ENGLEWOOD CLIFFS, N.J. (8/13/2013)--In the wake of Detroit's bankruptcy filing and the threat of pension cuts to public-sector workers and retirees, many Americans are worried about their future pensions (CNBC
Detroit isn't the only entity with heavy debt and public pension obligations. A number of state and local governments are in the same position, as are some private pensions.
Don't let the unsettling headlines shake confidence in your retirement security. Here's what you can do to take responsibility for your financial well-being:
Improve your financial literacy. Do your homework and then discuss your retirement financial planning with a qualified financial adviser.
Ask for a detailed annual report from your plan. You may need the help of your financial adviser to evaluate how well the plan is funded. Even if your pension is well-funded, there is some risk that your benefits could be curtailed by a bankruptcy court. Plan accordingly.
Don't put all your eggs in one basket. Consider your pension as a part of your retirement funding, not the only source. Think about putting more money into an individual retirement account (IRA), 401(k), or into a public defined contribution plan such as a 403(b).
Create a worst-case scenario. Plan for a reduction. How much? In one example, the city of Central Falls, R.I., declared bankruptcy in 2011 and slashed a third of its retirees' pension checks by more than half. Envision how you'll get by if your pension is cut in half.
You might not be able to affect potential changes to your pension plan, but you can manage your expectations and make adjustments so you don't outlive your money. Plan to spend less, save more, work longer, and retire on less income.
For related information, read "Four Key Steps to 'No Regrets' Retirement" in the Home & Family Finance Resource Center.