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General Motors has
offered a Window Retirement Program to thousands of employees. A
unique and attractive aspect of this program is the option to rollover
any lump sum payments to your GM SSPP or an IRA, avoiding immediate
taxation and providing tax-deferred growth. This and other provisions
of the Window Retirement Program will require even more careful
analysis and planning on the part of each employee considering a
buyout.
Mainstay Capital
Management, a fee-only, independent investment advisor, provides
investment and retirement planning advice for thousands of active
and retired automotive industry employees. Mainstay has counseled
many employees and executives on buyout offers. We can provide you
with a comprehensive Retirement Income Analysis, help you evaluate
“what-if” scenarios, and help you make an informed decision concerning
the GM Window Retirement Program. "GM Offers Early Retirement to 9,000 Salaried Workers" - Bloomberg "GM offers more buyouts" - The Detroit News "GM starts offering salaried buyouts" - The Flint Journal "GM offers more buyouts to 8,000 salaried workers in Michigan" - The Grand Rapids Press "How to Value the Buyout Offer" - The Wall Street Journal "Consider financial future before accepting buyout" - Chicago Tribune "Consider Tax-deferred options for buyout cash" - Detroit Free Press "4 things to consider before accepting buyout" - MarketWatch "Buying in to a buyout" - The Flint Journal "Getting Personal: Financial Planning Before The Buyout" - The Wall Street Journal "Should they stay or go?" - The Flint Journal "GM sweetens buyout deals" - The Detroit News "GM rolling out new buyouts" - The Flint Journal ABC News Video:
"Automotive workers
seek advice on buyouts"
Seven Key Risks For Those Considering A Buyout While a buyout offer can be very tempting, employees must step back and carefully analyze how this impacts their long-term financial plan. Employees that are expecting to continue their working career elsewhere, should have a good sense of their available opportunities, considering compensation, benefits, and location. For those who enter full retirement, Mainstay Capital Management sees seven key risks facing retirees today. Anyone considering a buyout offer should consider these seven risks very carefully before making a final decision to leave their employer. Longevity/Life Expectancy – People today are living longer and healthier lives. In fact, during the last century, life expectance has nearly doubled. Those accepting a buyout and retiring in their 50’s and early 60’s, may find themselves spending more time in retirement than they did in the work force. An American male who has reached age 65 in good health, for example, has a 50% chance of living to age 85 and a 25% chance of living to age 92. A 65-year-old woman has a 50% chance of reaching age 88 and a 25% chance of living to age 94. Inflation – Our cost of living continues to increase. Any retirement income plan must consider the impact of inflation on expenses. The likelihood of continued inflation increases the importance of ensuring that investors maintain an appropriate allocation to stocks that have the potential to beat inflation. Assuming the long-term historical 3% rate of inflation, if a retiree needs $50,000 per year to live today, that person will need nearly three times that amount in 35 years just to maintain the same lifestyle. And that assumes future inflation rates will match the historical average. In recent decades, inflation has been much higher, reaching 5% in the 80’s and 7% in the 70’s. Pension – Yet another challenge facing retirees is the decline of traditional pension plans. Additionally, it is widely known, that pensions that do exist are at risk. Companies offering pension plans are collectively underfunded by tens of billions of dollars. As pension plans have declined, 401(k) and 403(b) plans have grown in importance. However, the success of a retiree’s 401(k) or 403(b) plan is determined by their contribution level and management of the assets in the account. Social Security –
Originally intended to provide only supplemental retirement income
for a minority of Americans, Social Security has become the primary
retirement income source for the majority. And Social Security has
grown into more than just a retirement program, adding benefits
for widows, disabled workers, and children. The Social Security
Administration projects that the program will pay out more than
it takes in by 2018. Without significant changes to the program,
benefits may run out altogether by 2042. Portfolio Management – Mismanaging retirement savings is one of the biggest risks retirees face. If their savings are too concentrated in stocks when a significant market decline occurs, their portfolio can suffer serious damage. On the other hand, fear of getting caught in a market downturn causes many retirees to become overly cautious. Some believe their only option is fixed income investments, such as bonds, CDs, or cash. The risk here is insufficient growth of their investments to provide the desired income stream throughout retirement. Unfortunately, individual investor portfolio management results have been disappointing. According to a Dalbar study, from 1985 to 2004, the S&P 500 posted an average annual return of about 13%, while the average mutual fund investor’s return over this same period averaged less than 4% per year. Withdrawal Rate – Before retirees can start tapping their personal retirement savings, they need to consider how much they can withdraw each year (a critical part of the retirement income planning process). Some retirees have unrealistic expectations of how much they will be able to draw from savings to supplement their pension and Social Security income. |
