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The Spectrum . Redwood City's Monthly Magazine Pension in Trouble? Take Steps to Replace Income By David Amman Special to The Spectrum In recent months, some well-known companies — including Verizon, Lockheed Martin, Motorola and IBM — have “frozen” their pension plans. If your company freezes its plan — or if you think it might do so in the future — you’ll want to start thinking now of how to replace the potential lost income during your retirement years. When a company freezes its pension plan, contributions or additional benefits will be discontinued during the freeze. Additional benefits typically would have increased each year of continued employment. Generally, when you retire or if you become disabled and can no longer work, for example, distributions will be paid to you based on your plan’s distribution options. Companies that freeze their pension plans may replace them with 401(k) plans, a move that gives you both opportunities and responsibilities. Now you must determine how much you need to save in your retirement plan. That means you need to calculate your retirement income needs and determine how much you might need from your 401(k). Also, you must choose the right mix of available investments within your 401(k) to help meet your retirement goals, given your individual risk tolerance and time horizon. As time goes on and your situation changes, you may need to periodically adjust your investment mix as well. To manage your 401(k) correctly, you may want to work with a qualified investment professional because, as you can see, there’s a lot at stake. Roth 401(k) may be available If your company moves from a pension plan to a 401(k), it may also provide you with the option of putting some of your money into the new Roth 401(k). Using the Roth feature in your 401(k) allows you to contribute after-tax dollars, which means you pay taxes on your contributions right away. Although distributions of Roth 401(k) contributions are always tax-free, distributions must meet a triggering event such as retirement, disability or death. Earnings also can be tax-free once you reach age 59 and have had the Roth 401(k) for at least five years. This taxfree feature can be quite valuable in helping you build resources for retirement. Other income-building possibilities Apart from actively managing your 401(k), you have other options to help replace some of the income you might lose from the freezing of your pension plan. Here are some possibilities: * Contribute to your IRA. Try to fully fund your Roth or traditional IRA, both of which offer tax-advantaged savings and an almost unlimited array of investment possibilities. * Purchase an annuity. If you can afford it, you might want to purchase a fixed annuity, which offers tax-deferred growth of earnings and can be set up to provide you with a lifetime income stream. * Take Social Security earlier. If your pension had not been frozen, you might have preferred to start taking Social Security at your “full” retirement age, which can be anywhere from 65 to 67. Now, however, you might need to start collecting your checks at age 62. Your monthly payments will be smaller than if you had waited, but if you need the money, it’s there for you. * Adjust your investment portfolio. With the help of an investment professional, you might want to restructure your portfolio to provide you with more income during your retirement years. Don’t get frozen out Clearly, it can be upsetting to see your pension frozen. But by managing your 401(k) wisely, and by considering the other steps mentioned above, you may be able to attain sufficient retirement income to overcome the loss of what you once counted on. 32
The Spectrum . Redwood City's Monthly Magazine SENIOR ACTIVITIES Veterans Memorial Senior Center Activities for May 2006 “Choices for Independence” is the theme of this year’s Older Americans Month in May. Members of the community and their families are invited to learn about the services provided for mid-life and older adults at the Veterans Memorial Senior Center, 1455 Madison Avenue, Redwood City, and to participate in the programs scheduled for May: “Nutrition” Lecture, Wednesday, May 3, 10:30 a.m., Goldstar Room, No Charge. Cathy Hazlewood, Registered Dietitian at Mills-Peninsula, is our guest speaker. “Proposition 60 and 90,” Lecture, Thursday, May 18, 10:30 a.m., Sunset Room, No Charge. Terry Flinn, Deputy Assessor-County Clerk-Recorder will speak about these two propositions that allow persons over the age of 55 to qualify for property tax savings when they sell their principal home and buy a replacement residence of the same or lower value. “Reverse Mortgages” Lecture, Wednesday, May 24, 10”30 a.m., Goldstar Room. Tricia Smith, Reverse Mortgage Counselor from Human Investment Project (HIP) will answer all your questions about the pros and cons of reverse mortgages. HIP is the only agency in San Mateo County that is certified by HUD and AARP to provide reverse mortgage counseling. “Wills and Trusts, Power of Attorney, and Advance Health Care Directives” Lecture, Thursday, May 25, 10:30 a.m., Sunset Room. Elsa Torres and Aldo Ibarra from La Raza Centro Legal will also provide information about Social Security, SSI, Medicare, Medi-Cal and other Federal, State, and County benefits. La Raza is a non-profit agency that provides free legal assistance on specific matters to Redwood City seniors. To learn more about the Veterans Memorial Senior Center, call 780-7270. Redwood City Parks, Recreation and Community Services Department provides recreational facilities and activities for all ages and interests, and supplies building and custodial services for City buildings. Redwood City Parks also operates the Veterans Memorial Senior Center and the Fair Oaks Community Center, providing social, educational, and cultural activities, as well as information, referral, and counseling services to persons living in Redwood City and neighboring communities. Redwood City Parks is more than you think! Its website is located at www.redwoodcity.org/parks. 33
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