Forbes: Retirement Planning in the Face of Pension Reform

Forbes: Retirement Planning in the Face of Pension Reform

The recently passed legislation is going to mean changes and decisions for those directly affected by the pension changes. Now is the time to get a game plan in place to account for the altered retirement income. For employees new to the work force, the changes should be more palatable. For those closer to retirement, it’s imperative to take steps now.

Make the most of your retirement plan

Retirement plan contributions prior to pension reform were optional for many. Now, each employee will be contributing at least 5% of their salaries to a defined contribution plan. The focus used to be supplementing a pension with some retirement assets. Now the focus will be on workers to fund the majority of their retirement. Here’s some quick math for those at the beginning of their careers – you’ll need roughly $775,000 at retirement to pay yourself $50,000 per year for 30 years, assuming your money continues to grow at 5%. That means during your working years, you’d need to put away $6,800 per year for 30 years growing at 8% to get to $775,000.

GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLAST

Refocus on the budget

It’s recommended that clients do a pre-retirement and post-retirement budget. What is your income and expense situation going to look like after you retire? What expenses do you have now that you may not have after you stop working? Now, go through your budget and look for places it might be possible to lower expenses. If you haven’t taken advantage of low interest rates to refinance, now is the time to do so. Many local credit unions and banks are offering great rates with low closing costs to gain members.

Keep health costs in mind

Finally, while budgeting for retirement, make sure you’re adequately planning for the cost of your health maintenance in retirement. That means covering exposed gaps and accounting for the cost of prescription drugs. Also, each person should evaluate scenarios for dealing with a long term care need.

Dan Forbes is a regular contributor on business financial issues. His office is in Providence, RI. He leads the firm Forbes Financial Planning and can be reached at [email protected]