We already knew that pension funds were on the way out. However, things aren’t being helped by the latest from GM. Earlier this year, it became apparent that GM’s pension fund was in big trouble (but that probably isn’t going to affect soon-to-be-ex CEO Rick Wagoner‘s $20 million pension). Indeed, whether restructuring, bankruptcy or some other solution to insolvency is adopted, the bottom line is that pensions are likely to be cut.
But GM is probably not the only company looking at what it can do to cut costs. Indeed, legacy costs — pensions and health care plans — for retirees are extremely expensive and one of the reasons that some companies are having trouble coping with the current recession and financial crisis. When we get through this economic chapter, even fewer companies will be offering pensions — even 401k matching programs are in trouble right now.
Here are some retirement planning steps you can take to prepare for the future, and help you re-do your retirement finances if you have a pension that has been cut:
- Set more money aside. If your retirement plan is maxed out, put that money into high-yield savings, CDs or some other account. In order to do this, you may have to make some cutbacks in your spending. If you qualify, open another retirement account (i.e. if you already have a 401k, open an IRA as well).
- Keep your investing strategy. Looking at your retirement account value can result in statement shock, but it shouldn’t prompt you to make sudden and drastic changes to your investing strategy. Instead of responding to fear, look at your investments, and determine where you can tweak things. Now is not the time to panic and make rash decisions.
- Consolidate retirement accounts. If you have different retirement accounts from different employers, do some consolidation. Keep 401k and IRA accounts separate, but consolidate within those categories. See where investments overlap and try to streamline things.
- Reconsider your retirement age. If you are close to retirement now, you may have to reconsider when you will retire. Think about working a little longer.
- Dividend paying investments. If you are already retired (and even if you aren’t), it can be a good idea to look into dividend paying investments. Some of these pay monthly or quarterly, in addition to semi-annually and annually. This can provide you with a little extra income.
- Passive income. This goes along with #5. Find ways to establish passive income that generates regular payments that can help you supplement your income.