Reforms taking place in public pension plans for the state of
Utah should be regarded as a wakeup call for the rest of the nation.
Despite the fact that it is in better fiscal shape than many other
states, after the market drop in 2008, Utah found itself with a $6.5
billion funding gap in its pension plan. Knowing they could not meet the
state's obligations to its future retirees, officials put reforms into
place last year that will affect all new hires.
One reform enacted was to do away with the old defined benefit retirement plan and replace it with a 401(k)-style plan. Although the defined benefit plan will still be available, the state's contributions to that plan will be limited to just 10%, effectively steering investors towards the 401(k) plan. Drastic measures were needed and drastic measures were prudently taken. Look for other states to follow suit.
In recent years, more and more private businesses have switched from defined benefit plans to 401(k)-style plans. The auto-enrollment features on many of these new plans put employees into the stock market right off the bat. With states and municipalities now getting on the 401(k) bandwagon, one thing is certain: more people with no prior knowledge of investing are being thrust into the role of "portfolio manager." Instead of having someone else look after your retirement account, you suddenly have a pressing need to learn how to invest wisely.
The good news is that for the most part, a 401(k) plan offers a lot of advantages over the defined benefit plan, such as:
As a "new" investor, you will have 2 choices when it comes to your retirement account. You can hire a fee-based financial advisor to guide you in making your investment decisions or you can learn how to invest on your own. Either choice, if well-researched and followed through, will produce good results. While hiring a professional advisor may sound like a "no-brainer" to an individual with no investing experience, learning to invest on your own should not be ruled out entirely.
There is no doubt that this changing retirement/investment landscape is going to be a challenge. Most of you working folks barely find enough time to take care of your daily chores. Now you are being told that you must learn to become an investor or at least learn how to hire one!
The truth is, gaining a working knowledge of basic investing principles is not rocket science. It can be boring, but it does not have to be complicated. With the amount of free investment information available today, you decide how steep the learning curve will be. Rest assured, it will not be as steep as you have been led to believe.
Consider this:
One reform enacted was to do away with the old defined benefit retirement plan and replace it with a 401(k)-style plan. Although the defined benefit plan will still be available, the state's contributions to that plan will be limited to just 10%, effectively steering investors towards the 401(k) plan. Drastic measures were needed and drastic measures were prudently taken. Look for other states to follow suit.
In recent years, more and more private businesses have switched from defined benefit plans to 401(k)-style plans. The auto-enrollment features on many of these new plans put employees into the stock market right off the bat. With states and municipalities now getting on the 401(k) bandwagon, one thing is certain: more people with no prior knowledge of investing are being thrust into the role of "portfolio manager." Instead of having someone else look after your retirement account, you suddenly have a pressing need to learn how to invest wisely.
The good news is that for the most part, a 401(k) plan offers a lot of advantages over the defined benefit plan, such as:
- the ability to "take your plan with you" if you change jobs
- the ability to borrow or withdraw money from your plan in case of an emergency
- your plan can not have its funds "robbed" by cash-strapped companies in lean times
As a "new" investor, you will have 2 choices when it comes to your retirement account. You can hire a fee-based financial advisor to guide you in making your investment decisions or you can learn how to invest on your own. Either choice, if well-researched and followed through, will produce good results. While hiring a professional advisor may sound like a "no-brainer" to an individual with no investing experience, learning to invest on your own should not be ruled out entirely.
There is no doubt that this changing retirement/investment landscape is going to be a challenge. Most of you working folks barely find enough time to take care of your daily chores. Now you are being told that you must learn to become an investor or at least learn how to hire one!
The truth is, gaining a working knowledge of basic investing principles is not rocket science. It can be boring, but it does not have to be complicated. With the amount of free investment information available today, you decide how steep the learning curve will be. Rest assured, it will not be as steep as you have been led to believe.
Consider this:
- Chances are you are not a Master Chef, but you probably do a great job of feeding your family each day.
- You may not be a Certified Mechanic, but you can change your oil, rotate your tires or replace a tail light if needed.
- Perhaps you do not have a Master's Degree in education, but you are smart enough to help your kids with their school projects.
