Tax Reform in This Election Year: It's Not Likely
Which Credit Card Rewards Does the IRS Care About?
Is your pension safe? This is the question that is being raised by the Organization for Economic Cooperation and Development (OECD.)The financial crisis of the past two years is wrecking havoc on pension plans throughout many countries of the world and could set off a new time bomb, this time a social crisis.
We should note that there are two kinds of popular pension plans. First we have the "defined benefit" (DB) plan where the benefit on retirement is determined by a set formula, rather than depending on investment returns. The second type is the "defined contribution" plan. Here contributions are paid into an individual account by each member. This money is then invested in stocks, bonds, etc. Monies can be contributed by both employers and employees. This type of plan is more vulnerable because it is subject the the ups and downs of the market.
This past year private pension plans lost about 28% of their value. Public pension plans, while safer, are subject to the fluctuations of the economy. With high unemployment throughout the world, public plans do not have any wiggle room to increase their benefits.
Pension plans, especially for older people, are hardest hit simply because this group does not have the time in years to recoup their losses. Younger workers have less money invested and have the time going forward to gain back their losses.
Some countries are in better shape than others. Worst off are Ireland, Australia and the United States where much of the pension funds were invested in equities. Germany, Mexico and the Czech Republic fared better because they were heavily invested in bonds. These funds lost only 10% of their value.
Some countries like Canada, Germany and Sweden already are adjusting public pensions according to the public schemes financing.
Finally, we have the concern about how to protect retirees going forward. The OECD singles out Germany, Japan and the United States where deficiencies in "old age safety nets are a concern." The recommendation is for governments to reduce the proportion of equities and other risky investments in their portfolios.
Do you feel that your retirement plan is safe?
Goldman Earnings Sink After Buffett Dividend
Johnson & Johnson's Income Falls 23%
Burberry Shares Leap on Sales Update
Reader Comments (Page 1 of 1)
6-23-2009 @ 10:20PM
william lindblad said...
Ms.Madon:
You must jest.
Given present conditions, the only sure bet is that if you are human, you are going to die.
Everything in the way of 401K's, pension plans and everything related is up for grabs. If yours was liquid and fully funded in 2001-2 and invested in market equities, it might remain solvent for many years - based on no major Southern movements of said market. I did say "might". You pose a complicated question. Let us say that a person retired prior to 1998 and the company that they worked for has continued a retirement program concept that was in place in this time frame. By this I mean that that workers retire at a fixed age or one of service. If that held true than they would not "flood" the retirement ranks. If there is a contrary position where said company scales down their operations and puts many more than anticipated onto retirement based on the rise in market equity from 2003-06 than there is a problem. That problem is quite simple. Half the money is gone. So is the time frame to which the fund can pay.
This is just one of many pressures that exist and in the U.S., the government pension guarantee fund (already hard pressed), could not handle without Congressional intervention. This is not simple as the presses are still running 24/7. In fact, the only thing that even makes the possibility of covering this scenario is that the rest of this world is in the same boat and the dollar still looks best bet.
This is a real piece of insanity, but the wizards of the street keep telling us that things are good. I do hope they have magic wands and can make this right. Everyone is worried about finance and I do hope that they have their respective heads in the right place. It may not be.
In 1857 Russian wheat rotted in our warehouses. (yes, that's the right date and the info is from the Library of Congress). It was called the panic of 1857, the same as the "panic" of 1893 and the depression of the 1930's. I do wonder what this is ultimately going to have as a name? Presently, it's a recession and that is really a bag of crap - or is it - depends on your view point.
I would suggest that anyone that wants to worry should take a real hard look at world agriculture and the fact that there still is an equator. We are going into summer and those in the Southern hem. - winter. Look at
events for the last two years and keep in mind that this world's population has both doubled and changed their eating habits. This is a more complicated and pressing problem than anyone would expect. The real threat to any real recovery is in the food supply and commodity markets as the inflation factor remains out there - and - if anything goes wrong it will be in every economy.
6-24-2009 @ 10:41AM
lou said...
I have been recently laid-off. After 6 months I will be considered laid-off on a permanent basis. I figure it is already permanent, but I will wait out the time. The minute my 6 months is over, I am taking a lump sum, rolling it over into an interest only IRA account (no market involved) and then it will at least be mine. I know interest rates offered now are low, but at least my principal will be guaranteed. I already just did that with my 401k. Bad for my portfolio? Who cares? I just don't want the market involved in my retirement at this time.
I am not young, but I still have 20 years to work if I can keep my health. I will start over somewhere when times are better and hopefully build another type of market based retirement. For now, lump sums in my individual IRA interest only account makes me feel somewhat in control.