retirement

Key to retirement success is simple

What are your thoughts on public and private pensions? Which is in worse shape?

Private sector corporations have moved steadily from DB to DC, but I do not expect DB plans to disappear completely (see graph below). While corporations that moved to DC have managed to cut per-worker pension expenses, many corporations still have a mix of plans. That said, if I were a young worker today, I would not count on a DB plan, especially in the private sector. In the public sector, I would expect to contribute more for a smaller payoff than more senior colleagues.

Pension trends of private sector corporations

Regarding which is in worse shape between public and private pensions, I would say that public pensions are worse off, but only for some plans. As the Boston College database shows, there are many public pension plans that are properly funded. Still, the overall funding averages show significant underfunding. Private pensions are also underfunded, but with these workers can increase their retirement contributions to catch up with their targeted savings.

Have you seen Iowa Sen. Tom Harkin's proposal for a new hybrid pension plan to help solve the retirement crisis? What do you think of it?

I like it. It's a good and sensible proposal. The "USA Retirements Fund" system that Sen. Harkin describes is already available in other countries, and it should be implemented here. Mind you, it will not solve the problem of undersaving, but it is a step in the right direction.

Recently in the media, big-name money managers, such as Bill Gross and Robert Arnott, have made pessimistic forecasts about the economy and/or stock market. What should Americans take away from this?

As I said before, the bulk of your retirements will eventually come from the principal of your savings, not from making a killing in the markets. As to the future of markets, I am not pessimistic, but I will admit that they are getting harder to forecast with any certainty. No matter what one thinks of the markets, though, the key take-away is to start saving now, save more than you think you will need, and take advantage of the tax-related plans. It's that simple.

We would like to thank Alfonso Canella, senior lecturer in the Brandeis University International Business School in Waltham, Mass., for his insights. Questions for this interview were contributed by Barbara Whelehan, assistant managing editor for Bankrate.com.

advertisement

Show Bankrate's community sharing policy
          Connect with us
MORTGAGE HOME EQUITY AUTO CDs CREDIT CARDS
Product Rate Change Last week
30 year fixed 4.08%  0.16 4.24%
15 year fixed 3.19%  0.04 3.23%
5/1 ARM 3.36%  0.10 3.46%
 
View Rates in your area Next
Product Rate Change Last week
30K FICO-based HELOC 4.36% --0.00 4.36%
50K FICO-based HELOC 4.06% --0.00 4.06%
100K FICO-based HELOC 3.91% --0.00 3.91%
 
View Rates in your area Next
Product Rate Change Last week
60 month used car loan 2.79% --0.00 2.79%
48 month used car loan 2.98% --0.00 2.98%
60 month new car loan 3.23% --0.00 3.23%
 
View Rates in your area Next
Product Rate Change Last week
1 Year CD 0.94% --0.00 0.94%
2 Year CD 1.13% --0.00 1.13%
5 Year CD 1.76%  0.00 1.76%
 
View Rates in your area Next
Product Rate Change Last week
Balance Transfer Cards 15.77%  0.06 15.71%
Cash Back Cards 16.48%  0.07 16.41%
Low Interest Cards 10.96%  0.10 10.86%
 
Next
advertisement
CD & INVESTING NEWSLETTER

Learn the latest trends that will help grow your portfolio, plus tips on investing strategies. Delivered weekly.

Blog

Jennie Phipps

Work less — ‘It’s a better life’

Retirement actuary Steve Vernon says working less while delaying Social Security is the best way to retire.  ... Read more

advertisement
Partner Center
advertisement

Connect with us