- Message from the Co-Chairmen (Summer 2011)
- Gray Matters: Special Section on Aging and Retirement
- Don't Let Your Lunchbox Make You Sick
- A Well Filled Plate
- Food Allergy? Vigilance Is the Only Shot
- Union Sector Safer Despite Right-to-Work Laws
- ACOs Offer Hope of Health Care Cost Containment
- Prepare Today So You Can Help Them Tomorrow
- How Will You Retire?
- Getting the Most from the “Chronologically Gifted”
- Retirement Age
- Taxes And Retirement
- Retirement In Canada
- Today's Living Generations
- Gray Matters Online Resources
How Will You Retire?
[Note: This story was updated on July 25, 2011, to correct information on Social Security benefits for early or delayed retirement.]
“Lifelong members of unions are fortunate,” says LIUNA General President Terry O’Sullivan. “They have worked hard for their pensions which add to what they’ll get from Social Security and whatever they’ve managed to save and invest.”
According to the Social Security Administration (SSA), to maintain your present standard of living in retirement, you will need 70 to 80 percentof your pre-retirement income. Social Security provides about 40 percent. The rest must come from other income streams.The Employee Retirement Income Security Act (ERISA) sets standards for pension plan reporting, disclosure, auditing, participation, vesting, benefit accrual, funding, fiduciary and other matters. The Pension Benefit Guaranty Corporation guarantees the plans. Additionally, the union’s National Reciprocal Agreement allows Laborers to move from one jurisdiction to another in pursuit of employment without jeopardizing their retirement security. Details vary, but all LIUNA pension plans have summary descriptions. You should be familiar with the specifics of your particular plan. Your local union or the LIUNA website (click on Health, Welfare and Pension) provide additional information.
Depending on the specifics of your local pension plan, you may retire at age 55 or even younger in some cases. LIUNA members are among the few Americans who still have pensions – also known as defined benefit plans. All provide retirement income that cannot be outlived by either the pensioner or a surviving spouse. They are administered by joint labor-management boards that retain professional investment managers to guide each fund’s investment decisions. Through more than 100 LIUNA Defined Benefit Plans, the union pays out millions of dollars in retirement benefits every month.
Today, instead of or in addition to pension plans, most workers have provided 401(k)s to which they can contribute pretax income each year. The amount is limited, and taxes are paid when the money is withdrawn, presumably at a later date when you are retired and in a lower income tax bracket.With 401(k)s, the responsibility of securing an adequate retirement is on you, meaning you must understand the key issues. For one thing, participation is voluntary, and under more immediate financial pressures, you may not contribute or may not contribute enough to get a matching contribution from your employer. You may also choose to access your 401(k) before retirement age, and such early withdrawals come with penalty fees, added taxes and the loss of compound earnings. Furthermore, you have to make investment decisions that require knowledge of investment options, risk tolerance and your retirement horizon. Your investments are subject to fluctuations in financial markets. At retirement, you can withdraw the money in your 401(k). You can choose to take the annual return on these investments (interest, dividends) as a retirement revenue stream, or you might invest the entire amount in an annuity or similar insurance product that offers a guaranteed monthly sum for the rest of your life. A limitless variety of other investment options with revenue streams is also available.
Social Security is the nation’s retirement program, created by the Social Security Act of 1935. On average, Americans spend 20 yearsin retirement. For most, Social Security benefits are the bedrock of their retirement incomes. Full-retirement distributions begin between age 65 and 67, depending on your year of birth. You may choose to retire early and take Social Security at age 62, but your monthly benefits will be reduced. Or, you may retire later, up to age 70, and your monthly payment will be larger. Whether you begin early, late or at regular retirement, the total amount of benefits you receive over the remainder of your life will be about the same. For people becoming eligible for full retirement in 2011, the maximum benefit is $2,366 per month ($28,392 a year).
If you must retire with a disability, achieving a comfortable retirement can be more challenging as that often means living with less. LIUNA members are fortunate that in addition to Social Security Disability – payments that are based on total lifetime average earnings – the union also offers disability pensions. The terms of these pensions vary depending on the local plan where you belong.
How Are We Doing?
An Employee Benefit Research Institute survey finds that most people have virtually no savings. Twenty-seven percent of working Americans say they have less than $1,000 in the bank. More than half report that the total value of their savings and investments, excluding the value of their homes and any defined benefit plans, is less than $25,000. Although they will not have the same living expenses as when they were working, to retire well, they are going to need more. While most Americans arenot adequately preparing for retirement, most anticipate retirement or at least the option to work fewer hours or engage in less stressful work. In all likelihood, this also means less lucrative work; hence, the need for adequate retirement savings. You can add to your retirement savings by:
- Establishing a savings goal, setting a plan and sticking with it
- If you have a 401(k), increasing contributions to get the maximum match from your employer
- Meeting with an investment professional who can discuss retirement goals and make suggestions
- Understanding Medicare when working beyond age 65 and also supplemental insurance to Medicare
“Retirement should be planned from your first day of work,” says O’Sullivan. “If you take steps throughout your career to save a little each week and supplement your savings with your pension plan and Social Security, the retirement of your dreams will be within reach.”
[Janet Lubman Rathner]