Planning for Retirement

On Monday in my financial reporting class, we watched a video by PBS about pensions. In it they mentioned 401k's.

Apparently they originally were not designed to be people's only source of retirement income, they were supposed to be supplements for employer pensions. And many people who have been contributing to their 401k are not ready for retirement.

This one guy did some massive research study and found that those people who earned more, had higher returns on their investment. Those who earned less had low returns.

Corporate pensions were always managed by professionals and able get stable, moderate returns. Joe the Plumber doesn't know anything about investing.

They also said that people weren't saving nearly enough. Upon retirement, many people only had 2 or 3 times their ending salary saved. They recommended saving 8 times your ending salary. As a percentage, many only save 8-10% of their income, they should be saving 15-18%. Especially with the increased longevity.

On a related note, they discussed how this airline (I forget which one) went into chapter 11. They paid $400 million to lawyers for their bankruptcy services. As a result they eliminated $7 billion worth of debt. $5 billion of that was employee pay, benefits, and pensions. They said that chapter 11 has become a convenient loophole for employers to unload their employee pensions.

I know you're saying that they needed to do it to stay in business and remain competitive (William). However, while the executives lost some of their pensions, they received bonuses that more than made of for it. And the CEO had a special iron clad provision in his employment contract so that he didn't lose any of his.

Anyway, now you have something else to worry about.