retiring

Don’t order that gold watch just yet!  You can also postpone the cruise you were planning, keep the hammock packed up and tell your boss to delay your “surprise” retirement party for about five years. That’s the result of the “SunAmerica Retirement Re-Set™ Study” released last week. In this nationwide survey of pre-retirees and retirees age 55+ the concept of retirement has changed significantly and I don’t think we should be surprised.

The bottom-line is 54% of the respondents in the 2011 survey viewed retirement as a new chapter for opportunities in their lives. In 2001 only 31% held that view. Retirement a decade ago was looked at as a time to “wind down.” In addition to the financial aspects, 2/3 of those surveyed wanted to remain productive, active and connected with some type of “job” as the primary means to accomplish those goals. Lastly, pre-retirees planned to delay retirement until age sixty-nine.

Unexpected health problems and job losses forced many of the current retirees surveyed to leave work earlier than planned. In the current survey, SunAmerica renamed their four profiles of retirees: Ageless Explorers-Cautiously Contents-Live for Todays and Worried Strugglers. Use this link to access the study and see which category fits you.

http://retirementreset.com/wp-content/uploads/2011/07/M5124RPT_07111.pdf

While SunAmerica is interested primarily in the financial aspects of retirement, there are other considerations as well. Where will this new generation of “never say retire” workers find a job? The brain drain of Baby Boomers was supposed to be a risk for employers, but they seem all too eager to replace 47-65 year old Boomers with GenX, Gen Y and Millenials. The prestigious company names where Baby Boomers built their careers and resumes are handing out severance packages (for the lucky ones) like Halloween candy. Many large corporations replace the intellectual capital and maturity experienced workers offer. Privately, HR professionals and workforce planners offer a host of reasons from perceived employee benefit costs to tension between Boomers and workers of later generations as reasons mature workers are offered “a package”. I’ve also talked to younger managers who say they don’t feel comfortable with older workers reporting to them. Their reasons varied.

So if you feel good and want to earn money by working longer; it is important to find companies, industries and managers that embrace experienced workers. Despite lists that profess to have found the “Top Companies for Baby Boomers” or “Best Companies for Senior Employees” these have to be reviewed critically like any other “Best” list. Department to department and manager to manager, companies change. The list ranks the overall policies and hiring practices. A new term, “Encore Career” combines mature workers, earning a paycheck, doing work that is meaningful to them with flexible hours. Some sectors to consider for your “Encore Career” are health care, membership organizations/associations, nonprofits, educational services companies, companies that provide services to older people and smaller companies. Perhaps a lower level role within a large global corporation is a possibility if it is in the same industry as your primary career (the hiring manager may have to challenge HR to bring you in). Some state and local governments still have opportunities and there’s always the possibility to experience entrepreneurship. The opportunities are as varied as franchisee, independent consultant, proven multi-level marketing organizations to opening an independent business. Go For It! Take Your Encore!