Money Monday

MONEY MONDAY 4/1/19

Did you think pension news could get worse? Traditional pensions are disappearing in America, and the federal government just made it easier for employers to get rid of them.

With no fanfare in early March, the Treasury Department issued a notice that allows employers to buy out current retirees from their pensions with a one-time lump sum payment.

Even with the shift to 401(k) plans, more than 26 million Americans are covered by a pension. Most are in or nearing retirement.

Now, some worry that millions of people receiving monthly pension checks could be at risk.

"Permitting plans — for their own financial benefit — to replace joint and survivor or other annuities with lump-sum payments will reduce the retirement security of both workers and their spouses."

Why we sometimes don't like the lump sum: 1-in-5 retirees who took lump sums spent them down within five and a half years, and nearly a third regretted using large chunks of the money for short-term needs like home improvements.

Why are companies getting rid of pensions? 1) You are less of a liability when your responsible for your retirement. 2) Lower interest rates made 'guaranteed money' less possible.

The premiums the Pension Benefit Guaranty Corporation charges per covered employee have more than doubled over the past decade

General Electric's pension plan was underfunded by $29 billion at the end of 2018. That number may have changed after the biotechnology sale to Danaher Corp for $21 billion.

A misconception about pensions: If a company goes broke, you lose your pension. Pensions are insured by the Pension Benefit Guarantee Corporation. For example, if you retire at age 60, PBGC will guarantee up to $42,000 of your pension or up to $38,000 if you want to leave your spouse half of your benefit.

This insurance policy does not cover Kentucky pensions.

HERE'S THE SIMPLY MONEY POINT

Pensions are a dying breed. If you're lucky enough to have one -- or WILL have one -- just understand that a "guarantee" isn't always guaranteed these days.

Every Sunday, you see the Simply Money column in The Cincinnati Enquirer and online at cincinnati.com

Jake in Ripley: My dad seems to be struggling with his recent transition into retirement. He just doesn’t seem happy. Any suggestions for how to help him?

When you think about retirement, you might think about "downsizing" your home. After all, having a lower monthly payment, lower energy bills, and lower water bills seems like one of the easier ways to cut back on your budget

But downsizing doesn't automatically mean you're going to save money. Consider the following:

You're probably going to need to buy new furniture: If you're downsizing, the furniture you currently have might not fit or look right in your new space. So you could be looking at a couple thousand dollars worth of new furniture.

A smaller house doesn't necessarily mean less work: If you buy a smaller house with a yard… you still have a house with a yard. The bushes and trees need trimmed. The leaves need raked.The lawn needs mowed. Plus, don't forget all that shoveling!

Don't want to deal with all that kind of stuff? Consider a condo.

You may need additional storage: Many retirees who downsize look forward to living with less stuff. But it's not easy to live without enough storage SPACE. Those used to a large space may miss having a basement, attic or garage.

You might not agree with your spouse: You significant other might have different ideas on what it means to "downsize." You need to work out a compromise about which items will accompany you on your move, and what can be tossed or sold.

HERE'S THE SIMPLY MONEY POINT

Whether or not you downsize is a personal decision. Just be sure to run the numbers - and realize that moving somewhere smaller doesn't AUTOMATICALLY mean you'll be saving money… or that it's the right option for your retirement.