retirement

Can you count on your pension to be there?

"Public pensions are in good shape, given the economic downturn," says Elizabeth Kellar, president and CEO of the Center for State and Local Government Excellence. Her organization calculates government pensions are 78 percent funded.

"There's a gap between promises and assets, but if you look at it historically, there's no cause to be particularly alarmed. It's a relatively small shortfall and governments are making changes that will shore up funding," she says.

There are some exceptions, she says. While 42 states have made adjustments to their pension plans to make them more fiscally sound, others, such as Illinois, aren't trying hard enough and remain significantly underfunded. The municipalities within those states tend to be those that also are having trouble. The city of Chicago's pension plan, for instance, is only 50 percent funded, Kellar says.

"If governing bodies don't have fiscal discipline and if they take liberties, employees are going to have problems," she says.

Options for workers in the private sector

Here are some possible options if you are worried about getting your money from a private pension when the time comes.

Study up. The Pension Protection Act requires that your company provide you with information about the financial status of your pension. The statement should show you the extent to which your plan's assets cover its liabilities. A funding rate of 80 percent or higher is a good sign. If the funding rate is below that, you may have reason to be concerned.

Take the early out. If the company you work for is in a financially unstable condition and offers you an early retirement option, consider taking them up on it, extracting your pension and finding other employment and investment options.

Consider taking the lump sum. If your company pension is really in shaky condition, ask about taking a lump-sum distribution. But if you get it, invest cautiously. These days, taking the lump sum can mean you won't be able to generate nearly as much return as you expected your company pension to provide.

Options for government workers
If you have a public pension, Edward A. Zurndorfer, a financial adviser in Silver Spring, Md., who specializes in offering retirement advice to federal and other public employees, makes the following suggestions.

Understand your current plan. Don't take co-workers' interpretations as gospel. Get help from your union attorney or someone who is qualified to explain how your government employee pension is likely to affect you and mesh with other plans for which you may qualify, including Social Security.

Try to avoid quitting early. Workers who quit well before 65 or 66 are the most vulnerable to cuts and low or no cost-of-living adjustments. If you can, keep working until your full retirement age.

Qualify for Social Security. You can do this by working under it for at least 10 years or 40 quarters. Federal employees who were hired before 1983, as well as state or local workers who are not paying Social Security, may be affected by the federal Windfall Elimination Provision, or WEP, which reduces the Social Security benefit that can be earned elsewhere. Its sister provision -- Government Pension Offset, or GPO -- affects spouses of those under WEP.

WEP and GPO will reduce the Social Security benefit, but they won't eliminate it entirely. The closer you get to having worked 30 years earning what the government terms a "substantial" wage (defined in 2010 and 2011 as at least $19,800) the less WEP affects you. So if you're employed outside of the federal system, make it a goal to rack up as close to 120 quarters as you can.

Zurndorfer, who is 60 and a retired federal employee, has run an accounting business on the side for many years. He says he's planning to work seven more years so he can rack up 25 years under Social Security earning a substantial wage. This will increase his benefit by 50 percent, compared to what he would have received after 20 years in the system.

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