During dire financial times like these, or for a variety of other reasons, sometimes employers terminate pension plans. When this happens, it can cause some serious strife for employees who were depending on that pension for their retirement. Due to the robustness of most pension plans, many will neglect other forms of retirement savings. Relying solely on your plan is very irresponsible, regardless of whether it gets terminated or not. One important thing to note here is that you will still receive pension contributions you have accrued. These can be paid out in a monthly annuity in retirement, or a lump sum. Although this can alleviate some worry, you still need to take steps to recover the rest. So, wondering what to do when an employer terminates your pension plan? Check out the tips below.
Decide How You Want Your Balance Disbursed
There are various benefits to each type of distribution, with monthly typically being the more conservative option. On the flip side, lump-sum distribution gives you the most control over the cash. To summarize, monthly offers guaranteed value for every year you’re retired, somewhat unaffected by investment quality and cost of living. This is nice on one hand, as it means you have a safe number to lean on. On the other, it can be costly if inflation takes an upturn and outpaces your plan, making your money worth a lot less. Lump-sum is more volatile and can be completely withered by bad investment. Although, what it lakes in safety, it makes up for in customization. The lump-sum distributions can be passed on to heirs if you die early, they can be invested and grown, and payment is flexible so you can take full control of your tax picture each year. The choice is yours, and you should look deeper into it if you are really on the fence as to how hands-on you’d like to be with the remainder.
Take Advantage of a 401(k)
Typically when a pension plan is terminated, it is replaced by a more robust 401(k) plan. Whether or not this is true for you, you should always contribute at least the matching maximum for your employer. Doing this will ensure you maximize free contributions to your retirement and bolster your tax-free savings by a lot. Even if your plan isn’t frozen or terminated, you should still max out that employer match every year. When you have the opportunity to add free money to the retirement pile, there are very few reasons not to. This can mean the difference between retiring paycheck to paycheck, and essentially retiring with the same paycheck you got while working!
Attack Your Debt
The loss of a pension plan means a lack of certainty in retirement. This means that a monthly budget you may have been expecting when that time comes may be significantly diminished. This is especially true if you are nearing the end of your working years and don’t have as much time to commit funds to another plan. The best move here is to get aggressive with eliminating debt before retirement. A very easy way to offset losses in income is to eliminate expenses before they come up. you can do this by really buckling down and paying off your debts as fast as possible. Odds are you will not have the extra money to still be making a car payment post-employment. Cut the crap and get those negatives off of your balance sheet.
Trey LaRocca is a freelance writer, financial sales worker, and tech guy. When he isn’t out and about or at work, he’s usually at home enjoying some video games and a beer. Currently residing in Newport Beach, this California Kid can be found at the beach on any given weekend. Trey has years of experience in day/swing trading, financial analytics, and sales.