As I write this, it has just been reported that U.S.-based pensions are facing a $1Trillion black hole. Similar pension deficits are widely evident among advanced and aging economies of the world. This includes Canada and our friends and neighbours. Remember when pensions used to sport surpluses? Were you amazed seeing future promises that kept increasing with each year’s reporting? But that was the 1980s when bonds paid >10%.
Now we have 10-year bonds below 2%, 30-year bonds near 3%. This is among the greatest threats to ever hit pension plans. And each of the potential solutions is plagued with further difficulties: (i) more deposits (but from whom?), (ii) greater returns (but from where?), or (iii) earlier mortality (but people are living longer than ever).
My goal here isn’t to repeat what I’ve already shared in seminars, videos, and my 2013 book A Lifetime Of Wealth (chapter 1 on pensions) but to expand our discussion into what you’ve shared with me since then, and how this impacts your life and family in retirement. If pensions could fall short 5% or 50% they will still pay an income (more or less) so our focus now is what this can mean over the rest of your life.
This year I've been doing surveys and personalized interviews with people like you. Retired or preparing to retire; professionals and business owners; selling a business, or retiring from career: these are mainly people with strong incomes and successful in their accomplishments. They're neither "filthy rich" nor "poor". Middle- or upper-middle income ...and if anxiety arises for these homes, future-stress can be even higher for those forced into earlier retirement, or with lower savings and incomes.
Here today we can share Survey Question #1 ...and subscribe above or check back as we'll add to this every few days over the next 3 or 4 weeks. PLUS I invite you please to share your views, questions, critique & personal stories in the comment section below (or directly by phone or email). Now let's listen in as you and others have contributed in these surveys and personal interviews.
Your response to Survey Question #1:
To Ensure Money for Retirement I most likely
Only one-quarter of us believe our resources can fully sustain our retirement dreams. Owning or managing a business lifts this confidence to one-third. At least 70% are looking ahead and already feel their retirement savings will fail to support their desired retirement lifestyle.
- 40% say they’ll continue working in early retirement to earn extra money.
- 22% say they need to increase investment risks to plump up their nest egg.
- 20% are already slashing their retirement dreams …and they haven’t even retired yet!
What could this mean for your pension choices?
Is your pension fully funded or is it facing a significant shortfall? Given world events of recent years I suggest any pension that is today at least 95% funded may not be a great worry. Many however are already underfunded by 10%, 35%, even 50%. How would that kind of shortfall be made up? The government obviously doesn’t have money to shore up these plans. Employers have so many challenges in today’s globalized economy that they too may ignore this elephant in the room. Fact is, a generation is going to retire with significant shortfalls in their pension plans. Each plan is different so you want to know the status for any pension in which you are a member.
How do we use pension estimates to project your future income? A friend of mine expected his pension would pay $3600/month but during retirement that was cut to $1900 and there’s little hope for growth or inflation indexing. “What can you do?” he says, as they adjusted their life to fit a smaller income. But the shock was difficult in earlier years, and we’d surely agree that it wasn’t fair for him to face such a dramatic cutback. Preparing our clients’ financial planning we decide how to use pension statements in projecting future income: for some we’ll use the full estimate, and in others we may include only 60% to 80% of the estimate to soften the loss if pension values fail.
Many pension members have the option to “commute” and take a lump sum instead of a monthly income. This is discussed in A Lifetime Of Wealth, chapter 1, or I can send you more on this if you reach me directly. Consider if the following could be valuable for you. (i) Pension becomes a “personal and family asset” no longer owned and held in the pension plan. (ii) You can align the investment mix to fit your personal timelines. (iii) You can draw higher income for early-retirement dreams or if your family history suggests doing more in a shorter lifespan. (iv) Choose a professional advisor who can align “risk/return” with your other savings and lifestyle needs. (v) Bequeath pension value to your heirs: children, grandchildren, even charity.
Understanding your pension choices can open more freedom to live the way you choose. Perhaps you’ll work in early retirement -- or discover the freedom to choose. A "new retirement career" can be about much more than money!
How would reduce stress? Some would stay in a pension plan as it's the nearest thing you can get to a guaranteed deposit that will pay you (something) over the next 30+ years. Others want to leave the systemic risks of underfunded pension plans, to fit their own risk-profile, personal comfort and lifestyle.
Freedom to align your income to your personal retirement goals could mean the difference between traveling to Arizona or the Azores, , cruising to Alaska or from Amsterdam to Austria, hiking the west coast trail or the Camino Santiago. Or all of these! What is the Lifestyle you want to be able to create and enjoy from your pension and savings?
Together we match pension decisions with the LIFESTYLE you want to be enjoying, and the resources you'll need from today to age 95+. At most, one-quarter of people reading this already feel they're on track. Over 70% feel they need more help, guidance, and confidence to secure their personal goals for retirement living.
Isn’t now the time to get professional support? Is someone close to you needing such care for their future? If we can help you or someone you know, phone or email me today. ...here is my contact information...Brian Weatherdon, MA CFP CLU CPCA CRC, MDRT. 905-637-3500 x 223 627 Guelph Line, Burlington, Ontario. L7R 3M7. 1-877-937-3500 FREE x 223 Certified Financial Planner. Certified Retirement Coach. brian@SovereignWealth.ca