It is impossible to predict the future when it comes to financial markets or how governmental regulations and tax laws may change and, as a result, potentially affect your sources of retirement income. This is why it is essential to be prepared and remain flexible and open-minded when planning for your retirement.
A good way to start is to know what sources of retirement income are available to you, how the plans work, how they are funded and what kind of payment guarantees they have, if any. Below is a list of some of the more common types of retirement plans with links to additional information.
- Defined-benefit plans (also known as pension plans). As a union member, you are more likely than a non-union worker to enjoy the advantages of a traditional pension plan — a benefit provided to 67% of union workers, compared with 15% of non-union workers, according to the AFL-CIO (2007). While some plans require an employee contribution, these plans generally are funded by employer contributions. Contributions are made to a separate trust and must be used for providing the benefits promised under the plan.
Pension plans are heavily regulated, which adds to their overall security. The framework for the design, funding and administration of nongovernmental defined-benefit plans is provided by the Employee Retirement Income Security Act (ERISA). In addition, pension plan benefits are guaranteed to certain levels by the Pension Benefit Guaranty Corporation (PBGC). Visit the PBGC's Web site for more information about who they are and what they guarantee.
The funding level of a defined-benefit plan is one measure of its ability to pay the promised benefits. Another is the stability of the employer(s) and their ability to make necessary ongoing contributions to the plan. The Pension Protection Act of 2006 (PPA) provided a new framework for funding defined-benefit plans and increased the requirements to communicate this type of information to the participants.
- Social Security. Social Security is a federal program designed to provide a certain level of retirement assistance to covered individuals. You can begin collecting this benefit when you reach age 62; however, you will get a larger check if you wait until normal retirement age—65 for someone born in 1937 or earlier and 67 for someone born in 1960 or later. If you were born in the years 1938 through 1959, normal retirement age gradually increases from 65 until it reaches 67—visit the Social Security Web site for additional details.
There has been much discussion over the past few years regarding the ability of the Social Security program benefits to be sustained. The 2006 Social Security Trustees Annual Report to Congress projects tax revenues will fall below program costs during 2017, and funds will be exhausted in 2041. These projections are based on current economic conditions and assumptions about economic growth, wage increases, inflation, unemployment, mortality and other factors.
To learn more about the financial status of the Social Security trust funds, visit the Social Security Web site. There are efforts under way to change Social Security. You can go to the AFL-CIO's Web site and the Alliance for Retired Americans Web site to stay informed on this topic and to learn about what actions the union movement is taking to help preserve Social Security.
- Defined contribution plans. These are tax-advantage savings plans—such as 401(k), 403(b), 457, employee stock ownership plans and profit-sharing plans—provided by employers and unions. Contributions made to defined-contribution plans come from you and/or your employer and are made to a separate trust that holds an individual account in your name. They are called “tax-advantaged” plans because the contributions made and earnings on those contributions are tax-deferred until the amounts actually are paid to you or your beneficiary.
These plans permit participants to direct the investment of some or all of the money in their account. If you participate in such a plan, you make the investment decisions based on a portfolio of investment elections provided through the plan.
The growth of your account is dependent on the performance of the investments you make (which can gain or lose value), making your ultimate benefit from the plan susceptible to changes in the financial market and, therefore, hard to predict. With defined-contribution plans, the investment risk is on the participant and your benefits are not guaranteed by a federal agency (like the PBGC).You should be aware of how those changes can affect your retirement money and factor that into your planning.
- Individual Retirement Account (IRA). This is a personal savings plan that allows you to set aside money for retirement while offering you tax advantages. If you are considering an IRA, be sure to review the IRA page of this site for additional information on deduction limits based on your filing status and income.
- Annuities. Often promoted for retirement, these income-generating insurance products come in two flavors: immediate annuities, which start paying right away; and deferred annuities, which start paying after a period of time. Annuities can be complicated, so it's wise to do your homework before purchasing one.
Of course, your personal savings, home and real estate investments also are potential sources of retirement income.
IMPORTANT: As a union member, you have the support of the entire union movement working to help ensure your pension and Social Security remain secure and available to you at retirement. If you would like to find out more about what you can do to take action and further support these efforts, visit the AFL-CIO Web site and the Alliance for Retired Americans site.
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