Scott, never you mind all that retirement pish posh. I have a pension.
That is fantastic! It is far better to have a pension than not, but …
What but?! There is no but!
Few families are aware of, much less plan for, the catastrophic failure of a pension. Is such a thing possible? Oh yes. It happens so often that the federal government created the Pension Benefit Guaranty Corporation (PBGC).
However, guess what the PBGC doesn’t cover? Here is a partial list:
- federal, state, and local/municipal government pensions,
- military pensions,
- pensions associated with religious institutions (including hospitals and schools with religious affiliation),
- health benefits,
Can state’s actually change their pensions? Unfortunately, yes.
Ask the families of LA Works about CalPERS decision to slash benefits by 63% (Baer, 2017). Ask the families of Detroit who had their pensions cut, their cost of living adjustments eliminated, and their medical benefits cut (Stempel, 2016). Ask the families Central Falls, Rhode Island who saw pension cuts as high as 55% (Russ, 2012). Worse yet, in all three cases, the workers were the last to know. To many of the families interviewed, this news came as a complete surprise.
Having a pension shouldn’t be a justification for ignoring saving. If you have been saving, review your investments as if you depended on them. Can you live off your savings? If so, for how long? If not, what do you need to do? Create a retirement plan with a contingency for a failed pension.
Your pension is a wonderful tool, but is far from infallible. Make sure your other tools are working toward your central goal of maintaining your lifestyle.
We shouldn’t all hope we don’t need an emergency plan.
We should all hope we don’t need TO USE the emergency plan.
Don’t play chicken with your nest egg; get an emergency plan.
Baer, S. (2017, August 6). What happened after CalPERS cut pensions of former San Gabriel Valley agency employees. Retrieved from San Gabriel Valley Tribune: https://www.sgvtribune.com/2017/08/06/what-happened-after-calpers-cut-pensions-of-former-san-gabriel-valley-agency-employees/
Russ, H. (2012, September 3). Bankruptcy saves tiny Rhode Island city, but leaves scars. Retrieved from Reuters: https://www.reuters.com/article/us-usa-rhodeisland-centralfalls-bankrupt/bankruptcy-saves-tiny-rhode-island-city-but-leaves-scars-idUSBRE88300220120904
Stempel, J. (2016, October 3). Detroit defeats pensioners’ appeal over bankruptcy cuts. Retrieved from Reuters: https://www.reuters.com/article/us-detroit-bankruptcy-pensions/detroit-defeats-pensioners-appeal-over-bankruptcy-cuts-idUSKCN12322F