I started my career in our Defined Benefit division, calculating pension benefits for future and current retirees. At the time I was a 19 year old, bright eyed and bushy tailed about my financial future. Calculating monthly and lump sum benefit amounts that were far more than I would ever think I’d need in retirement someday… and just from a pension! Who’d need anything more, right? Wrong.
I then moved to our Group Medical area where I handled overpaid benefits (that’s when a client terminates or retires from a company and that company stops paying their health benefits)…you mean to tell me that some employers don’t just allow their employees to remain on their health plan… forever… even after they retire? Yes, I was that naïve and totally thought I’d be covered long after I retired… WRONG again! In the last 20 years companies offering retiree health benefits have gone from 66% to 35%1.
Upon leaving Group Medical, I went on to work and lead teams in Individual Annuities for several years. We were helping pre-retirees so they could save and diversify their retirement holdings on a tax deferred basis, and helping current retirees invest in a vehicle that will give them an income stream in retirement.1 What could go wrong? To put it simply, many just hadn’t saved enough by the time they became current retirees! It was hard knowing I was working with someone’s entire life savings, and it wasn’t a drop in the bucket compared to what they could potentially need to be comfortable. I knew that by age 65 these individuals should have had anywhere from 5-15 times their last annual salary to live comfortably for the remainder of their retirement2.
For the last year I’ve been leading a team of ESOP Communication Consultants. My team gets to work directly with our ESOP clients, helping communicate to their employee owners on this unique benefit. Great gig, right? Well… ESOP’s can be a complicated retirement vehicle for individuals to understand; one that without solid understanding can really impact the benefit. ESOP stock values change based on the value of the company; in tough economic times or when employees underperform the value of the company, and in turn the stock, can be impacted significantly. To address this issue, most ESOP’s offer the ability for participants to diversify once they reach a certain age. This can help ensure that their holdings are spread over multiple investment options and vehicles from different asset classes. The issue that I’ve witnessed here is that many just don’t take advantage of the diversification option leaving many if not all of their eggs in one basket which is generally not a good idea.
So to sum it up, my time across many areas of our company has taught me some very valuable lessons in preparing for retirement. Whether you have employer stock in an ESOP, were fortunate enough to be entered into a Defined Benefit, Defined Contribution or other retirement plan; there is never a guarantee to what your retirement future will look like. Create your own financial future, diversify your investments among various asset classes, and take advantage of your other savings options like 401(k) or IRA’s. These should help ensure you’re golden years are golden, even if you have unexpected expenses- you’re more likely to be ready!
1CNN. (n.d.). CNN MONEY. Retrieved 07 08, 2014, from Ultimate Guide to Retirement: http://money.cnn.com/retirement/guide/insurance_health.moneymag/index.htm2Badkar, M. (2014, 03 22). Your Money. Retrieved 07 08, 2014, from Business Insider: http://www.businessinsider.com/retirement-savings-guide-2014-3 Guarantees are based upon the claims-paying ability of the issuing insurance company. No investment strategy, such as asset allocation or diversification, can guarantee a profit or protect against loss. The subject matter in this communication is provided with the understanding that The Principal® is not rendering legal, accounting, or tax advice. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, or accounting obligations and requirements. Insurance products and plan administrative services are provided by Principal Life Insurance Company a member of the Principal Financial Group® (The Principal®), Des Moines, IA 50392.© 2014 Principal Financial Services, Inc.