As a retired government worker, I’m asked quite often why it is important to review your pension. As an older person, I understand the importance of planning for your future. When I look back over my entire adult life, I realize that I never did much planning for my financial future. I worked in the public relations department of a large marketing firm and it never occurred to me that I could even have a retirement plan until I retired several years ago. Since then, I have learned that having an official retirement plan is vital.
Many younger people are not as fortunate. Most of us don’t plan for retirement. We simply go with the flow of things and figure we’ll be OK. When we get to our later ages, though, those “business-like” people we used to deal with start calling us “unctuous” for not keeping up with them. They berate us for not doing what they did.
There is nothing inappropriate or wrong with that; it’s just that we should review our pension. We can save thousands of dollars a year if we simply learn how to do that. I’ve discovered that the most important aspect of a retirement plan is its Internal Revenue Service status. It’s not as important as your Social Security number when it comes to the Internal Revenue Service. In fact, it is completely unrelated. The IRS views a pension as a lifetime asset, not as an investment vehicle.
It’s true that your Social Security number is something that you must maintain. That is, you must show proof of your Social Security number each and every time you apply for a loan, purchase a car, or write a credit card application. If you don’t keep track of it, the Government can take your pension away if you fall behind on your pension payments. This can happen even if you are currently working, as the law requires that you have at least a portion of your pension invested in a qualified certificate of deposit (CD) once a year. If you don’t keep track of the money, the Government can freeze your pension check.
But did you know that if you didn’t keep track of your money, the Government could take your pension? This is why it is important to review your pension on a regular basis. Most people fail to review their pension because they are not actively saving. If you are not actively saving money for retirement, then you are leaving yourself vulnerable to a rainy day scenario.
The best way to do this is through a comprehensive review. Review comprehensively all of your accounts and make a list of the key financial areas that you focus on. Review them one at a time and take an aggressive step toward financial health. Look at your expenses, your income, your net worth, investments, etc. and try to identify areas that are costing you money and converting to savings.
Once you have identified areas that you can improve upon, you need to do your homework. Get your hands on the latest CCH conversion rates so you will know if you should be making changes to your tax strategy. Why it is important to review your pension is because the CCH rates have been going down since the start of the decade. This means that if you want to save money on taxes, it makes sense to take advantage of these lowered rates.
Finally, review your beneficiaries. Determine who will get which funds when you pass away. If you leave a spouse or line of credit up to your children or other family members, do your homework and find out who will get which funds. If your life expectancy is very short, review your retirement benefits and determine who will actually receive what as well as how much over the course of your lifetime.