If you're nearing the end of your career and, like many members of your generation, grew up with aspirations of achieving the "three-legged stool" for retirement (pension, savings, and Social Security), you may be wondering what to do after receiving word that your pension may not be as healthy as you'd hoped. What should you do to recalibrate your plans? Read on to learn more about some of your options when planning for retirement while taking into account a shaky, underfunded, or otherwise unreliable pension plan.
What Will Happen If Your Pension Is In Danger?
If you've been relying in part on your pension when planning your finances in retirement, you may be worried that any reduction in your benefits could prevent you from ever being able to retire. In some cases, the continued availability of personal savings and Social Security benefits may be enough to tide you over; but even if not, you're not without options.
When pensions begin showing signs of insolvency, the pension administrators may be required to come up with a plan to ensure continued benefits for those who are currently vested. This can mean anything from increasing deduction rates for new and current employees, increasing the amount of time toward vesting, making an across-the-board cut in benefits, or other actions that can bring more money into the pension fund while limiting its outgo.
Because most employers are extremely reluctant to reduce benefits for those who have worked hard for many years in reliance on a pension, many of these structural changes are designed to make it harder for newer employees to vest in the pension (giving up their own contributions if they leave employment before vesting) rather than reducing benefits. This may mean that, even if your pension seems to be in trouble, it won't have an impact on the funds you receive.
What Are Your Options?
One of the most prudent steps you can take upon receiving news that your pension fund is struggling is to increase your savings rate. While you can't control the way your pension is administered, you can control how you save and invest your own funds, and having an outside source of retirement income can provide you with the flexibility you need.
You may also want to consult a certified financial planner for assistance. When you have just a few years until retirement, your investment horizon is much different than that of someone just starting out in the workforce, and a financial planner can ensure your funds are invested in a way that preserves principal while maximizing gains. For more information and help with this situation, contact an accountant or other money service professional, like Dale K. Cline, CPA PLLC.