The city of Detroit has money coming in from the state and municipalities to help pay for pensions but also has money going out to retirees for those benefits. The problem, says Ed Whitaker, is that a lot of these pension plans have more money going out than coming in.
A financial advisor with Tremont First Financial in Tremont, Illinois, Whitaker says this underfunded system will give retirees lower benefits than they had been receiving and for many, this may mean going back to work.
Whitaker says it's a national problem. A recent study indicated that there is a $1 trillion shortfall in pension plans, with 34 states that have 20% of their funds underfunded. Whitaker's home state of Illinois is the worst state, with a bond rating that was dropped and a 45% shortfall on their pension plans.
In retirement, there is not much one can do other than hope their pension plan will continue to pay out as it has been, Whitaker says. For those ready to retire, he advises a lump sum distribution, which allows you to move your money into an IRA without paying taxes and gives you control.
Whitaker recommends talking to an advisor to make sure you're getting educated on all of the options available.