February 29, 2024

Bucks Blog: Monday Reading: Budget Airlines Fly South of the Border

September 17

Tips For Managing Your Increasingly Lumpy Income

Fewer people earn regular, old-fashioned paychecks with regular old-fashioned pensions anymore. If you’re one of them, you need a different financial plan.

Article source: http://bucks.blogs.nytimes.com/2012/09/17/monday-reading-budget-airlines-fly-south-of-border/?partner=rss&emc=rss

G.M. Will Offer Bonuses in New Deal With Workers

In what is being viewed as a landmark deal, the union also preserved health care and pensions and improved profit-sharing for its roughly 48,000 members who work at G.M.

Officials at G.M. and the union declined to discuss specific terms of the deal. But people briefed on the negotiations said that workers would receive a signing bonus of $5,000 in lieu of cost-of-living wage increases. Entry-level workers, who are paid about $14 an hour, are expected to receive an increase of $2 to $3 an hour.

The company has also agreed to reopen its idled assembly plant in Spring Hill, Tenn., the people said.

The U.A.W.’s tentative, four-year agreement with G.M., announced late Friday, also opens the door for the automaker to bring back laid-off workers and move jobs back into the United States.

G.M. is the first of Detroit’s Big Three to reach a deal with the union. Details of the agreement were being withheld until the union can inform members, who will vote on ratification over the next two weeks.

The union’s president, Bob King, said in a statement that union members would get a larger share of the profits from G.M.’s comeback from its federal bailout and bankruptcy in 2009.

“When G.M. was struggling, our members shared in the sacrifice,” Mr. King said. “Now that the company is posting profits again, our members want to share in the success.”

G.M.’s lead negotiator, Cathy Clegg, said the agreement allows G.M. to continue adding jobs as it increases market share in the United States.

“We worked hard on a contract that recognizes the realities of today’s marketplace, enabling G.M. to continue to invest in U.S. manufacturing,” she said.

Industry analysts said the union achieved its goals of balancing economic gains in the agreement with solidifying G.M.’s cost structure for future growth.

“I think the U.A.W. went way beyond holding the line here,” said Harley Shaiken, a labor professor at the University of California, Berkeley. “The union made some real gains in the contract in the context of where G.M. becomes a more competitive company.”

“They are bringing back work from other countries,” Mr. Shaiken added. “In this environment, to be creating jobs is not an insignificant achievement.”

Increasing jobs in the United States was a critical goal for U.A.W. leaders under pressure to show that the government’s bailout of G.M. is producing positive economic benefits.

Mr. King took the unusual step of acknowledging the Obama administration’s support of the industry in his statement: “None of this would have been possible without the efforts of President Obama, who invested federal funds to help turn the company around, protect the auto supplier base and keep good-paying jobs in America.”

The union said that it had successfully fought off G.M.’s proposals to weaken pensions and obtain major concessions on health-care benefits.

Mr. King’s next task is to seek broad support among local union leaders and G.M. workers for the tentative deal. U.A.W. leaders from plants across the country are expected to gather in Detroit on Tuesday to hear the details.

“No one’s going to like the entire contract,” said Jim Graham, president of U.A.W. Local 1112 in Lordstown, Ohio. “I’m not going to like all of it. But if I like 90 percent of it, I’m behind it.”

He added: “I have no doubts it will get ratified.” Then Mr. King will most likely move to Chrysler, which is smaller and less profitable than G.M., and may not match the $5,000 bonuses.

Article source: http://feeds.nytimes.com/click.phdo?i=2b058e8c495f9935baa1e8ed16857a98

Public Workers Strike in Britain Over Pensions

Many schools were operating with skeleton staffs; some were shut altogether. Lectures and classes were canceled at an estimated 75 universities. Numerous government services were affected, including ports and airports, where up to 14,000 staff members of the agency that handles immigration and customs matters were due to walk out.

Other agencies, like the court system, social security benefits offices and unemployment centers had contingency plans to keep going, but might have to offer reduced service with managers taking the jobs of union workers, the government said.

The unions estimated that as many as 750,000 people would join the walkout.

The strike is the latest development in an increasingly bitter dispute between the affected unions — including the National Union of Teachers, the Public and Commercial Services Union, and the University and College Union — and the Conservative-led coalition government.

The government, whose austerity budget is beginning to take affect around the country, says that the current pension system is unsustainable and unaffordable. It has raised the working age and is now proposing that workers should pay a larger proportion of their salaries into their pension plans each month. The government has also proposed recalculating pensions so that they will be based not on a worker’s final salary, but on a “career average” salary, taking into account the worker’s entire working life.

Most workers can currently begin receiving their pensions at 60. One of the proposals being considered would see the age rise to 66 by 2020.

Brendan Barber, general secretary of Trades Union Congress, which represents many of Britain’s unions, said that the strikes were being held in large part by the deep public sector cuts already imposed by the government.

“Nobody wants to see our schools and job centers closed,” he told reporters. “But our resolve is strong, our determination is absolute and we will see this through until we reach a just and fair settlement.”

Francis Maude, the government minister in charge of pension policy, said since talks between the government and the unions were still going on, it was unacceptable for the teachers in particular to go on strike.

“It’s absolutely unjustifiable for parents up and down the country to be inconvenienced like this, forced to lose a day’s work, when they’re trying to go out to work to earn money to pay the taxes which are going to support teachers’ pensions,” he told the BBC.

Dave Prentis, leader of Unison, which has 1.3 million members and is Britain’s largest public-sector union, said that he had not yet balloted his members about going on strike. But he warned the government that that could change if they continued to be “treated with disdain.”

Article source: http://feeds.nytimes.com/click.phdo?i=eedcf3d6b41bd97740e3e8bacad48904

Bucks: Longevity Insurance: Buying Down the Risks of Living Too Long

Most people buy life insurance to protect against the risks of dying too soon. Now, there are new products offering the same protection if you live too long.

It’s known as longevity insurance, and there’s clearly a huge market for it: Life expectancies are on the rise, cushy pensions are on the decline, and most people don’t have enough savings to carry them through two decades or more of retirement. This is not lost on insurance companies, which would like you to think about the product as a pension of sorts — albeit one that you have to buy with your own money.

I wrote about the pros and cons of longevity insurance — which, at its core, is really just an annuity — at the end of last year. But now, New York Life will roll out its own version, which it’s calling a “guaranteed future income annuity,” on July 11.

So how exactly does it work? With basic immediate annuities, also known as income annuities, you give a pile of money to an insurance company in exchange for a lifetime stream of income that generally starts right away.

What’s different about New York Life’s product is that the stream of income is deferred — you pay the premium, but agree to receive the income stream at some point in the future. But there are two distinct ways to use the product.

With the first way, you might think about it as a way to prepay for an annuity (or a pension) well before you plan to use it. That makes it cheaper than an immediate annuity, because, well, there’s a chance you’ll die before you begin to collect. In addition, the insurance company has the advantage of investing your money over a longer period of time. You might buy the annuity at age 55, but decide to begin collecting it at age 67, for instance.

But it can also be used as a pure insurance policy — hence the name, longevity insurance. You can agree to begin collecting the insurance at a much later date in the future, like your 85th birthday. So if you live past your life expectancy, you’re covered. And since most people don’t know when they’re going to die, this allows you to spend down your retirement savings more liberally because you know your payments will kick in later. The big risk, of course, is that you won’t see a dime because you die before you can collect.

“Mathematically, it makes a lot of sense,” said Christopher Blunt, an executive vice president at New York Life, referring to the lower costs of using the annuity purely as an insurance policy. “It’s probably the most efficient and effective way of taking that pure risk off the table.”

So let’s take a closer look at some of the numbers. It would cost a 55-year-old man $100,000 to buy $1,000 a month in guaranteed lifetime income that begins at age 65, compared to $103,500 for a woman. (It’s more expensive for women because their life expectancy is generally longer.)

It would cost $122,000 to cover both partners’ lives, which is much lower than the $203,000 it would cost to buy an immediate annuity (at age 65).

But if a man decides to make those payments over ten years, investing $10,000 a year, his income stream might be slightly less, perhaps closer to $880 a month. That’s because the insurance company is investing your money for a shorter period of time (and there’s a higher likelihood you’ll collect the income stream with each passing year). Also remember that your payments will be influenced by the interest rate environment: if rates rise, you’ll lock in a higher payout rate, and vice versa.

If you want to use the annuity purely as an insurance policy, it’s much cheaper. It would cost a 55-year-old man $12,100 to buy $1,000 in guaranteed monthly income that starts at age 85, compared to $13,750 for a woman. It would cost a 65-year-old man $17,740, whereas it would cost a woman $21,600. To cover them both, it would cost $20,340 if they’re both 55, and $31,240 if they’re both 65.

That seems like a decent deal, until you remember that little bug called inflation – your dollars are likely to be worth a lot less that far into the future. One option is to figure out how much you’ll need in inflation-adjusted dollars and buy that amount.

Now, for some of the rules of the game: The initial premium payment must be at least $10,000, but subsequent payments can be as little as $100. You can make payments at any time up to 2 years before you start collecting payments.

You also have the ability to change your start date. So if you were to retire early, you could start collecting earlier, though your payments would be less. You’re also given one shot at deferring your start date, though you can’t defer the start of your payments for more than 40 years from your initial payment.

As for costs, a one-time commission of as much as 5 percent of the premium amount is extracted from the amount you’re ultimately paid.

There are obviously risks associated with any annuity. The most obvious is that you’re giving up control of a big pile of money, and you may not live long enough to collect. You have the ability to buy survivor benefits, but that will lower your monthly payments. For instance, you can arrange for a beneficiary to receive the money back if you haven’t begun receiving payments, or to continue to receive the payments for a certain period of time.

And then there’s the issue of inflation. You can also buy an option that will allow your payments to rise a certain percentage each year, but again, it will cost you. (There is also a feature that says if rates rise more than two percentage points within five years of buying the contract, the company will reset your contract at the higher prevailing rate).

And then there’s always the question of the financial stability of the insurance company many years into the future. Mr. Blunt pointed to New York Life’s triple-A ratings from each of the big rating agencies and said the company had $30 billion in life insurance reserves on people over the age of 65, and $5 billion in reserves on individual annuities. And since the company is a mutual (as opposed to a publicly-traded company), he said it could stockpile as much capital as it needed since it was not beholden to Wall Street and shareholders.

But what happens if Merck invents the magic pill and we all live until 105? “Continued improvements in medicine that allow people to live longer could create losses on our individual annuity business,” he said, “but these would be more than offset by higher gains on the life insurance.” Still, he added, if something like that were to happen, “at some point, capacity might be limited.”

What’s the biggest reason you would or would not buy this guaranteed future income annuity?

Article source: http://feeds.nytimes.com/click.phdo?i=be599f2118274014194c23c19c7b0cf3