Monthly Archives: November 2016

November Article Roundup

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Here’s what I’ve been reading this month:

  1. The retirement crisis is real in this country, but there are ways to salvage your situation if you find yourself short of your goal. You might need to lower your expectations a little bit.

Read “5 Ways to Salvage Retirement”

  1. “Millennials have the benefit of time on their side, so the earlier they consult with a professional and formulate a savings plan, the better they can prepare for retirement.”

One of our goals here at LAGERS is to make sure that younger people take a more active role in their retirement planning, sooner. This leads to more retirement security and less worries later on.  This quick read on a study from Koski Research talks about how millennial men and women view retirement planning differently.

Read “Retirement Outlook Far Different for Millennial Men and Women”

  1. Speaking generationally, have you even heard of Generation Z? If not you should get to know them, because in the next few years they will make up 20% of the workforce. These Post Millennials bring with them a whole new set of challenges and changes to shake up the workforce.

Read about what sets them apart in the article “Welcome, Generation Z”

  1. Now that the election is over, what can we expect from the new administration when it comes to your retirement? This article from Fox Business presents a possible outlook.

Read “What a Trump Administration Means for Your Retirement”

  1. The next read is an essay by one of NextAvenue’s “Influencers in Aging”. I highly recommend you read the whole series, but this particular post by the oldest-working park ranger is a short, poignant look at a life well lived.

Read “Looking Back, at Age 95”

Being Thankful for Public Service

Thankful message Some fall leaves and retro pocket watch with text A Time to give Thanks

“Never doubt that a small group of thoughtful committed citizens can change the world; indeed, it’s the only thing that ever has.” ~Margaret Mead

I’m guessing you don’t often think about your job like this. But this quote really resonated with me. When I think about public service, and our members who dedicate their lives to this endeavor, I realize that even though this group is not normally celebrated and honored I am thankful for them none the less. Public servants truly do change the world for the better, every day.

Here’s why:

  1. They keep our communities running – public sector employees are the glue that holds our communities together. They maintain the books, make sure the roads are smooth and easy, our water is clean and our trash is taken at the curb. From libraries to public works to the county clerk, these jobs might not be glamorous, but without them where would we be?
  1. They protect us – EMTs, fire and police personnel work crazy hours and do the job of protecting the citizens without expecting thanks or gratitude. Most calls they receive are humbling and thankless as well as dangerous. We are safe because of them. Don’t forget that.
  1. They are dedicated – this group of individuals is truly dedicated to their work. They do their jobs out of a genuine love for their city/county/township and a desire to serve the people that are their neighbors and friends. They don’t do it for the recognition, because they do not get enough of that! Wanting to serve is the reason why.
  1. They are experienced – part of the dedication of this group leads them to be incredibly experienced at their chosen occupation. During my time at LAGERS I’ve traveled around Missouri and met with public servants in many parts of the state. I’ve been fortunate and impressed to meet people who have dedicated 35 and even 45 years to their community working for local government in some capacity. That amazing dedication leads to incredibly hard working and experienced workforce.

Mohammad Ali said “Service to others is the payment you make for your space here on earth.” Local government employees have given me lots of reasons to be thankful, and their sacrifices every day for the rest of us are admirable. They are definitely paid in full.

See how LAGERS is Getting it Right every day to work to give them the secure retirement future they so deserve. 

Being Thankful for Public Service

Black Friday and Your Retirement

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There are several special sales and discounts during this holiday season in preparation for the next holiday season. One that I’m sure you are familiar with is Black Friday.  This day gives me some nightmares from my time when I worked in retail. Anyway, Black Friday certainly has some opportunities for you to save a significant amount of money on some of your holiday spending. On the other hand, Black Friday does present you with the challenges of waiting in line and dealing with the crowds.  So, as long as you’re willing to wait in lines and deal with crowds, it may make some sense for you to save some money on a large purchase during Black Friday.

For example, maybe you need a new TV and you plan to wait until Black Friday to purchase it when TVs are significantly discounted. That makes a lot of sense. However, have you thought about what you are going to do with money you saved by waiting to purchase the TV? I have a couple of ideas for you:

Pay down debt. One incredibly important part of retirement planning is knowing the cost of your monthly expenses in retirement. While you are currently working and earning more income than you will have in retirement, you should work to lower your monthly expenses by paying off your debt. This lowers your monthly expenses and also leaves your loved ones with less obligations after you have passed away.  One way that LAGERS can help you with this after retirement is through the Partial Lump Sum. If you are looking to pay of the remainder of your mortgage or other debts, you could use the partial lump sum to pay it off. Of course, the partial lump sum will reduce your monthly benefit and it is taxable, so it comes at a cost. It would be best however, if you can find a way to pay off your debt before you even apply for retirement.

Save for retirement.  Yes, I said save for retirement. Your LAGERS pension will not be enough to provide your entire retirement income needs. In the retirement planning industry, it is commonly said that to be comfortable in retirement, you need to replace at least 80 cents of every dollar you are currently earning. In other words, you need to replace at least 80% of your pre-retirement income. For example, an employee with 25 years of service with the 1.50% benefit program will replace 38.5% of their pre-retirement income with their LAGERS benefit. That’s a difference of 62.5% that will need be replaced in part by Social Security, but primarily through your personal savings. The only way a person can earn 80% of their pre-retirement income with LAGERS is by working a substantial amount of time with their LAGERS employer.

It makes sense to save money on a major purchase on Black Friday. But, when saving such a significant amount of money, start thinking about what you are going to do with the money you have saved. What a great opportunity to build your financial independence by investing in your future retired self and reducing your future expenses in retirement.

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Jeff Pabst, CRC Senior Communications Specialist

The Unfunded Liability Nobody is Talking About

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You hear a lot in the news these days about the looming pension crisis and their mounting unfunded liabilities. When I try to imagine how I would react to these headlines if I did not work in the retirement industry, I imagine that the phrase ‘unfunded liability’ would sound absolutely terrifying, and that if I ever heard that phrase being thrown around when it came to my employers’ retirement plan, I would be concerned. At that point I would probably do what any normal person would do when they hear about something this scary: I’d Google it.

So this morning, I decided to do a little experiment: I typed ‘unfunded liability’ into my trusty search engine just to see what would come up, and the results were undoubtedly alarming. Headlines reading: “Unfunded public pension liabilities near $5.6 trillion”; “How pensions pass the buck to future generation”; and “$60 billion unfunded liability looms over Pa. as lawmakers move toward pension vote” were just the beginning of a laundry list of stories listed on the topic.

Now to be clear, I believe that every pension plan should have sound plan design with a solid funding policy, so that, like LAGERS (and many other well-run pensions across the county), the promised benefits are fully funded today and plan participants can go to work and retire with the peace of mind in knowing that their retirement will be secure. Pension plans that are not doing this should be fixed. But what I found most disturbing about my search was that in all the results that popped up about unfunded liabilities, there appeared to be one major unfunded liability that nobody is talking about….yours.

‘My unfunded liability?’ you may ask. ‘I don’t have an unfunded liability.’  And that is where many of you would be mistaken. Like most Americans, you are probably planning to retire at some point in your life – either at a time of your choosing or perhaps for reasons beyond your control, such as failing health.  And when that time comes, you’re going to need to have income to live off of for the rest of your life.

In order to be able to quit working or to reduce your work hours in retirement, you need to be saving every month to ensure your nest egg will be large enough to sustain you for the rest of your life. Savers (especially those without pensions) who fail to set aside enough money each month for their retirement are creating a huge personal unfunded liability – a gap between how much they have saved and how much they will need in retirement.

According to the National Institute on Retirement Security, 45% of American households do not own any type of retirement account, with a disproportionately large number of low-income households saving nothing for retirement. Even more shocking, of households that do have retirement savings accounts, the average balance for individuals nearing retirement (age 55-64) is a mere $104,000; and if we included the households that are saving nothing, that average drops to just $14,500 saved by those who are at the doorstep of retirement.

This means that most Americans will be facing their own unfunded liabilities at retirement, and that presents a big problem. If I’m an average saver with $104,000 and I need to draw out $1300/ month to survive in retirement, my savings would not last 7 years…and that’s not even taking into account inflation or any unplanned expenses (such as a big medical bill). If I live 20 years into retirement, I need to have saved at least $312,000; and if I live 30 years, I better have $468,000 in the bank. Since I only have $104,000, I have a personal unfunded liability of over $360,000. While granted, my math is simplified, take that average times the estimated 80 million people who will be retiring over the next twenty years and you get upwards of 30 trillion dollars in unfunded liabilities in Americans’ personal defined contribution accounts.

I can’t help but think to myself, “What is going to happen when these folks can no longer work? What are they going to do when they cannot afford to retire?” As we usher out the era of private pensions, what is going to happen as more and more individuals enter retirement without adequate savings and with a huge personal unfunded liability? What is going to happen when they lose their home because they can’t make the mortgage payment, or go without food to be able to afford their medication? As a society and as taxpayers, what are we going to do?

It seems to me that many are suggesting that the solution to these pensions’ unfunded liabilities is to replace them with even bigger personal unfunded liabilities by forcing people to plan for retirement on their own. Pensions that have sound plan design and solid funding policies work, and they work well. They don’t pass cost onto future taxpayers because the liabilities (benefits) are prefunded, and participants can take advantage of longevity risk pooling and professionally managed investments. And while LAGERS members receive only a modest monthly benefit that often still requires some additional personal savings, their pension is the foundation of their retirement security, and it’s one they can count on.

The switch from pensions to defined contributions plans (e.g. 401(k)s) may indeed seem like a simple fix to all the mounting pension headlines, but until we start quantifying the unfunded liabilities in individual retirement plans, many Americans are going to be in for a big surprise when they are ready, but cannot afford to retire.

Elizabeth Althoff Communications Specialist

Elizabeth Althoff
Communications Specialist

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When is the Best Day to Retire?

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When?

Perhaps the biggest question to answer when planning your retirement is “when?” When is the best month to call it quits? When is the best day? When will I start drawing benefits? When will I start receiving Social Security? When do I need to apply for benefits? When is enough, enough? There are a lot of questions that begin with “when.” Relax. LAGERS can help fill in some of the answers for you.

When is the soonest I can begin to draw my LAGERS retirement benefit?

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You must have at least five years of LAGERS service and be retirement age to begin drawing your monthly benefits. Also, you cannot be actively employed with a LAGERS-participating employer and begin drawing your monthly benefit. The age you may choose to begin receiving your monthly payments is different than your Social Security age. The earliest the benefits may begin is when you reach age 55. If you are a police officer or firefighter, benefits may begin even earlier, at age 50. However, choosing to initiate your monthly benefit at the earliest possible age does come with a cost. Age 55 for general employees and 50 for police and fire are LAGERS’ early retirement ages, so the monthly benefit will be reduced by 6% for every year you are younger than your normal retirement age (the actual reduction is 0.5% per month). Normal retirement age is 60 for general employees and 55 for police officers and firefighters.

Some of you reading this may gain access to your monthly benefits even earlier than age 50 or 55, without any reduction, if your employer has chosen to provide the Rule of 80 (AKA, 80 and Out). The Rule of 80 allows eligible employees to begin their monthly benefits when their age + service = 80. For example, a 50-year-old LAGERS member with 30 years of service could begin monthly payments at age 50 with no reduction. Only about one-in-five participating employers provide the Rule of 80 as it does cost more for this option.

When is the best month to retire?

As far as LAGERS is concerned, it doesn’t matter. You may initiate your monthly benefit any month you choose. You receive credit for every month you work in a LAGERS-covered position so you don’t need to worry about working a certain number of months throughout the year to increase your benefit. Your benefit increases every month you work!

The most popular retirement effective date is January 1st. LAGERS sees more members call it quits in December each year with benefits beginning in January than any other month. This doesn’t necessarily mean that this is the best date for you, however. You will definitely want to be aware of any benefits your employer provides that may affect your retirement date. Are there any post-retirement benefits provided by your employer? What about unused sick and/or vacation payouts? Some of these benefits may be better or worse depending on when you leave your job.

The October 1 Myth. There is a myth amongst LAGERS members that if you retire after October 1st in a given year that you will be missing out and your benefits will forever be less than they should be. This is absolutely false. Don’t believe this myth. I won’t go into the specifics here, but I have written another entire blog about it.

When will my benefits be paid to me?

Once you have made the decision to take the leap into the next chapter in life and all of the paperwork is complete, your LAGERS benefit is always paid on the first of the month for that month. So, if you decide your last day of work will be December 23rd, your retirement effective date (the date you will be paid) will be January 1st. Almost all LAGERS retirees opt for electronic payment of their benefit so they know their payment will be in their bank account on the first banking day of each month.

The partial lump sum is an option retirees may choose if they want some money up-front in addition to their monthly benefit. If you decide the partial lump sum is right for you, this will be paid to you 90 days after your first payment date. You can choose to roll this payment over to another retirement account or extend payment of the partial lump sum out to 150 days if you want to reduce your tax burden. The partial lump sum is a big topic, so we cover it in another blog.

When is enough, enough?

This is a question only you can answer. Believe it or not, there are many benefits to showing up to work every day. It keeps you engaged physically, mentally and socially. But at some point, enough is enough. When all of the financial and emotional planning is done and you have determined you can handle retirement all that’s left is walking up to the edge and making that final jump. When you get to this point, you’ll know.

When? This question can keep us up at night. But we here at LAGERS can help you get at least some answers. The most important answers, however, are up to you.

Jeff Kempker Manager of Member Services

Jeff Kempker
Manager of Member Services

 

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