change in pension plan

[bettymae1121]

Smartest thing I ever did was to start my 401k at age 23. My company has a 3% match and an 8% descretionary annual lump sum contribution (which I've gotten every year I've been here, including last year though it was cut to 5%. This year it should be back to 8%). I put in the 3% to get the match my first few years then bumped my part up to 6%. Now at 34 I've got a decent amount started, if I change nothing and I get a 7% average annual return I'll retire with $2M when my DH's 401k is figured in (he got a later start, it difference in what we each have is amazing!).

Most of my friends who are also in their early-mid 30's haven't even STARTED yet. The excuses are real, it's hard to argue with someone that they should save for retirement when they are just barely getting by as it is, but if it's a struggle NOW, what will it be like when you're 65?

 

[abmitch01]

I thank God I started saving when I did and that I invested aggressively for the long term. I just upped my 403B contribution today. Every time I do that, I find I don't really miss that money if I never see it.

I think I'm going to give personal finance books from now on as graduation gifts.

 

[wdwfan16]

Interesting topic in DISboard.

IMO, DB plan is a dying breed. If it wasn't because of union, pension would've been long gone.

I work for a retirement service company. We sell both DB & DC services but only for institutional clients. From what I've seen, DB plans are shrinking slowly but steady. Many company either freeze their existing pension and go with DC or convert their existing pension to DC. That really depends on the plan summary. Each plan is different. Either way has their pros and cons. For employees that has already put in many year of services, typically they do loose out a lot of revenue should their pension convert to DC. IBM was a good example. A few years ago, they convert their pension to DC. A lot of old time employees were not happy about the decision. They filed a lawsuit and IBM ends up convert those older employees back to the tradition pension plan. Verizon is another agony conversion story.

There are also 2 type of pension currently. Tradition plan or cash balance plan. Again, tradition plan can accumulate more money for people already put in minimum 10 years of service or more. Cash balance plan is good for people who only has a few years of service or start from scratch. While tradition plan might sound good but if the company your retire from goes out of business so will your pension. Cash balance might not make as much revenue as tradition, but you can take all the pension money out when you retire and put it into a tax shelter instrument. You might not make as much money but you will have control of the money.

As for why so many people won't put money into their 401k, that's just bad decision all the way around. My company spend some much time, effort and money to educate employee why they should save. That's the key. Education and communication. Even if you can't afford to save at what the maximum contribution allow, currently it is $16,500 per year. At the very least contribute to the maximum match. That's basically free money from the employer. If employees are not contribute to their full potential, their service provider should communicate and educate the employee more aggressively like setting up workshop a little more often.

How to manage the investment is another headache. It's all depends on how well your retirement service provider and your employer communicate with you on how to invest and what's your investment strategy should be. If you are young, be a little more aggressive. As you get older, be more conserve. There has to be a balance some where.

Don't forget. If you change job, in many case, you can take your 401k balance with you and put it into some kind of tax shelter instrument like IRA.

Bold - The year you turn 50 you can do additional catch-up contributions. For 2010 that amount is $5500 for a max of $22K.

If the company does not do a match a 401K may not be your best retirement vehicle. If you are eligible a ROTH IRA might be a better place to put the money. If you max out both spouse ROTH then putting into a 401K is recommended.

Another problem with 401Ks is there are limited choices for your money and some companies have horrible options for the money. An employee need to weight the tax deferred 401K options and the taxed options with are every vehicle.

 

[topdog]

Smartest thing I ever did was to start my 401k at age 23. My company has a 3% match and an 8% descretionary annual lump sum contribution (which I've gotten every year I've been here, including last year though it was cut to 5%. This year it should be back to 8%). I put in the 3% to get the match my first few years then bumped my part up to 6%. Now at 34 I've got a decent amount started, if I change nothing and I get a 7% average annual return I'll retire with $2M when my DH's 401k is figured in (he got a later start, it difference in what we each have is amazing!).

It would be awesome if you can reach the $2M mark by the time you retire. I study participants' account balances statistics for over a decade. I have yet to see any one would reach the $1M mark other than a small percentage of the highly compensate employee.

Sadly, the national average retirement account balance is some where between $50k to $72k. I have seen so many are only in the few thousand dollar range. Scary!

 

[abmitch01]

anyone know roughly what you'd need to have accumulated by 40 to retire with 2 mil? assuming a 7% rate of return

 

[topdog]

anyone know roughly what you'd need to have accumulated by 40 to retire with 2 mil? assuming a 7% rate of return

This is a rough estimate with a linear compound interest calculation.

Assuming one have about $160,000 account balance and save about $16,500 per year starting at age 40 with a 7% ROR. It's possible the $2M mark can be reach by the age of 65. That's with no match.

 

[abmitch01]

thanks!

 

[LindaBabe]

This is a rough estimate with a linear compound interest calculation.

Assuming one have about $160,000 account balance and save about $16,500 per year starting at age 40 with a 7% ROR. It's possible the $2M mark can be reach by the age of 65. That's with no match.

TopDog, Man! I can't TELL you how much I wish I had read this thread when I was 20! We did ok - much better than our parents - in the saving for retirement department, but I don't mind telling you - I'm a little spooked by the prognosis for the future and wish we'd saved more. (retired - 2 yrs)

 

[topdog]

TopDog, Man! I can't TELL you how much I wish I had read this thread when I was 20! We did ok - much better than our parents - in the saving for retirement department, but I don't mind telling you - I'm a little spooked by the prognosis for the future and wish we'd saved more. (retired - 2 yrs)

Linda. It's so hard to see what is going to happen in the next 2 years. If you are that close to retirement, your portfolio should be mostly in stable value. Growth rate might be low but it should be steady with minimum risk.

Saving is only half of the game. Invest smart is the most difficult part. I've seen many people just blindly save all their retirement on nothing but stable value. While that might be safe, but it doesn't earn to its' full potential. Here are the basic rule. Young: invest aggressively Middle age: invest half aggressive half conservative Close to retire: invest conservative

I see so many older generation has no retirement at all. I just don't know how they survive.

 

[dvcgirl]

anyone know roughly what you'd need to have accumulated by 40 to retire with 2 mil? assuming a 7% rate of return

Topdog is right in the numbers he gave you. If you have already have 160K....and save 16,500 a year with a 7% return....you'll have 2 million dollars by age 65.

Now, let's say you're 40 (not you...just in general).....and you haven't started yet. Save that same 16,500....and by 65 with a 7% return, you'll have one million dollars.

That's the power of starting earlier. Do you know how many families in America have 160K in their 401Ks....even if they are in their 50s or 60s? Very, very few.

Also keep in mind, that 2 million dollars in 25 years isn't going to spend like 2 million dollars today. You should check out financial calculators that show you what you need to save in "future dollars".

 

[abmitch01]

I use the financial calcs every few yrs to make sure I'm on track but I think I operate mostly out of fear of not having enough so I just keep trying to save more and more. As a hospice nurse who sees patients in their homes, I see how the elderly actually live. So many couples don't have enough to get all of their meds or they can't afford secondary insurance. The poorest elderly can get medicaid, so that helps. And luckily, many of the elderly in the city I work in worked for GE so they do have decent pensions and benefits. But that well is dry for the next generation as those types of jobs are long gone.

One glaring difference is lifestyle. The people I see in their 80s mostly lived modestly. The houses are reasonable in size. They don't live on credit. They grew up with a whole different mentality than we have now.

So I'm trying to live like a retired 85 year old woman with a slight passion for VB and duvet covers. And according to my DD, I dress like one, too

 

[dvcgirl]

I use the financial calcs every few yrs to make sure I'm on track but I think I operate mostly out of fear of not having enough so I just keep trying to save more and more. As a hospice nurse who sees patients in their homes, I see how the elderly actually live. So many couples don't have enough to get all of their meds or they can't afford secondary insurance. The poorest elderly can get medicaid, so that helps. And luckily, many of the elderly in the city I work in worked for GE so they do have decent pensions and benefits. But that well is dry for the next generation as those types of jobs are long gone.

One glaring difference is lifestyle. The people I see in their 80s mostly lived modestly. The houses are reasonable in size. They don't live on credit. They grew up with a whole different mentality than we have now.

So I'm trying to live like a retired 85 year old woman with a slight passion for VB and duvet covers. And according to my DD, I dress like one, too

lol! That's funny.....

You are very wise abmitch01..... People in their 80s do live modestly, and they always have. The credit boom really took off about 30 years ago. By then these people were in their 50s and well established. They're also babies of the Great Depression and so they lived through that period as children....or heard endless stories about that time from their parents. And so those in their late 70s and 80s+ weren't tempted by credit and the lifestyle it could provide.

There is another side to the story though. The "big purchases" in life have far outpaced inflation. Housing, education, and health care take up much more of our paychecks than it did for our parents or grandparents. Yes, we have steadily taken up the size of homes, but still....even with most households bringing in a double income, it's tougher for middle-class families to get ahead. Elizabeth Warren's "The Two Income Trap" covers this topic is great detail.

Having said that, Americans are terrible savers. As topdog says, the 401K balances of Americans are abysmal. And all of data points to the fact that the Baby Boomers are going to need to work much longer than their parents who made up The Greatest Generation. The Boomers have been portrayed as the group that *wants* to keep working.....they can't slow down.....they *won't* slow down. They want it all and they intend to have it all.

I think a lot of that is bravado....I think that they're going to have keep working because they'll have no choice in the matter.

 

[jmpellet]

I understand the whole debate about DC vs. DB and I'm in MA with 13 years of service and I'm pretty happy I'm in a DB plan. If they do convert people and there's been discussion before, it would likely be the non-vested people with less than 10 years. I guess I also feel that way since I've been contributing the max to a 403b (no match because of DB) or near it for 12 years and I'm 41. I've been doing a 403b since I was 24 (not the max). We also have the option to fully fund a 457 in MA which I do a little but not the max.

We already have WAY more than our in-laws saved for retirement and they are hurting.