How to Determine if your Pension is Safe

A pension is the money you get each month after your retirement. The amount is usually a factor of what you have earned over the year, and is determined by the salary you drew when you worked and your contribution to the pension plan.

Private Sector Employees

If you work for the government, your pension is guaranteed by the government and is, therefore, safe. You will get your pension each month as very few governments go insolvent.

However, as most of us work in the private sector, it makes sense to monitor our pension account continually. Keep an eye on your pension account. If your employer is deducting money for pensions, make sure they go to employee benefits and not executive retirement benefits. If you have the option, take out your pension money and invest it in a place where you can monitor it and know that it is safe. Resist the temptation to dip into your pension fund now. Make sure you keep adding to the pension fund even if your company is not.

Sometimes a firm will move executive benefits into the regular pension. Often the only tipoff is that to appear non-discriminatory, regular rank and file employees too are given a small hike in benefits. If this happens, check what the big fish have received as benefits. The difference between the benefits passed on to the rank and file and the executives is bound to be huge. You can then lodge a protest about the firm’s activities.

Make Your Pension Safe

You also need to ask if your pension fund could run out of money. This can happen if the number of employees contributing to the fund is smaller than the number of retired employees eligible for pension. To avoid this situation, make sure that your pension fund is invested in safe assets. Your employer can also insure your pension fund. Ensure that they do so.

If you are covered by a defined benefit plan, federal law will ensure that you get the full pension promised to you. Even though the regulatory body is not in good financial shape, you are likely to get most of your benefits under this scheme. It is best that you understand your plan’s funding regime to make sure that you are fully covered. The laws state that you can ask for full information about the state of your pension plan. Use it to discover for yourself how safe your pension plan is.

You should be asking questions such as who is guaranteeing the pension. If it is your company, then check out the financial viability of your company for the next 40 years or so. It is best if your pension is guaranteed by an independent authority that insures your pension benefits. If you are working for a strong and growing company in a healthy industry and your plan is near or above a 100 per cent funding ratio, you need not worry too much. On the other hand if your employer is likely to go broke any time in the foreseeable future, you will have to make alternative arrangements for your retirement funds. It pays to know now how your retirement fund stands, when you still have time to make alternative plans.

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