Monday, February 15, 2010
Currently, only about a quarter of American workers are covered by a traditional defined benefit pension plan. Over the last several decades, traditional defined benefit pension plans have been terminated, frozen, converted into cash balance or pension equity designs. Virtually no new employers offer such plans. Beginning in the early 1980’s, defined contribution plans such as 401(k), 403(b), and 457(h) have displaced older pension designs. This displacement shifted the roles and responsibilities of both the employer and the employee. Previously, the employer was responsible for 100% of the initial and ongoing investments to fund the employee’s retirement as well as long term management of those investments. The employee’s role was passive, with no or few opportunities to influence the design, investment directions, and management of the plan. Even union sponsored plans were generally run by the top union leaders, who, although elected by their members, were often less than responsive to their members’ demands.
The rise of the defined contribution plan saw the role of the employee become that of primary investor, with some portion of contributions matched by the employer, if such a match was provided. The employee also took on the role of the financial advisor and manager in an attempt to determine how much they would need to save at any given time in order to have sufficient savings during retirement. Employees often lacked the knowledge to understand the costs associated with investing, how to determine and calculate the required savings needed, and how to manage those savings before and during retirement. Retirement, itself, has even taken on a different face with employees working longer, “phased” retirement, working part time after “retiring”, and even starting their own businesses during “retirement”.
Most employers, recordkeepers, and fund managers have attempted to help plan participants with retirement planning. Almost all have web-based tools to assist the employee in planning and preparing for retirement. These tools include calculators to determine how much an employee should save and for how long. However, such tools become ineffective when an employee’s career is interrupted every 3-7 years due to economic or business cycles. Booms go bust, companies are bought and sold, organizations are downsized, right-sized, re-engineered, RIF’ed, and re-organized daily. With the employee having the major responsibility in planning, preparing, and managing for their financial retirement; is it possible to have any degree of securing lifetime income for retirement.
Yes, it is possible to reach a degree of financial security for retirement. However, it means making many difficult choices before, during, and after entering the workforce. It means maximizing the educational opportunities available and constantly upgrading skills; this is equally true regardless of the trade or profession. It means starting a lifelong savings plan early in life, both with employers, if available, as well as privately. It means managing the individual debt loads and personal spending habits. It means seeking out professional help in planning and executing retirement savings decisions. As with so much in the current lives of all of us, it means becoming and remaining knowledgeable consumers of savings, investing, and planning for retirement.
Where to start to become that knowledgeable consumer? Public libraries, community centers, community colleges, banks, credit unions, employers, recordkeepers, fund managers, investment managers, local, state, and Federal governments offer a host of opportunities to gain the knowledge to become a better consumer of retirement issues. A recent Google internet search for "retirement investment help" found over 65,000 “hits”, many sponsored by major banks and investment firms, others hosted newspapers, magazines, and journals, and still others connected to non-profit interests groups, such as AARP, retired teachers associations, … etc.
Currently, only about a quarter of American workers are covered by a traditional defined benefit pension plan. Over the last several decades, traditional defined benefit pension plans have been terminated, frozen, converted into cash balance or pension equity designs. Virtually no new employers offer such plans. Beginning in the early 1980’s, defined contribution plans such as 401(k), 403(b), and 457(h) have displaced older pension designs. This displacement shifted the roles and responsibilities of both the employer and the employee. Previously, the employer was responsible for 100% of the initial and ongoing investments to fund the employee’s retirement as well as long term management of those investments. The employee’s role was passive, with no or few opportunities to influence the design, investment directions, and management of the plan. Even union sponsored plans were generally run by the top union leaders, who, although elected by their members, were often less than responsive to their members’ demands.
The rise of the defined contribution plan saw the role of the employee become that of primary investor, with some portion of contributions matched by the employer, if such a match was provided. The employee also took on the role of the financial advisor and manager in an attempt to determine how much they would need to save at any given time in order to have sufficient savings during retirement. Employees often lacked the knowledge to understand the costs associated with investing, how to determine and calculate the required savings needed, and how to manage those savings before and during retirement. Retirement, itself, has even taken on a different face with employees working longer, “phased” retirement, working part time after “retiring”, and even starting their own businesses during “retirement”.
Most employers, recordkeepers, and fund managers have attempted to help plan participants with retirement planning. Almost all have web-based tools to assist the employee in planning and preparing for retirement. These tools include calculators to determine how much an employee should save and for how long. However, such tools become ineffective when an employee’s career is interrupted every 3-7 years due to economic or business cycles. Booms go bust, companies are bought and sold, organizations are downsized, right-sized, re-engineered, RIF’ed, and re-organized daily. With the employee having the major responsibility in planning, preparing, and managing for their financial retirement; is it possible to have any degree of securing lifetime income for retirement.
Yes, it is possible to reach a degree of financial security for retirement. However, it means making many difficult choices before, during, and after entering the workforce. It means maximizing the educational opportunities available and constantly upgrading skills; this is equally true regardless of the trade or profession. It means starting a lifelong savings plan early in life, both with employers, if available, as well as privately. It means managing the individual debt loads and personal spending habits. It means seeking out professional help in planning and executing retirement savings decisions. As with so much in the current lives of all of us, it means becoming and remaining knowledgeable consumers of savings, investing, and planning for retirement.
Where to start to become that knowledgeable consumer? Public libraries, community centers, community colleges, banks, credit unions, employers, recordkeepers, fund managers, investment managers, local, state, and Federal governments offer a host of opportunities to gain the knowledge to become a better consumer of retirement issues. A recent Google internet search for "retirement investment help" found over 65,000 “hits”, many sponsored by major banks and investment firms, others hosted newspapers, magazines, and journals, and still others connected to non-profit interests groups, such as AARP, retired teachers associations, … etc.
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