Sunday, March 8, 2009

The old rocking chair's got me personal finance blues

I feel too young for pension payments.

But as a 60-something boomer fighting a brutal job market in an imploding news industry, I recently applied anyway. I'm thinking defensively. A lot of good financial planners I've talked with over the years generally advise rolling your 401(k) savings into an IRA and taking them with you when you leave a job.

I decided to do the same thing with a handful of old fashioned traditional pension benefits I earned back before employers switched to 401(k)s. Briefly, I'm rolling as much as I can as a lump sum into an IRA that I hope not to need for a few more years. That still leaves maybe about $800 a month in payments the plan rules won't let me roll over. I'm taking that too, even though it would be worth a bunch more if I waited another four years or so.

So, why now? Because I don't know what would happen to the money if my former employer got deeper into its financial jam and either filed bankruptcy protection or simply shut down the plan to save money.

Theoretically, many of our pensions our insured by a 35-year-old federal agency known as the Pension Benefit Guaranty Corp. They've fielded some biggies, including the Enron collapse. But the agency is currently running $11 billion in the red and we don't know how many auto workers' pensions might be coming over the hill soon.

PBGC isn't a totally reassuring deal in the best times. The agency currently pledges to protect up to $4,500 a month in traditional pension checks for covered workers. But whether you are protected depends on your plan's rules, your age, how well the plan is funded and what PBGC can recover if it needs to take over.

There's plenty of wiggle room there. And even that theoretical $4,500 a month drops quickly to below $3,000 if you are younger than 65, have a spouse who will still need money if you die.

PBGC won't protect your 401(k) savings if your employer goes broke. Another agency in the Labor Department is supposed to assure that those funds are shielded from creditors. But that can be tricky too, because if your employer goes bust, your claims for your 401(k) money get bumped way down the list of who gets paid with what's left.

So, two things to do. Talk to the people running your retirement money, find out what happens worst case, and plan accordingly. Then, if it looks really bad, remember that those new fangled plastic coffee cans that Folgers, Maxwell House and others have been switching too will hold up a lot better than the old fashioned steel cans when buried in the back yard.

1 comment:

familyinvestmentcenterblog said...

Gene, it's good to see you blogging. You're really thinking this through and it sounds like you're making some smart moves.
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