The Washington Post

Color of Money Live (February 16)

Feb 16, 2017

Join Washington Post nationally syndicated personal finance columnist Michelle Singletary for an online discussion.

Today's guests are Karen Friedman and Joellen Leavelle, here to answer your questions about your pension. Michelle wrote about "pension plans in peril" earlier this month. Send your money questions in early!

Read Michelle's recent columns

Glad to have you all here with me today. 

The main topic is pensions but of course I'm here to answer any other personal finance questions. 

I'd also love any testimonies. Because if it's Thursday it's Testimony Thursday.

Let's get started. 

I keep track of my bank accounts pretty frequently - especially in the first half of the month when all my monthly bills come due, are paid and clear my account. So, I took a quick look on-line late Tuesday night to see if the check for my utilities bill had cleared. It had. Plus another check. A big one. One I had neither written nor authorized. It was over $2000 and put my checking account into a negative balance. So, after a rather restless night, I called the bank in the morning and started the process of getting the check reversed. I spent a huge amount of time on hold because the check was so recent the customer service person didn't have access to an image of it on any of her systems. But she noticed that both checks had the same number on them, so it was clear that one of them was wrong and she believed me that the check for less than $100 was the real one. They are going to keep investigating, and I hope it will be resolved soon. In addition, I had to contact the office in my building and talk them through what happened and ask that they look into their records and see if they had processed a check for the amount of the one that was incorrect on the same day they processed mine. They had. And the clerk said that she remembered she had to use an override procedure because my real check gave her an "already used that number" error. She is also going to look into it. I suspect that the error is from a typo or computer scanning glitch since the rental office did have a matching issue. In the meantime, I have been checking all my other accounts and nothing else is irregular so this probably isn't a big scale identity theft situation. Lessons learned: 1 Keep track of your accounts (I found this the day it happened); 2) when reporting this sort of thing, make sure you have your facts at your finger tips so you can actually answer questions like, "what was the correct amount of that check;" 3) Be polite - the person you are talking to may be able to help and isn't likely the person who made the original error and chatting a bit meant that the customer service rep told me that serious ID theft usually starts with a really small amount to see if the account is a good target, they don't start with large amounts; 4) check everything and request all the help you need together - I have overdraft protection so $2000 was charged to my credit card with this bank and I had to mention that once they fix the checking account error, I'll need this reversed and any interest/fees reversed as well; 5) having enough money on hand so that being in this situation is annoying but not panic inducing is a blessing ; and 6) consumer protection laws matter - my utilities bill was the smaller one so it was applied first which probably saved me from having to deal with a returned check fee on the utilities account. Don't know what else to say. Just, it was unpleasant enough when not total panic inducing. I can't imagine how horrible it would be if you knew that if it took too long to fix things, you wouldn't be able to feed your family or pay the babysitter or get to work.

I know folks. This is long post. But I hope you read it all. Great testimony about staying on top of your bank account. 

Hi Michelle, I read your chat transcript every week. I have a testimony of sorts, although I do need some cheering up. My 1997 Honda was stolen. It wasn't worth $1K on paper, so it was incredibly inexpensive to own. Paid off forever ago, worked like a charm, I put $1K every couple of years or so into maintaining it and that's it. And now it's gone. Here's the testimony part: I will pay cash for a new or low-mileage car once I figure out what I want. Yes, I've been making a car payment to myself all those years! But my insurance will skyrocket. Carrying liability on an ancient Honda was very inexpensive! Whoever took the car will not get as much out of it as it will cost me to own a replacement. Aaargh! So here is my testimony: never stop making your car payment, keep your car as long as you can, and remember the cost of ownership includes insurance, which is higher on late-model cars. And cross your fingers so you will have the luck I had owning a used car for 15 years. Thank you Michelle for your consistent guidelines over the years.

Love your testimony. Thank you for sharing and so, so sorry about your car.

I had an old, paid-off car totaled (Not my fault) and it hurt my heart too!

Where does the PBGC stand now that it is projected to fail in 2025, are the plans to shore it up? Are they going to let it go under?

The Pension Benefit Guaranty Corporation has two programs, one for single-employer plans and another for multiemployer plans. The single-employer program is relatively well-funded. The multiemployer insurance program is projected to fail only if there are huge multiemployer pension plan failures in the next 10-20 years. We are working with stakeholders from all sides of the issue. to work for legislative solutions to infuse money into underfunded multiemployer plans and to shore up the PBGC, which we believe is a national priority.

We believe that it is unlikely that Congress would ever allow the PBGC fail. 

I don't know anyone who isn't retired already that has a pension except for teachers.

Millions of people both in government and the private sector have good, old-fashioned pension plans. These plans provide a monthly stream of income that people can’t outlive. These are called defined benefit pension plans. We at the Pension Rights Center are working toward a system that would ensure that all Americans have adequate and secure retirement income on top of Social Security.

You know me and I have a pension. It provides some comfort but only some. It's still not enough to live off completely but it sure will help. But I'll say this. I try to forget about it and save like a maniac because I want the assurance of having other pots of money. 

My pension is through Teacher's Retirement System of Texas, and a couple of years ago it was one of the more secure funds in the nation. How can I tell if it's still in good shape?

We don't have information specifically about the Texas system. But we do have ideas. First, I would recommend that you find the plan administrator. You can find that info here, or here. The phone number is 1-800-223-8778 or 512-542-6400.

 

If you're in the union, contact the American Federation of Teachers.

what strategies can participants in a multi employer pension plan use for a plan that is being grossly mismanaged.

That's a great question. Here's a link to our fact sheet that gives information for people who are worried about whether their plans  may apply to cut benefits

 

We also recommend that you look up your plan's most recent Form 5500, which provides financial information on the plan's funding status. If you need an actuary , contact us and we can help connect you to one.

Michelle, is there a formula for keeping vs replacing your current car, 2005 128K miles. Not having a note has been nice. Just curious when I see so many used cars for sale with modern safety features.

Here are my personal rule

-- Is the car safe? Yes, there are a lot of new features but does your car have airbags for example.

-- Does the car leave you stranded a lot of times? I would never want you to keep a car that is so unreliable that you could be on a dark road at night with your blinkers on. But that's different than repairs that can be planned. Usually your car will tell you when it's sick. You get signs such as funny noises, not responding the same. When that happens act fast. I take my car in as soon as it begins to act crazy. 

-- Do you have the money to pay cash for a new or new-to-you used car? I know that's a tall bar for a lot of people. But try it anyway. Don't start thinking you have to trade in your car unless you have the money to avoid a loan or you can at least put down a hefty downpayment. And the way to do that is like a reader just posted. Once you finish making payments on your car, keep making those payments to yourself so that in 4, 5, 6 or for me 10 or 15 years you have the money for a car in cash.

After staying home for 5 years with my kids, I am headed back to work for a company that does still do 401K matching but doesn't do it at 1:1. For example, if I contribute 6%, they match 4% (the match is 1:1 up to 3%). I am inclined to go ahead and do the full 6% since I haven't been saving for retirement for the past five years, but is there a different way to approach this that makes more sense?

We at the Pension Rights Center do not provide financial advice, but we recommend that you contact a reputable financial adviser that can help you make a decision that works for you. Make sure that any financial adviser you work with assures you that they have a fiduciary duty to work solely in your best interest.

Here is a link to a fact sheet with more information on the types of financial advisers.

If you can afford it, do put in as much as you can to get the full match. Any match up to any level is free money. 

My husband was forced to retire due to losing his vision. He earned a full pension so we didn't need to take the disability pension, now we may be punished once the cuts are allowed to go through and if the DOL and Goldman Sachs aren't held accountable for the Central States Pension fund situation. Where does a blind man go to make up for the 70% we may be losing? He worked for, earned, did without and paid into his pension!! He was a yard man for a car hauling company~~~would you like him to be your driver? His Leader Dog is awesome! Thank you!

Keep in mind that the Central States Pension Fund application to cut retiree pensions was rejected by the Treasury Department last year, so no pension cuts are going to happen right now. The Pension Rights Center's top priority right now is to work with people like you to find a legislative solution in Congress that will save the Central States Pension Fund as well as other underfunded pension plans. We suggest that you sign up for our newsletter (http://www.pensionrights.org/subscribe) so you can stay informed of what's happening on the legislative front and how you can take action.

We also suggest you connect with other Central States Pension Fund retirees at https://www.mycspensionhandsoff.com/.

Hi Michelle, thanks for all your motivation and education. You have helped me become smart with my money, and now I also really want to focus on doing good with my money. How do you recommend that one evaluate charitable organizations in order to make the most influential donation? I am not asking how to select a cause but rather how to find charitable organizations that focus on that cause and how to determine whether the organization is effective in making a difference. Can you shed some light? I've also been wondering if a local versus national/global organization is more influential. Thank you for all that you do!

You are right to be sure to do research on any charity you want to support. You can start with Charity Navigator. Also if you do a search on "How to pick a charity" you will find lots of resources. One thing I look at is how much of the funds that are collected are actually  used for the people the charity support. So for example, when I get calls at home my first question is how much of my donation is actually going to the charity? Many times the people calling are professional charity companies that try got get donations but take sometimes up to 90% of your money. That's not okay with me. So for the most part I never give through such a channel. 

Is there anywhere on the horizon that the MPRA might be overturned??

Yes, the Pension Rights Center is working with stakeholders from all sides of the issue - retiree organizations, unions and AARP, employers and others - to develop a legislative solution that would repeal the pension cutback provisions of MPRA and find a comprehensive way to save underfunded multiemployer plans and shore up the PBGC.

We know that Senator Portman, Senator Sanders, Rep. Kaptur and many other members of Congress are very interested in coming up with a bipartisan solution. 

One thing we’ve seen, especially in the last few weeks, is that Congress is listening to its constituents.  We can’t say this enough: The time is ripe for people to contact their legislators to let them know that these are important ballot box issues that cannot be ignored. This is where the Central States Pension Fund retires have been particularly effective. We’ve worked with these retirees to organize lobby days, rallies, phone and letter-writing campaigns and will continue to do so until we find a solution. The retirees need to let their members of Congress know that they aren’t going away until this issue is resolved.

Sign up for our newsletter to stay informed: http://www.pensionrights.org/subscribe. 

Dear Michelle--I have set up a retirement account with Schwab for my 17-year-old son who is headed to college in the fall. Friends say I should focus on minimizing college costs, while I say I want to invest several thousand in the retirement account to give him a head start. Thoughts?

If your son is going to college with NO debt, then sure you can give him a boost for retirement (keep in mind some tax advantaged retirement plans require he have earned income to qualify).

But your friends are right if you or your son are using debt to fund his education. 

How are state and local governments addressing their pension fund shortfalls? I have read that various states are very underfunded and are at risk of not meeting their pension obligations. Counties and school district have similar challenges but with fewer tax options to raise funds. Have many of them changed their approach to require new employees to work more years before being eligible for pensions?

Some state pension plans are experiencing underfunding, but as we understand it from research by NCPERS and the Center for Retirement Research, among others, most are well funded.  In fact, there has been a great improvement among most state plans in the last year.

 

Where problems do exist, they are often caused by legislators not funding the plans. What is clear is that, like in multiemployer plans, the underfunding of plans should not be blamed on retirees. They met their end of the bargain and they gave up wages, explicitly in negotiations, to ensure that they would get monthly income they can rely on.

Michelle I have been following the talk on the rule for some time and i am definately in favor of this becoming the law (good advice is ALWAYS better than poor advice). What is your opinion on this subject.

The Pension Rights has worked with a coalition of groups called Save Our Retirement that has been fighting vigorously to ensure that the fiduciary rule is not undercut and that people receive advice on their 401(k)s and IRAs that is in their best interest - and not solely in the interest of financial advisers who want to pad their pockets. 

You can find more info about the Save our Retirement Coalition at http://saveourretirement.com/.

I've been writing about this a bit. I think it's a good rule. Why wouldn't a financial planner NOT want to act in your best interest? Click the link for my latest column on the topic.

What if you start collecting before turning 70 and save the money you don't spend? Wouldn't this be a way of start collecting early but also making sure you're going to have enough for your last years? Or savings yields are not enough to compensate the "early" collection?

You do have a good idea. People keep forgetting that when they delay they are forgoing money they could have collected. That means to break even they have to live longer. And that's not a guarantee. I've seen charts that suggest it's not a bad idea to collect at least by your full retirement age or for some even earlier. The difference isn't as great as some folks think when you consider the money you've left on the table waiting for the higher payment. 

I'm even rethinking about waiting until I'm 70. I want to do a lot of traveling and the older I get I may not be able to. Collecting early is money I could be using for that purpose. 

The answer to when to collect really is "it depends."

Click the hyperlink for more pros and cons of collecting early or delaying.

Hello. We are in our early 40s and wondering what to do about my husbands future military pension. We have Roth IRAs, TSP, college pre-paid and 529 for our middle schooler, term life insurance, no debt, and plenty of emergency cash. We are between houses because we just moved to a new area.

 My husband has 20 years of military service and no immediate plans to retire. If he retires with at least 25 years of service, the minimum monthly retirement is $6,200. The Survivor Benefit Plan (SBP) for spouses has a 6.5% premium on the pension and a 55% benefit. That would be $403 monthly premium for $3410 monthly benefit per month in case of his death. 
 Is SBP the best option or should we look at purchasing more term insurance or whole life insurance or an annuity? How do we determine which to choose? I’ve seen pros and cons for SBP on the .gov website but want to hear what the experts think. 

 Thank you for taking my question.

Again, the Pension Rights Center doesn't provide financial advice. Any financial adviser you contact should express to you that they are working in your best interests.

I agree you may want to seek help on this question. 

I will say this. Be very careful about the cost of permanent insurance. The cost is much higher than term. 

DC will have a new program manager for its 529 program. Any tips on these new transitions? I know states have changed 529 program managers throughout the years but I believe this is a first for DC.

That isn't our area of expertise, so we'll Michelle handle this one.

I haven't looked at the management for the DC plan. Go to savingforcollege.com and you should be able to find more information. 

I would say pay attention to fees. 

I went to choosetosave.org to run the ballpark retirement calculator as you suggested. There are a lot of variables there that I have no idea what to enter, and they provide no good guidance. How can I guage inflation, wage growth, return rates, etc?

Stay tune to an upcoming column. I'm farming this question out to some certified financial planners. 

I am 50 years old. My current employer offers a defined-contribution plan. But I am a finalist for a job in a state government that offers a defined-benefit pension. There is a defined-contribution alternative, but my friends in the government have told me that the contribution is lower than what it would cost to get the defined benefit. Of course, those friends have been in the plan for 10 years or more already. I am also a little nervous because there has been talk in this state of reducing pension benefits. How should I weigh these factors in deciding whether to get on the pension plan or accept the defined-contribution alternative? (Assuming I get the job, of course... fingers crossed...)

Generally speaking, the defined benefit plan is going to be a better option for people because you get a specific monthly  benefit for life, often with cost-of-living adjustments in state pension plans. Generally a 401(k)  option will not be as adequate.

In fact, when states did change to a 401(k) type plan after the stock market tanked, we we saw a revolt among employees and the  state reinstated the defined benefit plan.

However, we cannot give you specific financial advice and we recommend that you talk to a financial adviser who tells you that he or she has a fiduciary duty and will be working in your best interest. Or, if you want to discuss this with an actuary, we may be able to help find one to help you.

Hi Michelle! I know your husband is a federal worker like I am. Should we be worried about losing the small pension available to us through FERS when we retire? I should retire in the next 15-18 years. Thank you!

I would say that the FERS benefit is backed by the full faith and credit of the government. You should feel secure that you will get the benefit that you have earned.

I'm not worried. But we are also saving like crazy because while the pension is okay, we'll still need more funds if we ever stop working completely. 

 

backed by the full faith and credit of the US government? I know it is supposed to be well funded even without that back up, but I don't know that I've ever seen an actual analysis of the numbers.

Yes, according to this link (http://www.govexec.com/pay-benefits/retirement-planning/2008/05/federal-vs-private/26861/), the full CSRS benefits and the FERS basic benefit are backed by the full faith and credit of the U.S. government.

Hi, my father is in decline and has designated me his power of attorney. I live in another country, but I will be going to see him and hopefully setting up online banking, etc., so I can monitor things from afar. I'm mostly worried about one of my siblings who has stolen money from the family and others before ripping him off and opening new credit lines in his name. As he declines further, I will need to be able to pay his bills directly. As I'm not in the US, and I find it difficult enough to manage my own remaining US finances from afar (overzealous banks keep trying to make me come into a branch despite knowing I don't live on the same continent - something I don't have a problem with in Europe at all). Do you have any practical tips or resources for awkwardly distant family members trying to take care of their aging parent's finances? Thanks.

This a tough one. Can you find someone stateside that you trust who can help you manage the money online?

Perhaps you need to talk to a firm that does money management such as the kind athletes might hire. 

I say do it if you can! My mom seeded a roth ira for me when I graduated college. It really brought home the importance of needing to save for the future. I always contributed to my my retirement accounts to get the match, and sometimes to my roth (some years I wasn't able), but seeing the money add up and compound over the years has been a lesson in itself -- especially when I wasn't able to do anything to contribute more money. My mom taught me good money management, but I really feel like this particular gift also emphasized it just as I was truly leaving home and entering the workforce. My husband and I recently met with a (fiduciary) financial planner and while only just entering our 40s, we're in good shape for retirement, have a life happens fund and an emergency fund (thank goodness b/c we had two repairmen over today), and are starting a 529 for our new son. We paid cash when we needed our new car b/c a baby was not feasible in the old 2-door with no a/c in dc and put 20% down on our house. Our one weakness was with insurance, but we knew that and that's one reason why we met with him! We do not make a lot of money and would be considered middle-class in the DC area (although much better off elsewhere in the US). Thank you for all your advice (and my mom knows that we're grateful for her advice and life lessons too!)

I hear you. But I want that mom to hear me. Do not do this if you are borrowing for college. Take care of that first. Then if you have money left over sure help your kid. 

Helping your child start long-term savings by funding an IRA is a great idea, but it can only be done to the extent of his or her earnings. My kids did yardwork and petsitting in their teens, I matched their earnings into an IRA for each of them in a stock index mutual fund. Two decades later, this was grown nicely.

Right!

Say more about how they differ?

A multiemployer plan is pension plan that is negotiated between a union and a number of employers, while a single-employer plan is sponsored by one employer. Both types of plans are insured by the PBGC, the federal private pension insurance program, however the single-employer plan has larger guarantees that the multiemployer system. Here is a fact sheet that explains the difference (http://www.pensionrights.org/publications/fact-sheet/federal-pension-insurance-protections). If you have specific questions, get in touch with us at www.pensionrights.org. You can also find information to on www.pbgc.gov.

Hi there! I've been putting some money into a mutual fund (Kaufman B, if that matters) for a couple of years now. We started with about $20K and are putting in about $250/month, so we're close to $30K now. In another five years we'll be in a position to add about $200K to the mix, when my wife receives a structured settlement. The income generated by this would be in addition to pensions for both of us and Social Security, so it's going to be largely gravy (and a decent inheritance for the kids). However, the stock market's got some volatility going on and I'm worried that we may need something a little more stable. Retirement is at least 8 years off for me (I'll be 62). What do you suggest?

Fee-only planner.

Really best to get someone to look at your overall financial situation, including any insurance needs. I will say this. Watch for fees. Think low-cost index funds. Because fees impact your returns. 

Since I started young, I have $535,000 of retirement savings even though I was out of work for two years (separate one year out of work periods); I'm in my early 50s. In addition, as a federal government worker I will get a pension. However, that pension could change as yours did. So I took advantage of the government's recent pay raise (with Trump as president, it may be the last we get for awhile) to increase my TSP savings (that is the federal government version of a 401K) from 10% to 13% of my salary. Also, years ago I took your suggestion and started donating to charities on a monthly basis and putting those contributions in my budget. I've added a fifth charity to the ones I contribute to. I check out my charities on https://www.charitynavigator.org, which is a great tool. Therefore, I usually decline other charity donation requests.

I need you to come and help mentor folks in my financial ministry at my church!

Giving and saving. Two of my favorite things.

I live in Pennsylvania and our state is having a problem with homeowners paying ever-increasing school taxes due to the mandated funding of state pensions taking a larger and larger share of the state's education budget. I just want to point out that there is a flip side to the pension issue ... those homeowners on fixed incomes are feeling the pinch of higher and higher taxes due to pensions that were not well-funded for many years.

The Pension Rights Center feels strongly that pension promises must be kept. Retirees have been demonized for state budgetary issues. In fact, according to studies we've seen, the pension liabilities make up a very small part of these budgets. We shouldn't pit citizen against citizen. Instead, legislators should make good on their pension promises while also funding education and other social needs. States have enough money to do both. We should protect all generations.

Back in 2013 I had a 13 year old car that had been paid off for 10 years and was running well with occasional repairs. However, I do drive to West Virginia to go skiing; you can drive 50-70 miles between towns and cell service is often non-existent. Therefore, my family (especially my mother) really worried about me. I finally gave in and bought a Mazda CX-5 with all-wheel drive (which I only because of the West Virginia driving). The good news is that I always made car payments to myself and thus was able to pay cash for the car.

Wonderful. I really don't have an issue with folks doing whatever they want with their money. 

Starbucks coffee. Go right ahead if it will keep you from wigging out on your annoying co-worker.

A Mazda paid for with cash for ski trips -- Good for you. Take me along.

But you can't do everything. So pick the things that matter to you the most and use your money for that. 

Michelle, please help me decide what the best course of action is. One and a half years ago, my husband finished grad school with $70,000 of debt. We have worked HARD to pay this down while also maxing our 401Ks and Roth IRAs. Today, we have just $7,000 left to pay. We maintain an emergency fund of just over 3 months expenses (~20,000) and put everything else towards the loans. At this rate, we will pay it off in July. However, we wonder if we should just pay it off now, which would temporarily drop our cash balances to $13,000 (just over 2 months of expenses). We would be able to quickly replenish it and would hit $20,000 by July, assuming no emergencies occur. We both have stable employment. The actual interest savings over a couple of months are quite low but we just love the idea of getting that monkey off our backs! (we learned from you!!!) However, dropping below $20k for a couple of months seems a little scary. What do you think?

Make the jump.

Get that monkey off your back!

I know it's scary. Trust me I know. I hate taking any money out of any of my pots. But oh the feeling that you're done.

And you can built it back up in no time.

Do it! 

 

Found out last year that our pension (work in the non profit private sector) was being cut and no further value would be added. Is anything really guaranteed with Pensions? Should I even count on what's left in it or assume that it too can eventually go away?

If your plan is a traditional pension, no, you cannot lose what you have already earned. Even if your plan runs into trouble, it will be guaranteed up to a certain limit by the PBGC. 

 

If you’ve got a specific problem with or question about your retirement plan, the U.S. Administration on Aging’s Pension Counseling and Information Program can help. The program covers 30 states and helps clients with issues related to applying for benefits, divorce, finding a retirement plan from a former employer and much more. Visit our website at www.pensionrights.org/find-help to get legal assistance today.

I have been a public school teacher in the South for the past ten years. It's true that we have a pension system but we have to pay for it ourselves because our employer does not contribute at all, not even a penny. Teachers' pensions may have historically been stable but they have gotten worse and worse with privatization. New teachers have it especially rough as do those of us in so-called Right to Work states. So, before anyone jumps to judge teachers for having it easy, please remember: yes, we have it good in so many ways BUT our retirement options are definitely not as sweet as they may seem from the outside!

We agree with you that we should do everything we can to preserve and strengthen teachers' retirement plans. Lots of people have misconceptions about teachers' and state pension plans. And they don't understand that you give up wages while working to earn these much-deserved benefits.

Thanks for having us today, Michelle.  We enjoyed the chat. If anyone else has questions, please visit our website at www.pensionrights.org for more information or to contact us. Thanks!

Really great questions and comments today. Thank you for joining me. If you haven't already please sign up for my newsletters - Personal Finance on Thurs. and Retirement on Monday.

Its my way to help you stay informed. I use them to point you in the direction of other stories all about your money. 

Take care and see you next week. 

In This Chat
Michelle Singletary
Michelle Singletary writes the nationally syndicated personal finance column, "The Color of Money," which appears in The Post on Wednesday and Sunday and is carried in more than 120 newspapers.

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Karen Friedman
Karen Friedman is the Pension Rights Center's executive vice president and policy director. She develops solutions and implements strategies to protect and promote the rights of consumers, and for more than 20 years has represented their interests in the media and before congressional committees.
Joellen Leavelle
Joellen Leavelle is communications and outreach director for the Pension Rights Center, responsible for promoting Center programs and developing relationships with activists and other organizations. She also manages the Center’s websites and social media channels.
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