Have a Worry-Free Retirement
By Tim Hanson
The Motley Fool
Friday, January 25, 2007
What a load off, huh?
According to a recent study by Towers Perrin reported in The
Wall Street Journal, "The pension plans of Fortune 100 companies
ended 2006 with 102.4% of the assets needed to pay pensions
indefinitely." That's right ... indefinitely.
Good news? Great news!
That's a far cry from just a few years back, when
these very same pensions were nearly 20% underfunded. Moreover,
maybe it doesn't mean that the end of retirement is nigh.
According to the Milliman 2006 Pension Study,
Bank of America,
have all bumped their pension benefit obligation ratios up over
the 100% mark.
So, mea culpa. I take back everything I wrote about the need to
take your retirement planning into your own hands. Me bad.
Sorry to worry you. There. It's retracted.
Or maybe not.
Havoc on the horizon
The Wall Street Journal article rightly notes that
like so many other things financial, pension plan health is
cyclical. Why are pension plans so much better-funded today?
It's not because of greater company contributions, but rather
because of the recent bull market rally. I'm guessing, many
pension plans, when calculating solvency, project that it will
It won't. The market moves in fits and starts. And a
protracted swoon, in the words of the Journal, "could wreak
havoc with pension funding once again."
Those aren't my words, but I agree with them 100%. That's why
Citigroup, which has seemingly more than funded its current
pension obligations, plans to freeze its pension plan in 2008.
If this nearly 200-year-old, $267 billion financial mainstay
doesn't think it can continue to operate a pension going
forward, what does this tell us about the outlook for pensions
I retract my retraction
It tells us that we'd be downright stupid to rely on
pensions to fully fund our retirements. Indeed, relying on
someone else to take care of you as you age is one of the four
surest ways to ruin your golden years.
In other words, even if you're near retirement and your employer
has assured you that your pension will be there, it's safest to
assume that it won't be -- at least, not fully. Instead, now's
the time to make sure you have your own retirement savings and
asset allocation game plan.
And if you don't have a pension -- which is likely, considering
that most companies, from
Wal-Mart, America's largest employer, to
GM, a former poster
child for pensions, only offer 401(k) plans -- make sure you're
taking full advantage of that benefit. That means maximizing
your company match and allocating your 401(k) in a way that
matches your timeline, increases returns, and mitigates risk.
The Foolish bottom line
While this recent pension news is positive, don't let
it lull you into thinking we're out of the retirement woods.
Our retirements are in our hands, and we need to make sound
financial decisions from here on out to ensure that our
retirements are secure.
Tim Hanson does not own
shares of any company mentioned. UPS and Bank of America are
Income Investor recommendations. Wal-Mart is an Inside Value
pick. No Fool is too cool for disclosure.