Diversify Retirement Savings Beyond Pensions
By Hook Law Center
In comparison, those with defined-benefit plans – pensions – tend to feel a lot more secure about their post-retirement income, and with good reason: pensions are reliable. Private pensions are insured by the Pension Benefit Guaranty Corporation, an independent government agency, and government pensions are considered rock-solid.
The city of Detroit’s recent bankruptcy filing, however, might give those government pensioners and future pensioners pause. Pensions represent a huge and growing share of the city’s expenses that contributes significantly to its dire financial straits. If Detroit’s bankruptcy is allowed to continue – it is currently held up in court – it may very well mean that pension promises are broken and retirees’ benefits will be cut.
When planning for retirement, it is important to diversify your savings and your post-retirement income. No matter how large and reliable your pension, it should not constitute the entirety of your nest egg. Remember, many state and local government workers are not covered by Social Security.
If you have an option to contribute to a supplemental retirement plan, such as a 403(b) or 457(b) account, do so. If not, set up your own IRA, even if your contributions will not be tax-deductible. Consult with an estate planning attorney to decide on the right mix of contributions to pension funds and individual retirement accounts.