Investing for Retirement
Planning the retirement is one of the main questions for working people. It determines the quality of life while being elderly person, independence from different circumstances, and confidence in future.
There are several variants of retirement planning. Among them, there is a statement that people do not need to plan for retirement in the United States. They believe that social security will cover their needs when they are retired. In this paper, the process of planning the retirement would be discussed from two opposite perspectives: from the perspective of an employer and an employee.
While taking into consideration the latest analysis of the working force structure in the USA, it is possible to make a statement that the working force has continually grown older. At the moment, it has achieved the point when the lion share of employees is approaching the traditional retirement age. If it is assumed that the retirement process of all these people would take its place at the time when it is scheduled, it is possible to achieve the point when the overall shortage of employees required for meeting the needs of business would be a key problem of the current US business human resource management (HRM).
While carrying out the analysis of the manufacturing business in the US, the key need of the personnel consists in wide application of the latest technological achievements to the personnel training, which is caused by the importance of attracting older workers for prolonging their labor activities.
At the moment, it is possible to define two trends, which have their influence on the workforce of the US. On the one hand, a high number of employees in the country are approaching the retirement age. On the other hand, it is possible to state that the amount of new and younger professionals is decreasing. According to the statistical data, 69 million of employees are of 40 years of age or even older and that is 48 percent of the total US workforce. According to the peer review, this number would achieve the rate of 51 percent in two or three years (United States Department of Labour, 2008).
Moreover, it is expected that the average age of the American worker would increase up to 40.6 years from the current index of 34.6 years. Also, according to the peer review, the share of workers who are 55 years old would increase from the rate of 13 percent in 2000 up to 20 percent in 2020. That is why, it is possible to assume that in 2020 every fifth employee would be 55 years old (United States Department of Labour, 2008).
While taking into consideration the average duration of life in the US, which is being constantly increasing, it is possible to draw a conclusion that the amount of employees of the age group 25 to 39 years has been decreasing. If the situation development does not change radically, it is expected that, in case of retirement of all baby boomers at the traditional retirement age, needs of manufacturing businesses will not be met due to the lack of workers. Finally, it is a complicated task for human resource managers to find qualified applicants for filling key positions in companies because the drain of experienced personnel in the workforce takes place.
However, there is a positive trend in the US labor force market as people live longer and they tend to remain employed after the traditional retirement age. According to the report of the American Association of Retired People (AARP), approximately 70% of employees (who are currently 45 years old and older) are planning to work after they achieve the traditional retirement age, which in turn means that they are likely to be employed up to the age of 65 years (Kristof, 2011).
While talking into account facts stated above, there is a possibility of staving off the drain on the workforce if older employees are provided with a possibility of improving their professional skills due to needs of the current technological development in all areas of human activities.
In such manner, it is possible to achieve the double effect of collaboration between younger employees and the personnel of the retirement age. Representatives of the retirement age would be assisted in managing different technological devices, equipment, and software, while newcomers would be assisted in managing of key labor activities required by a particular vacancy.
That is why, it is possible to outline two key forms of the challenge awaiting the manufacturing businesses: technology and training.
According to current trends in the technological development of the manufacturing process, more than 66% of jobs in the US are related to operation of a computer and/or search for information or its sharing via the World Wide Web. In respect to age, it is possible to consider computer technologies as the equalizer because there are no age restrictions for operating the PC. It is possible to support this thesis with the statistical data presented by the National Bureau of Economic Statistics, which shows that applying computer technologies while carrying out the professional activity is the same for employees of all age groups from 16 up to 69 years of age (Business improvement specialists, 2011). It is an essential skill for all employees because, in order to remain employable, both baby boomers and representatives of the retirement age group should be able to apply their skills of operating computer technologies when carrying out their professional activities.
In the manufacturing business, employers can manage this issue by offering supplemental computer training both for employees of the retirement age and for newcomers. Additional attention should be paid to the work environment, catering for needs of workers, while including the flextime. In turn, it would provide older workers with greater flexibility for organization of their leisure time. Moreover, there is a need for employers to create such conditions of work that would meet needs of older employees in terms of hearing and sight. In addition, software applications should be modified for being more accessible for representatives of the retirement age group.
It is possible to consider the area of the lean manufacturing as the one that places additional responsibility for operational efficiency improvement. That is why, additional training for old workers is important in the area of the manufacture in the US and cooperation between supervisors and employees is required in order to take on the additional responsibility.
As an effective example of the manufacturing process organization, it is possible to consider the IBM as a company that has set up the Casual Worker Program. According to this program, older workers are provided with limited benefits and they are not provided with the pension. That is why, it motivates them to pass their skills and knowledge to younger workers (IBM Business Consulting Services, 2006). Thus, it is important to emphasize that the human resource management is a complicated task that requires high responsibility for motivating professional employees to share their skills with newcomers in order to keep the company competitive in the industry.
While discussing the retirement from the employee’s point of view, some people think about retirement as the best time in their lives and an opportunity to have a good rest, travel, and feel independence from work and obligations, which puts restrictions on life planning. For sure, social security takes care of the retired, but monthly payments are too small to diversify their life. It is enough only for nutrition and for covering the cost of simple and basic needs.
Also, several employers offer specially-developed pension plans, which would provide the retired with valuable incomes (pensions), but the number of such organisations is not high and the majority of people hope for the social security support when they are retired. It is essential to refer to the fact that there is one more appropriate variant for planning retirement, i.e. insurance companies and their retirement plans.
Thus, it is essential to consider variants offered by the BELMALIFE Company in order to provide an obvious case of benefits for the retirement planning. The company offers several ways of retirement savings. Among them are the following: pension planning, the IRA (individual retirement account), 401(k) (Roth IRA), and whole life insurance (which is based on supplement savings plan) (Beamalife, n.d.).
Individual Retirement Account and 401(k) both provide an opportunity to increase earnings and avoid overpayment in taxes. These two programs differ as the IRA may be deducted from taxable income or the amounts of tax to be paid on federal income and, in case with 401(k) program, savings are made of “after tax” dollars (Beamalife, n.d.).
In order to make the Roth account distributions and to avoid payment of income taxes, it is necessary to own money on account at least for five years. The following requirements are for those who are willing to take money from the account. It is possible to get money if at least one of these conditions is met:
· When a person is willing to make withdrawal, one must be not younger than 59.5 years old;
· Disability is the reason of making withdrawal;
· In case of making the first payment for home purchasing costs (maximal withdrawal is $10,000);
· In case of death, withdrawal would be made to the beneficiary;
Opportunity of taking money from the IRA or 401(k) account without paying taxes or penalties attracts new participants to this programme of ‘happy senium creating’. The program offers many options, which can be chosen by an investor: taking money from the account according to one’s own need; saving money; and a possibility of leaving all savings untouched and passing them along to the chosen beneficiary after the investors’ death. In addition, the option to leave money after the death to children or to other beloved relatives is much more attractive than paying allocations into the retirement fund and giving them away as a gift to the state in case of early death.
Another opportunity of planning retirement is Cash Value Life Insurance (it is alike to the whole life insurance). They also offer the possibility of leaving money after the death to a beneficiary to have the high rate of returns, withdraw money without paying taxes, and skip premium payments in the total disability case.
The last example of the retirement planning program is Whole Life Insurance, which is an opportunity to get death benefit (saving money for beneficiaries) and to save a big amount of money on paying taxes. It has a very attractive rate of return without having a risk similar to the stock market risk. In addition, it is possible to cash money one day if there is a need or desire for doing that (Beamalife, n.d.).
The main difference between whole life insurance and term life insurance is that in the second case one ‘has to die to get the benefit’. The value of whole life insurance grows every day and would be provided for insurance owner or to one’s legatees. The set of arguments listed above is enough for choosing one of the retirement planning variants in order to get a considerable amount of money after retirement and, at the same time, save all earned money for beloved relatives in case of death.
Such variant may be considered as fair because when a person works hard during the entire life and is finally willing to have a rest, one is provided with enough money to live adequately and also to allocate all one’s savings according to his/her wishes, needs, and desires.
The last issue to be discussed in the scope of this paper is the best state for retirement. It is essential to emphasize the fact that the retirement situation of each particular individual is different. While choosing the destination point, an individual should take into account the following factors relating to the value tax. First of all, if an individual owns property, one should take into account the fact that there is no option of avoiding high property taxes. This tax does not depend on the income rate of a retiree as one would be taxed in accordance with the value of the home owned by him or her. While taking into account the fact that in the majority of cases, retirees do not have a high income rate, this factor is considered to be negative in case one moves to the following states: Illinois, Nebraska, New Jersey, Michigan, Wisconsin, Vermont, Rhode Island, Ohio, Connecticut, and New York (Griffith 56).
Additional attention should be paid to the fact that in the above list of states, there is a high rate of taxation for the pension/retirement income and social security. In the USA, every citizen gets social security after retirement. The total amount of security compensation is not high, so taxes on this type of income are considered to be not sufficient. At the same time, if social security is the only means for existence and a significant quantity of US citizens receive defined benefit pensions, taxation on that type of income may be considered as critical for choosing a state to move to as an individual retires.