Sunday, June 21, 2009

Surprises in retirement

After 35 years working for Nortel Networks, a well respected international company, I retired in 2001 with what I thought was a secure and reasonable pension. Even after the dot com bubble caused major problems for my old company, it seemed to survive and looked like it might stagger on. However a series of management fiascoes and bad decisions resulted in staggering losses, and when the financial meltdown hit in 2008 the company dropped to its knees and sought chapter 11 protection in the US and similar status around the world.

I had been worried about my pension over the last 8 years as the fates dealt one blow after the other and seemed to take aim at Nortel. I did some research and knew that parts of my pension were in possible jeopardy, but nothing focuses the mind like crisis, so in January 2009 I started looking at this more seriously and re planning my finances in case my pension was severely impacted. It was.

In February I didn't receive my pension check from the Nortel US subsidiary though I did receive the pension check from the Canadian subsidiary where I had worked for 18 out of the 35 years. This drop in income was a big shock, and I had to work with my financial planner to start early withdrawals from my IRA. It looks like I might be able to replace that part of my income for at least the foreseeable future, though my IRA had taken a huge hit in the market decline. My original retirement plan is now a shambles since I was expecting to grow my IRA until I was 70 and that way I could stretch it out and make sure my wife I were covered.

Luckily the health benefits in the US continue at least for now. I expect that they will stop at some point in time and then I will be faced with additional costs to cover my wife until she is medicare eligible. So I expect this will reduce my net income further.

Now, in June 209, Nortel has announced that it is planning to liquidate its assets. This is a big blow since it means that the pension plans will be wound up. In the US, the plan will be taken over by the PBGC which will continue to pay pensioners who were receiving defined benefits up to certain limits. In my case my US pension was non-qualified so that means the PBGC will not pay me anything at all.

In Canada there is no federal insurance plan or organization similar to the PBGC, so that means all the pensioners receiving defined benefits are totally out of luck. The trust fund will be handed over to an administrator who will determine how much is left and then purchase annuities for the pensioners based on what's left. Of course, because of a lack of regulation, the trust fund is way underfunded. At last estimate it may be 69% though that is just a guess. By the time the administrator works out annuities at much smaller interest rates and does the actuarial math, it is more than likely that we will end up with about half of what we were getting.

This decision to liquidate also means that the health insurance payments are going to stop. The company has been very secretive about all this and has basically ignored the retiree's requests for information and guidance.

So here I am; 67 years old, not likely to find a job in this economy; market losses in my IRA and personal savings; no US pension income; about to lose half or more of my Canadian pension; and also about to lose my health insurance benefits. Am I bitter? Yes, but I am also positive about the future. I will have enough to survive for the immediate future and I will have to make major adjustments, but it doesn't mean life ends and a spiral into poverty. No! I intend to use my skills in writing and the wisdom and knowledge I have gained to start generating other income.

This blog is part of that plan. I think that I can help others who are approaching retirement to look for the signs and do the research to make sure they are forewarned as to what to expect under such catastrophic circumstances. This has definitely been a learning experience. I hope that I can use it to help other avoid the traps and pitfalls that I have run into, and perhaps we can all work to change the laws and rules to ensure reasonable security and happiness in retirement for the generations that follow.

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