I know most of you are probably young but it is not early to think about retirement. I just want an idea of how people are saving for their retirement and where they are putting their funds. I have been putting money aside into a Retirement Savings Plan mostly for income purposes. I contributed the minimum towards the company pension but I did purchases company stock when the company matched 8% of my contribution every paycheck. Now that I have a better job and better pension where I contribute approx 10% of gross earnings every week, I do not feel the need to contribute towards my Retirement Savings Plan. I know if I have a pension plan and maximize retirement savings plan I can retire early and have a lot of $$ for my retirement but won't have much now. I do however contribute to Retirement Savings Plan if I am a little over a higher tax bracket. My goal is to work 28 more years and retire by 55 years old and have done some investment into mutual funds and a little real estate. What are you doing right now to save for the future? I do not have kids or a mortgage so I guess my financial situation is simple right now.
I just contribute to 401k up to what my company matches. I guess that'll be defined contribution pension plans? I don't trust much of these retirement plans; mainly due to past performances. Not sure about you, but, I have heard alot of older people that did not get to retire because the stock market wipes out their 401k. I do invest on my own outside - gold / silver / real estate / stock market / ira. Hope that helps.
Coming from my generation, it's indeed extremely rare to see a young person look ahead to financial plan for his or her retirement. Good for you. Just one word; diversify. Don't expect any one vehicle to remain solvent. And I'd be very careful about those company stock plans as it's dependent on the eventual health of the company; while it may be worth a lot today, stocks have a way of becoming worthless when companies go bust. There are lots of horror stories of employees socking away a lifetime of savings into company assets only to be completely wiped out when seemingly rock solid companies go bankrupt. Color Tile and Enron are perfect examples. Also, be careful about annuities. Most people think of them as savings because of the way that it's marketed, but they're actually insurance plans sold by insurance companies. If your company is offering such things for retirement, it's often because the insurance company has other rewarding deals for your company, which then allows the insurer to prey on it's employees. What they sell may not be to your advantage. Finally, if you want financial planning advice? See a professional financial planner, but importantly, ONE THAT HAS NOTHING TO SELL. The ones who offer advice with products generally steer you to products that make the best commission for them, not for you. It's an inherent conflict of interest to be a vender as well as an advisor. Oh, and read up on the differences between these two definitions: "Defined Benefit" versus "Defined Contribution" in regards to company pensions. Good luck. Assorted links with stories worth reading: http://www.gpo.gov/fdsys/pkg/CHRG-107shrg77706/html/CHRG-107shrg77706.htm http://www.pionline.com/article/19980824/PRINT/808240741/color-tile-401k-suit-nears-resolution http://www.dol.gov/ebsa/newsroom/fsbankruptcy.html http://www.thebankruptcysite.org/resources/bankruptcy/exemptions/pension-exempt-bankruptcy.htm
I believe the 401K in usa is equivalent to RRSP ( registered retirement savings plan) here. The difference is that RRSP is registered with any financial institution but it is what you put in. My previous employer was a large financial institution so I gained in the stocks purchased with the company 401k but it did drop recently due to the market but overall I gained. For my case let's say I make 60k a year. 14.5k will go towards taxes, employment insurance, canada pension plan, and etc. 5.5k will go to pension which is mandatory about 10% of salary.So I am left with 40k and if I max my RRSP i would only have 32k left. My pension after 29 years with the company, they will use the 4 highest earning years and that is how they will determine my monthly pension after retirement which should be around 4k a month before taxes. I guess that would make my pension defined benefits (thanks ralphrepo ) If I contribute to RRSP, it would still go against me as income when I take it out. I know average smart people who invest make at least 10% in return so I think that is the better choice but I need to learn more about it. Gold is not that good to buy now and it is expensive, the real estate market is not that steady and need a hefty down payment to invest. Stock is too risky and like ab289 said, some people lose their retirement funds because of the market. I read about the couch potato portfolio and it seemed interesting as ralph said, to DIVERSIFY. Because of my company and job security I will be staying at this company until I retire and need to plan now. I envy those who take risks and gain a lot in the long-term. My goal is to save money for a downpayment for a house and have kids in the next 2-3 years. By the time I retire, I want to have a mortgage free house, kids graduated from post-secondary and have their own career. I see people working so hard for money even after 30 years and some people don't live that long to enjoy their pension. I do not want to work for my kids and want to enjoy retirement and travel and do man things and that is why I am worried about savings. I want to be able to live on 4k a month stress free which is probably a lot more than 4k in 28 years. I already quit the partying and hanging out with friends weekly and just focus on my significant other. I feel like I am behind in life sometimes and im only in mid 20's.
Defined benefits pension plan is only as good as the pension administrator. From your descriptions, I think that's probably similar to US state government type of pensions. And if you google, alot (if not all) are underfunded. I think it's pretty risky to rely on that. For example, http://www.americanthinker.com/arti...ates_have_the_most_underfunded_pensions_.html Recent events in Greece kinda shows that as well. Austerity measures in turn becomes a cut in your pension.
wow, did not expect to see conversation re: pensions in DA... we getting old. But it's great that you're thinking ahead about it. I work in the retirement industry here in Oz and very rare to see any companies offer defined benefit retirement options any longer. Those that were lucky enough to be part of the defined benefit plans have generally stuck to it. This is because of the basis it's an average of your final years of salary (leading into retirement) being higher than your early years, length of service and your age. You do not get an exact sum, just an estimate of you benefits based on the preceding 3 factors. When you retire or leave the company, the benefits are then calculated and "paid" out to your account. This payout is then an exact amount that will fluctuate with market movements. The good thing is that Defined benefit funds must meet legislation to be fully funded in order to payout the members who are supposed to be covered. A majority of retirement benefits here are instead, defined contributions (or accumulation as we more commonly refer to here). This is where X% of your salary is put away each week/month/payroll frequency and accumulates over time and fluctuates with market movements. What do i do to contribute towards my retirement plans? well having a mortgage limits what you can realistically contribute towards retirement. As much as ppl say to contribute early etc etc, monies are usually better spent reducing the main mortgage so that interest paid is cut down and then when there is more disposable income, can invest into retirement savings etc.
Like H! pointed out, the bulk of the employment world has distanced themselves from Defined Benefits plans at it costs them a lot more money to administer, AND more importantly, in the US, THEY (the company) are responsible for any shortfalls. In effect, this shields the retiree from market fluctuations and usually provides for them for the rest of their life, and can even provide for their spouse (at reduced rate, with variations according to plan) after they die. Further, all such pension plans are, by law, protected by state pension guaranty insurance. That is, the company must purchase insurance to protect and provide for the pension fund should the company itself go out of business. That's the nice part of it. The bad side is, that pension funds in general have long been a political football. Many are notoriously underfunded and even the guaranty insurance themselves are known to be chronically unable to meet its obligations should more than one fund fail at a time or if the failure of a company is especially large. Still, all said and done, the defined benefit is the better of the two because it doesn't require the retiree to do anything and he will continue to be paid monthly. It also serves as a safeguard against being ripped off or stupid with one's money, as one can do with a defined contributions plan. Defined contributions have become the darling of company benefits. These plans allow companies to regularly contribute money into an employee's retirement account, and when the retiree goes, so too does any further responsibility on the part of the company. If the former employee decides to take the whole amount and invest on a hot tip in swamp land; it's his problem if he loses all his money. Or, if he decides to spend like Mike Tyson, thinking he just got a large lump sum available, then it's his problem too, if he can't pay the rent the following month. The point is, defined contributions are the worst type of plan for a fool with his money, as he will soon be on welfare after the money runs out from irresponsible spending. Moreover, those who have lump sums given them at retirement have to then learn to fully manage their money and monitor investments. This becomes a full time job and often attracts unscrupulous family members, who remember that there is several hundred K in someone's 401 account, and they can't wait to get their hands on it as dad becomes more and more confused. Again, all these plans have good and bad sides, some of which one can control and other things that one cannot. The best thing is to have a variety of unrelated, independent resources that contribute to a basket of retirement coverage, so that if one doesn't perform as expected, then the others can prevent a total slide into poverty. Good discussion. Thanks to the OP for introducing such an important stimulating discourse.
To be honest I joined the company because of the pension. However I know now that there is a possibility of the defined benefits will turn into defined contribution. Now I am worried that I will not have a set amount every month when I retire if the company does not continue the defined benefits plan I work in the public sector and also have a union so my job is pretty secured but I am more worried about the future which i should not focus on right now. Like most families, when I have a mortgage it will limit my investment contributions. Or if I am the solo breadwinner of the family, it will be even harder.I guess the best way to make money is to do real estate and have tenants pay for the mortgage but coming up with a downpayment and extra expense is not easy. Houses and condos are rising rapidly. I really do not want to work more than 35 years at this company. I cannot see myself having 401k and defined contributions and manage the lump sum after retirement. I would rather work longer but less hours. It seems like a lot of people do not worry about their future and focus on present happiness. Or there are those who just count on the government to give them money.
I too, am working for a company that had changed its defined benefits plan to one of defined contribution. However, it did so only for those hired after a certain date. Us "old timers" still have the original pension. Since your company is unionized, I doubt it would easily allow that plan to change.
Aside from my contribution plan (about 10% of my wage ), and since I am a stamp and coin collector I also set aside 2% buying stamp and coins. Lucky for me, lately purchased a lot of silver coins in pristine condition at melt value.
i guess ralphrepo you really are an old guy lol. I feeling like I am getting old and feel like I have a lot of responsibility but I actually don't. I will just see what will happen in the next 28 years.
kdotc you're still young, its respectable that you're thinking about your future. Don't forget, the financial landscape is continually changing... having a plan in mind is good, just don't stress yourself too much about it though. Seek professional planning advice and continue to review your circumstances
Indeed, it's already a winning situation when one realizes or has the awareness of the value of such planning needs. This is important because of the value of the time element in compounding of interest vis a vis investments. People often fail to realize the impact an early decision to invest may be to one's future; we're all filled with regret over one thing or another, for not having done things sooner. A word to all the youngsters out there, take it from an old man, don't let retirement be one of those regrets.
