Premise: Baby boomers do not appear to have saved enough to provide adequately for their retirement years.

I am a baby boomer, and all I can say is I take my financial future very seriously, and have planned and sacrificed and saved to provide for myself and my family in my later years. And in fact I had thought I was doing a fairly good job of it.

In planning my future, I look at various sources of income, and estimate as accurately as possible how much income I can expect from each source. My major sources are Social Security, my pension, my 401K fund, and my savings and investments. My decisions on how much to save, how much to invest, and indeed any other major financial decisions, were based on how much I expected to receive from my safest, most reliable sources of retirement income – social security and my pension. Questions like “can we afford to do this” or “can we afford to buy that” were always tempered by “will we have enough when we retire”. Every financial plan was based on the expectation of getting a known and well defined amount from my pension on retirement.

Now, when I retire and I am short the amount of money necessary to finance my retirement, I fully expect people to say “He/she didn’t save enough”, “She/he didn’t plan very well”, or even “He/she didn’t think about his/her future until it was too late.” Nothing could be further from the truth in every case.

I have run all kinds of simulations, adjusted my strategies, sacrificed, and been diligent about preparing for later life, but unfortunately, all of it has been based on the “given” that I would receive a certain known amount in pension earnings. Now that has been cut – how much we don’t exactly know yet, but I am estimating about 25% in my case – and I don’t have another 30 years to make up the shortfall through increased savings.

Perhaps the savings level of baby boomers is low due to a couple of factors: 1) the “grey ceiling”, the practice of laying off or firing older workers shortly before their pension obligations (that they counted on as their primary source of retirement income) are fulfilled and/or appreciate to their full value; and 2) the recent practice of pension attrition – reducing in one form or another the total value of the pension packages on maturity, thus reducing the value of the overall pension obligation, and taking the excess as company profit.

If I had retired under the pension plan that was in place when I joined the company, I would make about three times what I expect I will eventually get when I actually do retire. Make no mistake, that was a powerful recruiting tool, and my choice to dedicate my working life to the company – and stay with the company through thick and thin – was based to a large extent on the exceptional benefits I would receive after 30 years. This was indeed pitched as deferred compensation, as mentioned in the radio broadcast, and was used to justify all manner of near-term sacrifices. For example, we were told that even though our salaries may not be as high as comparable positions elsewhere, we were better off in the long run due to our great retirement program (or health care, etc.). If we had known then what we know now, we would not have tolerated such platitudes.

Under the circumstances, I think I have saved very well, considering the economic changes that have taken place during my career. Just not well enough to make up for this latest setback. I estimate I will have to work another 8-10 years beyond my expected retirement age to gain back the amount lost to this plan change.

It is particularly insidious to do this to people just before they retire. I think a better way to do this – if it needed to be done at all – would be to say it would take effect in ten years, not two. At least give people enough runway to make effective changes in their financial stategy. Or to say it only applies to people who are not within five or ten years of retirement eligibility. I know they have to put the deadline somewhere, but two years seems too short, too soon.

Now, I won’t exactly be destitute in my old age, but if they cut social security too, I might be…..

Investing in your kids’ education takes on a whole new meaning when you may end up living with them.

If you have already seen it, my apologies.

Responding to Robert Reich’s comments on After Pensions:

In IBM’s case, their stated motivation for freezing their employee pension plan was that they could not be competitive in the market with companies that did not have pension plan obligations. Robert echoed this motivation in general as a reason for US corporations moving away from defined benefit pensions – that the move was to reduce or get rid of costs.

Where this may be true of some corporations, this is certainly not the case for IBM. In fact, quite the reverse is true.

The IBM plan, comprised of a fund totaling some 48 billion dollars, is over-funded, and has been so quite frequently in past decades. Which means the fund has more than the necessary funds to meet the costs associated with the pension obligations. Unlike other corporations that are suffering due to having to make up for pension fund shortfalls, IBM has made a habit of occasionally pulling off funds from the pension bucket to report as revenue in quarterly reports. This is entirely legal, and I will leave the argument as to if this *should* be legal to someone else.

But the point is that in IBM’s case, the pension fund excesses have functioned frequently as a magic hat from which the corporation can produce profits on the quarterly statement in an otherwise lackluster quarter. The pension fund is not a cost center as the statements would lead you to believe, but a profit center, which can be periodically used to bolster profits when needed.

In this sense, the existence of the pension fund does not make the company financials more volatile, another statement of motivation for the change, but can in fact level out the company financials and in fact make them more stable from quarter to quarter.

The company has done this many times, to the tune of billions – yes billions – of dollars, according to people who know a lot more about it than I do. Accounting and reporting of such disbursements are somtimes quite confusing, possibly deliberately so. New standards coming from the FASB will require the pension plans and the accounting of their funds to be on the company’s balance sheets, and will be required to be included in the company’s bottom line. This, I believe, is where the volatility will occur – not currently, but after the pension fund financials are exposed to the full light of public scrutiny.

So, IMHO, the stated reasons for IBM’s freezing of the pension plan – to cut costs and to make the company financials less volatile – are red herrings. I submit instead that it is quite tempting for executive management to find ways to take part or all of that 48 billion dollar bucket of money, in any way possible, before they are required to publish pension fund particulars as a part of their bottom line according to the new FASB accounting rules.

The announcement states that they expect to save three billion over the next ten years. That has to come from somewhere, and where it is coming from is the pension obligations for current workers. In short, it will come out of my pocket when I retire. Interesting that there was no change to the executive pension fund, which is handled separately. Apparently the market pressures are not so severe that they should impact their expected retirements, too.

This isn’t the compensation package I accepted when I came to work for IBM. I think it is back handed to change the pension rules in the middle of the game. In fact, it should be against the law. It isn’t though, I don’t have a bargained for agreement with them. I suspect you will hear Ross Perot’s sucking sound at the end of 2007 as IBM’rs do their part in a free market- Search for better compensation. If IBM thinks it won’t impact their ability to provide services, great. I feel IBM is in for a big surprise. The talented will find greener pastures.

Where this trend bothers me more is with union contracted employees who are having their futures altered very late in the game- United Airlines, Eastern- Companies whose union employees bargained in good faith for their compensation, only to have their employer go bankrupt or belly up and renege leaving folks without money THEY EARNED. The folks responsible for those pensions running out of money- CEO’s, Accounting Firms, etc- They should be put in jail for a very long, long time.

It will be interesting to see how the Enron trials go this year- Americans aren’t big on accountability it seems- unless you are a small fry like Martha Stewart.

FWIW

R

Trust me…Lenovians got screwed on the way out…IBMers today are just next.

IBM made a PROMISE to us that if we stayed with them for a period of time (it use to be 10 years, then it was changed to 5), we would be GUARANTEED a pension and we were explained how that plan would work. I always thought that it was a legal and binding contract with us, the employees. It was A PROMISE

What I want to know is WHEN did the US Government change the law that ALLOWED corporations to change how they funded and administered active pension plans? It had to be around the 1993 – 1994 time frame because that was the first time IBM attacked our pension plan. They cut the payout in half. Then in 1997 or so, they came back and attacked it again. This time they were suited and didn’t win, so now they are taking a different tactic. The American corporations think that if one of them can get away with it, they all can, so if we don’t stand up and FIGHT for our pensions like our counterparts in other companies are doing, we deserve what we get for our silence.

This is fundamentally WRONG and shows a new level of corporate and governmental greed and corruption. We, the people have a choice. We can bitch and moan or take action. Collectively, we are strong. We were promised that in exchange for lower pay, we would receive non-contributory medical benefits and a guaranteed pension. We, the people, want to know WHEN the law was changed, WHY it never made the news and WHY we were never informed by anyone that the change had happened. Someone changed the wording of the law that allowed corporations to change active existing pension plans and we deserve an answer to this question.

The effect of the change is obvious – funding of plans stopped, money was moved to the bottom line to boost stock prices and pad CEO and Board of Director’s wallets. The Board of Directors should be held accountable as much as the CEOs – and guess what — they all serve on each others boards. Somewhere I am sure (but cannot prove) some government official received a benefit to be quiet about the changes. But none the less, a change was made and somewhere it has to have been approved or documented OR it is an error that means they cannot do what they say they are going to do. What we REALLY need, is for a really good investigative reporter to find the real answer to this question. We need mass media exposure to the root cause of the problem — who and when did the law get changed and why wasn’t it made public. Then and only then, will we the people have recourse to the actions we are feeling so painfully today.

If we can find and follow the paper trail of deception, we might have a prayer.

Now is a real good time to expose more the corporate and governmental wrong doings. People are actually going to jail and when a corporation is found out doing something illegal, the have to give it all back. I want the pension I was PROMISED in exchange for the lower pay all those many years. OR I want the salary increased I should have gotten along the way, compounded with interest. That should make up for the difference we will get – don’t you think?

I’ll have 28 1/2 years when the deep freeze hits.

Even that close to a 30 year retirement date I’ll see my 30 year pension slashed by over 12%. Getting an extra 7% of my pay put in a 401K for 18 months won’t be a spit in the ocean compared to the thousands that are being stolen from me over the rest of my life.

If Social Security were cut by 12% everyone in Washington would get replaced in the next election..

If the value of all incomes fell 12% there would be riots.

If the value of all investments fell 12% the economy would crater.

But IBM executives decide to steal 12% from employee pensions, while leaving themselves on a special fat cat executive only pension plan, and it is just business as usual. They will get a bonus for the savings they stole. They will get more stock options. IBM will spend Billions on stock buy backs to insure that those options grow in value. And employees try to deal without raises, with increased medical premiums, with no healthcare in retirement and with cuts in their pensions.

When I joined IBM and nearly every year during the first 20 years of my employment here I was told not to focus on my salary alone. I needed to look at the value of the entire basket of benefits I got in addition to my salary.

A few years ago they stopped stressing this during salary reviews.

Now when I look in the basket I see that a lot of the things I counted on are no longer there. I counted on the value of these benefits when I made my decision to work for IBM and as I continued to ratify that decision by staring at IBM. Now, in the 11th hour of my career IBM is raiding the basket and stealing the value out of it. Value I will never be able to replace.

This isn’t the first time IBM has raided the pension fund and it won’t be the last time they try to unless what they are doing is made illegal. The fact that it is immoral is something only T.J. Watson could have cared about. Lou Gerstner, Sam Palmisano and their kind don’t even know who he was.

These are based upon IBM figures – not something I cooked up from the air. An annunity purchased by me to make up the difference – that 32.4% – assuming I retire at 30 years, would cost me about $325K….not exactly pocket change. I’m caught in one of those anomolies where I turn 55 after 30 years, so I am too late for early retirement calculations before 12/31/2007, which would have made some difference… oh well….

I think I’ll leave soon after 12/31/2007, move myself and my assets out of the US of A and leave the G. Bushies to enjoy their Corporate buddies on the golf course as well as my citizenship and of course any taxes oweable to the IRS. Living in Switzerland or Panama gets more intriging all the time.