Arif Halaby, the CEO and president of Total Financial Solutions, is cautioning the Santa Clarita Valley workforce about relying too heavily on the promise of a pension for their retirement and offering alternative solutions.
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While Halaby has heard many individuals tell him no matter what happens, their company or union will guarantee them the pension they’re expecting when they retire, he maintained what will actually happen when that time comes remains a “mystery.”
“Remember, the dollars have to be there in order for them to pay out,” Halaby said. “Now it can go in a couple of different ways.”
Related: Total Financial Solutions: Why Get A 401(k)?
If the employer or union promising to issue the pension successfully manages their pension fund from now all the way through your retirement years, then everything could go according to plan.
However, if they make a poor investment choice or the economy suddenly takes a drastic turn, things could turn out very differently.
For instance, Halaby recently met a man who claimed his pension benefits were cut by 90 percent because his union made a questionable real estate investment in an effort to grow their pension funds, which turned into a criminal case with arrests made.
“You don’t know what investments the executives of the union or the pension folks are going to put money into,” Halaby noted. “They don’t have to be doing things that are sneaky or wrong, the economy just changes, right? Things just change, so there’s reason why things can go up and down.”
With an estimated $50 billion currently leaving the state of California in the form of employers and payroll, Halaby cautioned that residents need to be extremely careful with what they rely on and make arrangements for several sources of income in case one falls through.
“It’s incumbent upon every one of us to do something individually — not just rely on your single work plan,” said Jeff Girard, Halaby’s co-host on “Total Financial Solutions Safer Money Hour” on KHTS AM-1220.
Girard continued that the word “plan” can be deceiving, as it’s truly just one source of income that may or may not be reliable.
“Make sure that you don’t fall victim to that like so many people have, where they put everything in one basket, all their eggs,” he said.
Halaby added, “You think your pension is yours forever — I’m telling you that it’s not necessarily the case. Things can change, and when they do it could affect your take-home pay.”
One common alternative or addition to a pension is putting money into a 401(k) pre-tax, meaning that you get the tax break now but have to pay taxes on the entire amount in the future.
Because you don’t know what the tax rate will be in the future, Halaby advised looking into diversifying by also putting money into a Roth IRA, which is taxable today, but allows tax-free distributions in retirement, under current law.
“This is the known, today, and the cost today might outweigh what it could cost you in the future,” Girard said. “What does the government do 30 years from now when you retire? Do they go back and look 30 years ago at the tax rate you were at when you deferred the money? No.”
Halaby noted that the best solution to the issues facing the pension system is to build your financial team now to plan for your future in the best way for your individual circumstances.
While this will cost money in the short-term, he noted the potential long-term benefits will usually far outweigh these costs.
“Many of these (financial professionals) are going to charge an hourly rate, so yes, it’s going to cost you money,” Halaby said. “(But if) you get more involved in your own financial life and look at the cost it is today versus what the savings is later, I think you’re going to come out much further ahead of the game.”
He continued, “That’s where we come in. We’re the specialists that say, ‘We’re not going to go backwards with your account.’ We say, ‘How can we find a way to do safer strategies so your retirement account does not go backwards?’ That’s what Total Financial Solutions is all about.”
Ed. Note: This article is a KHTS Community Spotlight based on the latest “Total Financial Solutions Safer Money Hour” radio show on KHTS AM-1220.
Total Financial Solutions offers assistance with preparing for retirement in Santa Clarita and the surrounding valleys. Santa Clarita financial professional Arif Halaby, a Certified Estate Planner, and Total Financial Solutions staff work with people of all ages, helping them protect, grow and preserve their assets through an individualized approach. As a well-known financial professional, Arif Halaby is also the host of “Total Financial Solutions Safer Money Hour” on KHTS AM-1220. Launched in 2004, the show offers listeners retirement planning tips and guidance for dealing with today’s ever-changing financial needs.
Total Financial Solutions, Inc.
24322 Main Street
Newhall, CA 91321