By David Kopyc
The days of working for a company for 30 to 40 years and leaving with retirement security for life are over with. For most of us the future of retirement will not be the same as the one our parents had and personal responsibility is your path to retirement security.
The Pepsi Company originated the gold watch back in the 1940s. The concept “you gave us your time, now we are giving you ours,” made sense when people worked with a company for several decades.
In the old days, there was a bond between the employee and the employer. The employee would sacrifice some income during their most productive years for pensions and health insurance after they retired. Today, only 18 percent of private-sector workers have access to a pension compared to 38 percent in 1980 according to the Bureau of Labor Statistics.
There are many reasons why pensions are declining, particularly in the private sector, but one of the biggest reasons is the substantial risk they bring to the employer. For obvious reasons, making a promise to pay a worker large sums of money after they retire, which could be 30 years or longer, is a risk that companies do not want to assume today due to longevity.
Most of us today are participating in defined contribution plans (401k). The amount of money that we accumulate over our accumulation years is the pot of money that we will need to create our own personal pension.
Most current employees will work with 5 employers and it is important that these assets become consolidated before retirement to build your own personal retirement income distribution plan. I believe that it is critical for individuals to start this process 3-5 years before their anticipated retirement date.
One of the biggest reasons for this is the risk that might be associated with how the assets are allocated. Most individuals cannot afford to have a major decline in these assets during this period of time as it would make the employee either work longer or reduce the income benefit that they could achieve.
The four-legged stool of retirement which used to be a pension, social security, qualified assets (IRA), and non-qualified assets (savings accounts), has changed dramatically since the decline of the pension benefit. How many legs do you have on your stool?
I believe it is essential that individuals that are currently participating in a qualified plan through your employer works with a financial advisor to build a retirement plan for their future. Time passes by quickly and procrastination is not your friend. You need to motivate and not procrastinate to make sure your retirement is one of enjoyment and not one of stress.
Kopyc is the president of Retirement Planning Group LLC in Saratoga Springs.
