Children of Soldiers Fund

If you are planning on using your pension during retirement, you may be in for a HUGE shock. Just like those folks who were told that the Government would never tax Social Security, you will be in for a surprise. But why?

Pensions come – normally – in two flavors. Funded and unfunded. This is a “pay as you go” system which looks and feels very similar to Social Security. The current retirees are paid from the current workforce.

The city of Pittsburgh PA, for example, has promised its workforce (police, firefighters, municipal employees, etc.) a total of $524 million in pension retirement funds. So far, the city has set aside exactly $0.

It is assumed with an unfunded pension that when individuals retire, there will be sufficient future revenues to cover all promised liabilities. These projections represent a confidence game – a “trust me” scenario – if you will. What happens if the city’s future revenues are not enough to cover promised pensions? Don’t ask.

Moving on…many private companies have the same problem.

For those who have a funded pension – that is, the employer sets aside money over a period of time to cover promised benefits – have an altogether unique problem. Those pensions that are funded properly are invested. Where are they invested? Normally, they are invested in sound companies like Lehman Brothers. But what if companies like Lehman Brothers aren’t around anymore or become “unsound”? You’re not supposed to ask those kinds of questions.

Fortunately, a lot of individuals like you are asking those kinds of questions. You see, if you have a pension, there is a chance that your pension was invested in some of the large financial institutions that were in trouble this year. The probability of your pension being damaged beyond repair depends on the company you work for and how the money was invested.

Some companies are going to have to cut pension retirement benefits, others are going to have to stop offering or promising future growth.

When you hand your money over to a third party (i.e. a 401(k)) or you rely on someone else to save money for your retirement (i.e. pensions and Social Security), you run the risk of that someone else not meeting your expectations.

Fortunately, for most people, even those in their 40s, there is something that can be done about it.

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