For most Americans, retirement has become a lifelong goal. To retire comfortably, you need income, and this income can come from one of three sources: savings, Social Security, or a company pension plan. The unfortunate fact is that Americans save very little money nowadays, and for anyone under forty, Social Security is a very hollow promise. For most, private pensions are the key to a comfortable retirement. When it comes to private pensions, however, most companies and employees themselves don’t contribute enough money, meaning that future retirees will have to work longer if they want to maintain their pre-retirement standard of liv¬ing into retirement.
There are two types of private pensions in America: the defined-benefit pension and the defined contribution pension. Both of these private pensions rely on the idea that the stock market will continue to rise in the long run. Unfortunately, both are in trouble.
In the defined-benefit plan, an employee is usually paid an amount from their pension based on their ending salary and the number of years employed with the company, usually paid out monthly for life. Money is set aside regularly by the company and is professionally managed. This ensures that the money will grow to adequately pay the retiree the agreed upon and promised amount.
The defined-benefit plan was first introduced in the early 1940’s. This postwar period boasted a high level of organized labor with over one third of all workers in America belonging to a union. At that time, most unions demanded generous pension plans, pensions that would support a middle-class lifestyle into retirement. When companies said that they couldn’t afford to offer these types of pension plans, union leaders of various trades across...
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...2009, August). Six retirement planning mistakes to avoid.
Retrieved October 2, 2010, from http://financialplan.about.com/od/retirementplanning/a/sixretmistakes.htm.
This article focuses on six of the most common mistakes that people make when planning for retirement and how they can be avoided. It further discusses how to utilize a company matched 401k plan and some of the penalties for withdrawing money early. This article also provides information and steps that should be taken to diversify investments and balance a portfolio.The author, Jeremy Vohwinkle, has spent a number of years helping individuals make sound financial decisions as an investor, financial planner, and retirement planning specialist. In addition to working with individual clients, he provides articles, resources, and educational materials that benefit those who are seeking financial advice.
This strike was a battle over several issues. One factor that escalated the strike intensity was the pensions battle. Billons of dollars in pensions were on the line. The Teamste...
Can We Keep Our Promises? The purpose of this paper is to provide a summary of the article called “Can We Keep Our Promises?” by Robert D. Arnott, and to help better understand the three key risks facing each investor. Robert Arnott describes risk and return as “having two sides of the same coin” meaning risk is inseparable from return. Arnott points out the most important risks that are faced by managers of company pension plans: underperforming other corporate pension funds (their peers), losing money (mostly associated with portfolio standard deviation or volatility), and underperforming the values of pension obligations and therefore losing actuarial ground.
This paper explores the characteristics of traditional and Roth IRAs, as well as the similarities and differences between both. The main characteristic of both IRAs is that both are considered tax shelters—a way for individuals to receive reduced tax liability by decreasing one’s taxable income. Traditional IRA’s are called “deductible” because contributions made with earned income, up to specified limits, are fully or partially deductible from income depending upon factors such as adjusted gross income and filing status. Upon withdrawal, the money is then taxed as ordinary income. Roth IRAs are the antithesis—the money that you contribute here is already taxed at your marginal tax rate and the withdrawals are generally not taxed. Only money that is considered investment income is taxed. Because of the income limits of Roth IRAs, some individuals choose first to contribute to traditional IRAs or employer-sponsored programs and subsequently convert to a Roth IRA. For younger individuals with lower incomes, Roth IRAs seem to be the better choice based on the below research. The money is taxed at a lower rate and then contributed. As one ages, tax rates are probable to rise and the cost of contributing increases as a result. Saving in full measure, below the legal limit and beginning this process at a young age seems the best option for a enjoyable retirement in years to come.
You might be tempted to dip into your retirement fund for a major purchase, find the will to resist. You’ll pay extra fees and taxes, and you are robbing your future self. If you leave it alone, your money will continue to grow year after year. Your gains can be reinvested and you’ll earn more than you would have with just a small chunk of
Throughout the 20th century governmental responsibility has made remarkable progress. One major milestone of the widening of the responsibility of the federal government was it’s making an obligation to care for the elderly and retired in the form of social security. In 1935, the Social Security Act was enacted by the federal government to provide financial security to the elderly, retired citizens in America. Although the federal government first took on this responsibility in 1935, it is still affecting our lives today. However, social security would not have advanced this far without many organizations and individual reformers to begin and improve social security throughout history.
Social Security is on the verge of taking care of the baby boomers generation. This means that it will be paying more benefits than taxes it receives. In lay-man’s terms it means it will be spending more money than it is making. I think that you should pay into your own private retirement account for you to reap the benefits in the future. Not for you to pay into a cluster of workers money for current elders to benefit from. You need to take care of your own future and not rely on other people’s responsibility. “…people began to think retirement funding as a right…and so…started saving less” (Klay & Steen). That being said, people of a certain age should be “grandfathered” into this meaning, people of the age of say 40, still get the normal social security retirement money but anyone younger must start abiding this new reform. If you get married, keep paying into your own unless your spouse is not working. If that is the case then pay the same amount BUT put half into your own and half into your spouses. If the other spouse is working however, they should pay into their own account and you into your own.
Defined Benefit Plan - A defined benefit plan provides participants with a determinable benefit based on a formula provided for in the plan.
“We like to tell ourselves that America is the land of opportunity, but the reality doesn’t match the rhetoric - and hasn’t for awhile” (Matthew O’Brien 1). In today’s economic situations, dreaming big may seem unaffordable, but not impossible. To achieve this goal many aspects should be analyzed to understand the American dream, weakened retirement, and smart investments. Megan Cottrell states that “graduate from college. Get married. Buy a house. Have kids. Put in a few decades of hard work, and then it’s time to retire by 65. That’s the American Dream, right?” (1).
Normally, the employer has to contribute an amount that is more or less the same as the contributions of the employee. It should not exceed about three percent of the annual income of the worker as well. But, there are instances that the contribution of the employer is reduced to a minimum of one percent. Yet, this can only happen two times for every five years.
Employee health benefit plans flourished in the 1940’s and 1950’s. Unions bargained for better benefits, which included tax-free, employer-paid health insurance. When war hit between 1939 and 1945, government froze wages which led to an increase of group health care. Since employers were unable to attract employees with higher wages, employers decided to improve their benefits package by adding health care coverage. Gove...
Social security, since instituted in 1935, has kept many elderly people from running below the poverty line (Hosansky). In 2015, the Social Security Administration predicted that the funds would be depleted by 2034 (Max). This poses a serious threat to the living situation of future generations when they retire. Our elderly, by today’s standards, enjoy a comfortable lifestyle. They are able to retire and still make over one thousand dollars a month. Some people also have private pensions which allow them to live even more comfortably. But with social security funds running out, we must ask the inevitable question. Is it worth having social security anymore? Social security should be kept. One must never fully rely on social security. In addition
t is a benefit offered by some employers to their employees to help them save for retirement. These defined contribution plans have limits on the amount that can be invested and money is deducted directly from your salary before taxes. Depending on the plan, the employer is required to contribute a certain amount or have the option to do so. And in case you make the contribution, the employee is entitled to take possession of the contribution automatically or in a specific period as defined by the plan ..
The luxury of a defined-benefit pension plan could become a nightmare for thousands in the next couple decades. This type of retirement plan pays benefits to people a sum based on years they have worked and how much they were paid while with the company. Defined-benefit pension plans currently hold billions more in liabilities than they hold in assets leaving retirees all over the country with underfunded pension plans and soon-to-be retirees to continue working. This underfunding does not start with the financial crisis and recession but has been steadily increasing for the last ten years. Underfunding is measured by either the Government Accounting Standards
Even though approximately 95 percent of older Americans are covered under Social Security there are many factors to consider when planning for retirement (Hooyman, 2011, p. 508). In forty years Social Security may not be as widely available anymore, and it was never meant to be sufficient to live off of alone (Hooyman, 2011, p. 508). Instead, utilizing the proper education, research tools, guidelines, and determination, retirement plans can be set in place early enough to leave room for fluctuations in the economy over time. It is no one else’s responsibility but one’s own to prepare for their future, and therefore should take matters in their own hands. Planning for retirement should not be based on Social Security alone, but rather, by saving portions of personal earned wages and putting finances into long-term investments. Taking the time to research and plan for a retirement can make a person prepare for the necessities that will be needed after retiring. Through researching, people can figure out the cost of living that will be required to support that individual upon retirement. Cost of insurance (health, life, auto, homeowners, etc.) and medical expenses will be higher and need to be planned for accordingly to create as close to an accurate estimate of retirement needs as possible. Of course, all of this assumes that work is available, steady and lucrative enough that there is enough left over to save and/or
When the Social Security Act was enacted by President Roosevelt, it was in order to help the millions of people adversely affected by the great depression. At that time the average life expectancy was just over fifty years. Fast forward to 2016 where the average life span in the United States is approaching eighty. There are still many people who believe that Social Security is Socialist in nature but would have to disagree with that. Deductions are taken from both the employee and their employer throughout a person’s work history and you must have compiled at least 10 years before you are eligible to receive payments. Of course, over the years it has expanded from simply being a “retirement plan”, to include several various assistance programs, but for this paper, I will be focusing on the primary plan, its problems and various solutions.