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A New Chapter for Retirement
"Will you still need me...when I'm 64?" It's a question Paul McCartney asked in a song he wrote as a young man. In it, the former Beatle envisioned life at 64 "doing the garden, digging the weeds...yours sincerely wasting away." Yet it seems as though Paul has defied his original vision of retirement. Reaching 64 himself this month, he is still recording music and playing to sold-out crowds. He is even thinking about rewriting his now-famous song.1
Just as Paul McCartney has rewritten his vision of retirement, today's companies are rewriting the retirement rules for working Americans. Many companies are shifting away from traditional defined-benefit pensions and moving to defined-contribution plans like the 401(k), which makes employees responsible for funding their own retirement. Defined-contribution plans offer workers a number of benefits. Plan participants typically have several investment options and greater control over their retirement accounts, which are portable when they change jobs. Many employers may also offer matching employee contributions. Distributions from most employer-sponsored retirement plans are taxed as ordinary income and, if taken prior to reaching age 59½, may be subject to an additional 10 percent federal income tax penalty. Making the SwitchA number of companies are taking steps to help ease the transition for workers. Many are enhancing the benefits of their existing defined-contribution plans by increasing the amount they contribute to employees' accounts and/or enhancing matching contributions. Congress, too, recognizes the need to help workers save more for retirement and is expected to offer incentives to help spur savings. It is also taking steps to help shore up funding for the Pension Benefit Guaranty Corporation, which helps protect American workers who have pensions from the risk of pension default.2 What to DoThe good news is that a majority of companies should be able to pay their promised pension benefits. But in light of recent trends, it may be wise to consider all possible sources of retirement income when reviewing your retirement strategy. With the changing retirement landscape, there may be no better time to size up your current situation. Your pension may be just one piece of your retirement funding pie. 1) The Sun Online, 2005 |
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