Monthly Archives: April 2017

April Article Roundup

If you don’t read any other retirement articles this month, you at least need to read this. According to a GOBankingRates survey, nearly 40% of Americans do not know what a 401(k) is.  We’ve all seen the reports showing that a majority of Americans cannot pass a basic financial literacy test, but this new survey seems further suggest the seriousness of financial illiteracy in the US.  It’s one thing to not exactly understand how a bond works, but if one third of Americans can’t even identify this basic retirement saving vehicle, how on earth could those same folks ever be expected to accumulate enough assets on their own to adequately prepare for retirement?

Read: More Than One-Third of Americans Can’t Describe a 401(k)

To this point, this next article has some pretty staggering stats on the savings habits of these same folks, and it appears the trend is not getting any better. With a median savings of only $6,200 for families between the age of 44 and 49, according to this report from the Economic Policy Institute, it seems safe to say that many Americans are far from adequately prepared for retirement.

Read: Here’s how much the average family in their 40s has saved for retirement

This saving crisis does seem to be prompting some new conversations about the evolution of the concept of retirement. Here’s a different twist on the concept of retirement which speaks to perhaps a changing perception of the term, especially among the younger generations. Maybe for some, retirement doesn’t have to look the same way it did for grandma and grandpa.

Read: The Official New Word That Will Forever Replace The Term Retirement

For those who still seek a traditional path, this next article has some great tips for helping get your retirement goals back on track.

Read: What to Do When You Want to Retire but Don’t Have Enough Money

The articles in this month’s roundup tell an interesting story: that there is a serious financial literacy crisis in this country that develops into a saving crisis when individuals do not have the tools to help them adequately prepare for retirement. For some, this is going to mean they will either have to change how they view retirement all together, or buckle down and get creative on ways to secure their financial future.  Pension benefits like LAGERS are a tried and true tool that allows individuals to focus on pursuing their careers without expecting each individual to also be an expert investor.  The last article this week highlights some of the great benefits of having a pension as a piece of your retirement savings toolkit.

Read: LAGERS is Getting it Right!

Elizabeth Althoff
Communications Specialist

Single? You Have Options at Retirement!

Diner, Senior, CoffeeWhen presenting at a Pre-Retirement Seminar, many of the attendees ask me questions about what their spouse will receive from LAGERS once they pass away. There are a couple of options that married members may choose at the time of retirement that will pay to their spouse upon their death. Read this blog for more information about spousal options.  On the other hand, I do get some questions from single members wondering if they have any options. Don’t worry; even if you’re single, you have some options with your retirement benefit.

The options a single individual has to choose from at retirement are the Life Allowance and Option C. Also, the Partial Lump Sum can be added to each of those options. So, which one do you choose? When determining which payment option to choose at retirement, you may want to consider a few items:

  • What are your fixed expenses in retirement?
  • Do you plan to travel or pursue a hobby that will have an impact on your expenses?
  • Will you have additional sources of income?
  • Are you planning to leave a legacy in the form of inheritance?

All things to consider when choosing your payment option.

Now, let’s explain your options as a single person.

Life Allowance. The Life Allowance is the largest monthly benefit you can receive in retirement. But, when you pass away, there is no monthly benefit payable to a beneficiary. The only instance where there is something payable under the Life Allowance is when you have a balance remaining. This balance can be from the 4% contributions made at any point in your career from which you did not receive a refund or funds used to purchase service (if applicable).

For example, if you have $20,000 in employee contributions, the first $20,000 you receive in your retirement benefit is your employee contributions. Since LAGERS pays out your employee contributions through your retirement benefit, if you pass away before the total of $20,000 has been paid out, your beneficiary will receive a lump sum of the remaining contributions.

Option C. This option is called the 10 Year Payment Certain plan on your benefit estimate. This  can be somewhat misleading because it makes it sound like you will only receive payments for 10 years. There is no option that you could choose under LAGERS that does not pay you for the rest of your life. Option C guarantees at least 120 payments are made to you or your beneficiary in retirement. Specifically, if you pass away within 120 months after retirement, your beneficiary will receive the remaining payments until a total of 120 payments have been made.

For example, if you elect Option C when you retire and pass away 96 months in to retirement, your beneficiary will receive the remaining 24 monthly payments. But, if you live more than 120 months after retirement and pass away, your beneficiary will receive nothing under Option C.

Partial Lump Sum Feature. This feature can be added to the two previous options listed above. It pays you a lump sum 90 days after retirement that is equal to 24 months of your Life Allowance benefit. This option can be a great way to get a large amount of money early in retirement that you could use for many different purposes like paying off your mortgage, leaving a legacy for your children and grandchildren, or many other purposes. Also, you can roll your Partial Lump Sum into a qualified retirement account to delay the up-front taxation, potentially grow the funds throughout retirement, and set the beneficiaries of that account to whomever you choose. Read more about the Partial Lump Sum in this blog post.

So, as you can see, even if you are single, you have some options as to what to do with your LAGERS benefit at retirement. To get an in-depth explanation of your options, attend a LAGERS Pre-Retirement Seminar or call the LAGERS office.

JPabst - reduced size

Jeff Pabst, CRC Senior Communications Specialist

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Use These 5 Simple Hacks to Ease Financial Stress

 

April is Stress Awareness Month and we all know that finances are the root of much of the stress we face. If you haven’t ever lost a little sleep worrying about a money-related issue, I would question whether or not you had a pulse. It’s almost inevitable that, at some point, we all will have a financial difficulty that wears on our mind, and ultimately, maybe even our body.

Financial Finesse is a financial wellness firm that offers coaching to over 2.4 million people in the U.S. In the firm’s 2016 Financial Stress Research, they reported that 1 out of every 4 people say that they suffer from high or overwhelming financial stress and 6 out of 10 people reported losing sleep over at least one financial problem. The good news is that there are some fairly simple steps we can take to ease financial stress. Here are some that have worked for me.

Resist the consumerist culture we live in.

My wife and I just recently realized we had too much stuff. Not only did we have too much, we wanted even more. The culture we live in is constantly in our face about purchasing items that are supposed make us happy; new clothes, beauty products, cars, toys for your kids, electronics, apps for your phone. The never-ending assault on our desire for more is relentless. Our home was bursting at the studs with things we didn’t need and all of that stuff was causing stress. So we decided to get rid of it. Anything in our home that is not useful or doesn’t bring us joy is sold, thrown away or donated. And, we have begun to use the same criteria for our purchases. We are spending less money on things that have no lasting value and using those resources to focus on experiences and priorities that truly make us happier. We are still in the beginning stages of this journey, but it’s amazing how much less stress we have.

Create an emergency fund.

According to a recent survey by Bankrate, 57% of Americans don’t have enough cash on hand to cover an unexpected $500 expense. Now that is stressful! Sticking money into an account and resisting the urge to touch it can be tough, but here is a quick hack I have used for years to help with this. Create automatic transfers from your checking account into a savings account. Most of us now have our paychecks directly deposited into our checking accounts and most banks allow you to set up automatic recurring transfers. So, set up money to transfer every payday to a savings account and you will likely not even notice it’s gone. It doesn’t have to be a large amount; it will feel great just to get started!

Make a plan.

Simply having a plan in place to manage your finances can be a huge weight off of your shoulders. Knowing your monthly income and essential expenses is the first step in figuring out a budget and sticking with it. When my wife and I decided she would leave her career and stay home with our girls a couple of years ago, we both lost sleep over the financial impact this would have on our family. So, we sat down together and calculated our monthly income and bills. From there we identified some expenses we could easily reduce (like our satellite bill) and figured out how much we would have left for discretionary expenses (it wasn’t much). Having this plan in place made us both feel better and gave us some peace of mind knowing we could make this work as long as we stuck to the plan.

Talk about money.

Perhaps the most important thing you can do to ease financial stress is to talk to your spouse or significant other about money. These are not always easy or fun conversations and they may even end with one person being upset. But don’t give up. It is vitally important for you and the person you are sharing your life with to be on the same page about finances. A seemingly simple rule my wife and I have always used is that we will ask the other person before we make a purchase that is over a certain threshold. When we were first married and had very little in the way of financial resources, the limit was $50. For example, if I wanted to buy new decoys for turkey hunting and they were going to be more than $50, I had to run it by my wife first. While our threshold has grown since we were newlyweds 12 years ago, we still have this rule in place. It may seem silly, but it is a subtle way to ensure we are both on the same page about how the family’s money should be spent.

Visualize your future.

Your future self wants to be financially independent. Taking steps now toward that end will ease stress today and have a lasting impact later in life. What does your future look like? What do you want do? What will you be doing when you are 65, 75, 85? A great first step in planning for your financial future is to visualize the life you desire. This will help you to know if you are on track today to achieve the life you are picturing. My wife and I frequently talk about our dreams for our life after work and what we want to do. Sometimes these conversations are just two people dreaming together and sometimes there is a little more planning involved, but either way, it is helpful. Be kind to your future self, take action today to reduce stress now in order to avoid tension in the future. Read my blog about this here.

 

Stress can kill. And financial problems are one of the leading causes of anxiety. There are many money problems that may be fixed using simple hacks like the ones above, but for serious issues, you may need to talk to a professional to get help. The key is to take control of your money and allow yourself some better nights of sleep!

 

Jeff Kempker
Manager of Member Services

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Guest Blogger – Pension Re-Reform

 

Jason

Jason Simpson, Fire Captain at Webster Groves Fire Department, describes the process of going from a defined contribution plan to LAGERS defined benefit plan.

THE HISTORY

 

Around 20 years ago, a group of investors sold a retirement plan to our city, a “sure thing plan”, in a stable, somewhat predictable and lucrative market, to give up a 2% per year of service defined benefit plan for a defined contribution 401(k)-type plan that would earn a “million dollars per firefighter” by the time of retirement.

At that time, several retirement ready personnel took a chunk of money and ran, and the rest were left to deal with the repercussions of the oil crisis, horrible terrorist acts, war, and a housing bubble that had burst, leaving the world market in vast fluctuation, generally in a downward spiral. Many watched their retirement dreams become more and more like nightmares. But that was the trend for many corporations and government entities of the time.

Defined benefit pensions had become expensive, and defined contribution pensions were the “remedy”.

“Defined benefit pensions had become expensive, and defined contribution pensions were the “remedy”.”

But there wasn’t adequate guidance on how absolutely necessary it was to put away the maximum possible contribution PLUS additional money into another fund such as a ROTH or 457(b), especially since we don’t pay into Social Security. Let’s face it, most of us are firefighter/paramedics, not investors, and we entrusted our financial future to our employers. Many of us did not realize that a minimum contribution into a 401(k) alone would inevitably lead to working towards age 65 and living near poverty with a part time job into retirement. Some realized this later because their retirement funds had fallen behind, but there was no safe way to catch up. Those that tried to play riskier investments later in their careers, and especially before 9/11, witnessed worldwide, and personal financial catastrophe along with the devastating loss of life that came with the terrorist attacks.

So that’s the history. Now looking back it didn’t work out so well.

THE CHANGE OF HEART

Now I have some good news.

At a meeting in the summer of 2011, I was strongly encouraged to explore the possibility of doing a financial and actuarial analysis for switching to LAGERS defined benefit pension. Some cities had recently converted, and others were exploring the option. This was news to me, and I was excited that we may have an option for significant change in our retirement structure.

The City council approved the order of the analysis with zero resistance. In January of 2012 LAGERS completed the analysis, and would soon be coming to meet with the city, and then with personnel, to discuss our options. We evaluated costs for different plans, our existing 401(k) cost versus the proposed LAGERS plan, and determining efforts for getting our shop the best level of benefits that our city could consider. We also had help from our finance department in acquiring the actuarial analysis prepared by LAGERS, and additional information for meetings that we arranged with our City Manager. We approached every angle to quickly educate ourselves, and prepare for the vast array of questions we would receive from our shop.

THE RESULT

After a heavily favored city wide personnel vote, the LAGERS plan was moved to the City Council for resolution, and on May 21st 2013, the City Council unanimously approved the “Resolution Discontinuing the Contributions to Non-Uniformed Employees Money Purchase Plan and Police and Firefighters Money Purchase Plan and Adoption of the Missouri Local Government Employee Retirement System (LAGERS)”. This was a monumental event in my career, and I know that with this change comes an instant and permanent improvement over our career quality for generations to come. From everyday morale, predictable career goals, peace of mind, reward for longevity and retirement with pride and dignity; to immeasurable improvement in death and disability benefits. We can all have a little comfort knowing what our defined benefit will be here for us, and even if something horrible does happen, our families will be covered, as LAGERS pays our families as if we had worked to age 60 in the event of line of duty death.

 

“…with this change comes an instant and permanent improvement over our career quality for generations to come. From everyday morale, predictable career goals, peace of mind, reward for longevity and retirement with pride and dignity; to immeasurable improvement in death and disability benefits. “

THE FUTURE

We went against the grain in a day where 401(k) plans are continuously replacing defined benefit pensions.. There is obvious improvement in morale amongst my brothers and sisters since this pension change, and I’m proud that some of our senior firefighters are once again forecasting the retirement they deserve. For the rest of us, the light at the end of tunnel has transitioned into a road we can proudly follow with certainty and stability.

Jason Simpson, Fire Captain

Webster Groves Fire Department

(Blog has been edited for length and clarity)

 

 

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