Kiss Pensions Goodbye
If you are in your 30’s or 40’s, you might have grandparents who are comfortably living off the pensions and social security. Guess what, none of these might happen when you grow older.
When I did my retirement plan a while ago, I didn’t count the social security simply because of all the troubles the government has been through in recent years. However, I did count on my company’s pension plan. After working for nearly 10 years at my current employer, my pension account is half size of my 401K. (Yes, I have been contributing max allowance towards my 401K in the last a few years and 6 - 9% before that). I figured that with both my 401K and pensions, I’d be golden when I reach my golden year. My Roth IRA income can be my PlayStation-52 play money.
Well, am I wrong this time! My company HR just informed all employees that the company will no longer fund the Pension plan after 2008. Instead, they will contribute extra 2% towards our 401K and match dollar for dollar for the first 6% of the pay. What’s the savings here? More than 6 f$%#ing billion dollars for the company! So my sweet dream of relying partially on pension has just gone out of the window.
If you are on the same boat, it’s time to re-evaluate the overall retirement plan. Every financial advisor wouldl suggest you to do the following:
1. Contribute max $14000 a year to your 401K. You can take advantage of the company match as well as the tax savings.
2. If you have money left, contribute max amount to Roth IRA. It was $4000 last year. You don’t pay tax on capital gains when you cash the money out 30, 40 years later. So it’s free income for you.
3. Setup automatic transfer/deduction plans so you don’t even see the money every month.
4. At bare minimum, save 15% - 20% of your gross income towards retirement.
After all, if you are giving up on the idea of marrying a Sugar Daddy or Sugar Mommy, you are really on your own when you get old with no income.
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POSTED IN: Fabulous Work Life Balance
5 opinions for Kiss Pensions Goodbye
Duncan
Jan 11, 2006 at 1:23 am
I’ve always found the American retirement system bizarre to be honest. Most of the Western world know s that an aging population = governments not being able to pay pensions and yet the US does nothing about it.
In Australia we have Superannuation, and since the mid 80’s its been compulsory for employers to contribute a percentage on top of employee pay towards a super fund, today its 9%. So basically everything we get paid (and our minimum wage here is now abour $14 AUD, rought $11 USD) we then get 9% on top of this paid to a Super fund. Older people can access there funds at 55 but after 1960 for memory you’ve got to wait till 65 for men and 60 for women to access these funds. They get managed like managed investment accounts, and with some providers you can choose what your money goes towards, for example my money gets split between cash, australian shares, australian property and international shares. The idea basically is you’ll end up with a big pool of money which has also earnt better than interest rates along the way to retire on. When you do get to retirement you can cash it all in or have it paid to you like a wage so your set and more importantly you don’t have to rely on the Government for a pension.
Christine(Yuna)
Jan 11, 2006 at 9:02 am
As an American who’s lived in Canada and other parts of the world, I really don’t get our healthcare system and our retirement system. The whole social security idea of charging 7.65% from inidividual and another 7.65% from the employer to fund the existing retirees just doen’t work anymore. When my generation gets older, we don’t have enough younger workers to support us… Government has been shouting and yelling for years but did nothing to fix it. Companies just kept on cutting retirement funds and push responsibilities to the workers.
I really don’t know how my generation is going to retire 30, 40 years from now. Not all of us make enough to fund our retirement accounts. And too many of us blow money on XBOX and exotic vacations and Starbucks coffee … It’s a real problem.. And I hope my fellow Gen Xers and Gen Yers do realize that we are truely on our own.
Shumin
Jan 13, 2006 at 12:45 am
Actually, I think the american social security system is a perfect example of democracy at its worst (marjority of the voting population screwing the rest). You have the retired and soon to retire over the younger generation. The current retirees have contributed less into the system then they are getting paid, but no politician would dare to reform the system in such a way as to cut benefits to the loyal voting population (hey, if you have nothing to do, getting out on voting day isn’t as much of a drag).
So what do we do?
1) Vote!
2) Start having lots of kids and make them pay. After all, isn’t democracy about self-interest? …yes, I’m being sarcastic.
Aging Fabulous » What I Found This Week
Jan 13, 2006 at 9:41 am
[…] Blog Fabulous is talking today about something that I knew would disappear when I got old enough to want to use it. All of that pension money that the government has been deducting over the years. There is a pretty good chance it won’t be around when I get old enough to claim it! […]
Christine(Yuna)
Jan 13, 2006 at 10:04 am
I’d vote for privatizing SS and desposite the 7.65% we paid back in our own accounts!Oh, and plus 7.65% employers are required to pay. If you do the matth,with more than 15% of savings from every year’s paycheck, you gotta be able to retire… But too bad that the money went to support someone I have no idea about and I am hoping one day some strange kids can support me.. Why just let us support oursevles??!!!
Yeah.. Vote.. and Vote!!
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