Can Anyone Explain Airline Retirement?
07-26-2014, 10:12 AM
#1
Living the Dream
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Joined APC: Sep 2013
Posts: 1,795
Can Anyone Explain Airline Retirement?
I'm just starting my career with the regionals, but it's never too early to educate yourself and start planning for the future. So with that in mind, I was hoping someone might be kind enough to shed light on retirement plans. I'm completely unfamiliar, so please explain without excluding basic definitions or concepts, because I probably don't know them.
A Funds and B Funds - I've heard of these, but what are they? Pensions? How does a pension differ from a 401K? How does a 401K work? Which of these can be taken if the airline goes bankrupt or the economy tanks? I'm full of questions, but every answer will be much appreciated.
Thanks!
A Funds and B Funds - I've heard of these, but what are they? Pensions? How does a pension differ from a 401K? How does a 401K work? Which of these can be taken if the airline goes bankrupt or the economy tanks? I'm full of questions, but every answer will be much appreciated.
Thanks!
07-26-2014, 10:51 AM
#2
Gets Weekends Off
Joined APC: Oct 2008
Position: JAFO- First Observer
Posts: 997
DJ -
"A-Fund" (most airlines have dumped them via Ch 11 BK) are Pensions. Pensions are also called "Defined Benefit Plans". Think of it this way- You serve 30 years at an airline, and your highest salary over the last 5 years of your career is $100K /yr. Your "pension" payment each month "could" be around $35K/yr upon retirement.
B-Fund/Plan- these are typically what the Legacy Carriers have. They are also called Defined Contribution Plans. The company puts in X% of your gross earnings into an account for you. Upon retirement, the "lump sum" is yours to do with what you wish. You don't have to put any of your earnings into it (but most carriers give you this option. Say a carrier has a 14% B-plan. That means if you make $100K/yr, the company will put in $14K per year into the B-plan at no cost to you!
A 401K is also a Defined Contribution Plan. Typically if you put in X% of your earnings! the company will "match" a certain percentage . Example- you put in 10% of your monthly gross income to the 401-K. Your company puts in 50% of the first 10% additional. (Basically you get a "free" extra 5% contribution...
The pensions of the past are not subject to stock market fluctuations.
The formula is "fixed" and the amount you get depends on the length of time you work at the airline and how much you make.
B-plans and 401K's have some "risk " due to stock market fluctuations. However, you have control over what the money is invested in (typically choices are stock funds, bond funds, and treasury funds).
For a young person, start saving as much as you can for as long as you can. A ROTH IRA is another way to save for retirement on your own.
"A-Fund" (most airlines have dumped them via Ch 11 BK) are Pensions. Pensions are also called "Defined Benefit Plans". Think of it this way- You serve 30 years at an airline, and your highest salary over the last 5 years of your career is $100K /yr. Your "pension" payment each month "could" be around $35K/yr upon retirement.
B-Fund/Plan- these are typically what the Legacy Carriers have. They are also called Defined Contribution Plans. The company puts in X% of your gross earnings into an account for you. Upon retirement, the "lump sum" is yours to do with what you wish. You don't have to put any of your earnings into it (but most carriers give you this option. Say a carrier has a 14% B-plan. That means if you make $100K/yr, the company will put in $14K per year into the B-plan at no cost to you!
A 401K is also a Defined Contribution Plan. Typically if you put in X% of your earnings! the company will "match" a certain percentage . Example- you put in 10% of your monthly gross income to the 401-K. Your company puts in 50% of the first 10% additional. (Basically you get a "free" extra 5% contribution...
The pensions of the past are not subject to stock market fluctuations.
The formula is "fixed" and the amount you get depends on the length of time you work at the airline and how much you make.
B-plans and 401K's have some "risk " due to stock market fluctuations. However, you have control over what the money is invested in (typically choices are stock funds, bond funds, and treasury funds).
For a young person, start saving as much as you can for as long as you can. A ROTH IRA is another way to save for retirement on your own.
07-26-2014, 11:38 AM
#3
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Joined APC: Apr 2005
Posts: 1,399
A B or 401 type plan is yours. It is deposited in an account in your name through JP Morgan or some outfit like them. Typically you can pick from a variety of mutual funds that they offer. You also may have a brokerage account option using your money to buy stocks or other mutual funds.
You can put in $17,500 a year on your own into the 401k. The total contribution between you and the company limit is somewhere around $45,00/year right now.
The previous posters advice on saving/Roth is the best advice you'll ever get.
You can put in $17,500 a year on your own into the 401k. The total contribution between you and the company limit is somewhere around $45,00/year right now.
The previous posters advice on saving/Roth is the best advice you'll ever get.
07-26-2014, 11:42 AM
#4
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Joined APC: Jan 2006
Position: Engines Turn Or People Swim
Posts: 39,224
All of the above applies to some major airlines.
To my knowledge the best you'll get out of any regional is a 401k with a very low match...something to fool employees into thinking their retirement is taken care of, but nowhere near enough to actually retire on.
To my knowledge the best you'll get out of any regional is a 401k with a very low match...something to fool employees into thinking their retirement is taken care of, but nowhere near enough to actually retire on.
07-26-2014, 11:51 AM
#5
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Joined APC: Jun 2014
Position: 737 FO
Posts: 360
Originally Posted by PerfInit
DJ -
"A-Fund" (most airlines have dumped them via Ch 11 BK) are Pensions. Pensions are also called "Defined Benefit Plans". Think of it this way- You serve 30 years at an airline, and your highest salary over the last 5 years of your career is $100K /yr. Your "pension" payment each month "could" be around $35K/yr upon retirement.
B-Fund/Plan- these are typically what the Legacy Carriers have. They are also called Defined Contribution Plans. The company puts in X% of your gross earnings into an account for you. Upon retirement, the "lump sum" is yours to do with what you wish. You don't have to put any of your earnings into it (but most carriers give you this option. Say a carrier has a 14% B-plan. That means if you make $100K/yr, the company will put in $14K per year into the B-plan at no cost to you!
A 401K is also a Defined Contribution Plan. Typically if you put in X% of your earnings! the company will "match" a certain percentage . Example- you put in 10% of your monthly gross income to the 401-K. Your company puts in 50% of the first 10% additional. (Basically you get a "free" extra 5% contribution...
The pensions of the past are not subject to stock market fluctuations.
The formula is "fixed" and the amount you get depends on the length of time you work at the airline and how much you make.
B-plans and 401K's have some "risk " due to stock market fluctuations. However, you have control over what the money is invested in (typically choices are stock funds, bond funds, and treasury funds).
For a young person, start saving as much as you can for as long as you can. A ROTH IRA is another way to save for retirement on your own.
"A-Fund" (most airlines have dumped them via Ch 11 BK) are Pensions. Pensions are also called "Defined Benefit Plans". Think of it this way- You serve 30 years at an airline, and your highest salary over the last 5 years of your career is $100K /yr. Your "pension" payment each month "could" be around $35K/yr upon retirement.
B-Fund/Plan- these are typically what the Legacy Carriers have. They are also called Defined Contribution Plans. The company puts in X% of your gross earnings into an account for you. Upon retirement, the "lump sum" is yours to do with what you wish. You don't have to put any of your earnings into it (but most carriers give you this option. Say a carrier has a 14% B-plan. That means if you make $100K/yr, the company will put in $14K per year into the B-plan at no cost to you!
A 401K is also a Defined Contribution Plan. Typically if you put in X% of your earnings! the company will "match" a certain percentage . Example- you put in 10% of your monthly gross income to the 401-K. Your company puts in 50% of the first 10% additional. (Basically you get a "free" extra 5% contribution...
The pensions of the past are not subject to stock market fluctuations.
The formula is "fixed" and the amount you get depends on the length of time you work at the airline and how much you make.
B-plans and 401K's have some "risk " due to stock market fluctuations. However, you have control over what the money is invested in (typically choices are stock funds, bond funds, and treasury funds).
For a young person, start saving as much as you can for as long as you can. A ROTH IRA is another way to save for retirement on your own.
PerfInit is correct that there is a formula that pension funds use to determine the monthly payment for each recipient. However, there's another formula, and that is the one used to determine how much the company must contribute to the total fund each year. That formula uses stock market growth/contraction to determine how much a company must pay to meet its obligations, and is spelled out under the tax code.
During the economic downturn that began in 2000-2001, as the market declined, the rate of return dropped, and corporations had to kick in more to keep the pensions funded. As the economy got worse, the amount of money required to keep pensions properly funded kept growing, and eventually crippled a number of corporations, including airlines.
But, the basic info above about 401(k) plans is accurate. A good financial planner will tell you that you should put in 15% of your income to your 401(k) or do a solid mix-and-match with a Roth IRA. There are tax advantages to both. With a 401(k), the money you put in from your paycheck comes out pre-tax, so if you have a monthly income of $3000 and put in 15%, you will only get taxed on $3000-450=$2550. You will pay taxes on the withdrawals when you retire. With a Roth IRA (or a Roth 401(K), if one is offered [and if it is, you should jump on it]), you put the money in after taxes, but you won't pay taxes on it when you retire.
With a 401(k), you can take the money with you if you leave or the company goes broke, though some will require a vesting period, meaning that you only get to keep the company contributions if you stay for a certain period of time. Pay attention to that, because it can add up.
My advice (I have a background in economics) is that you always put at least 15% of your check in starting from Day One. You'll take home less now, but you'll have more later. As for having less now, you will get used to it, since that will be your "new normal." Talk to enough people, but especially regional pilots [and especially captains], and you will find out that many have so little saved for retirement that they are totally screwed. Some don't even realize it.
Remember, we have to retire at 65. Working beyond that is not an option. Further, you are working now for two "lives," the working life between now and when you retire, and the "retirement life," which might be 25-30 years long. If you want to make $200,000 a year in retirement in 30 years, you need a 401(k) with a balance of $4,000,000 earning 5%, or one of $2,000,000 earning 10%. Any worse than that, and you start dipping into the principle, which will start a downward spiral.
07-26-2014, 02:05 PM
#6
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Joined APC: Feb 2014
Posts: 71
Originally Posted by OnCenterline
This is a gross error! Pension funds are most assuredly affected by the stock market. After all, the company pays a financial services provider to manage the fund within the market to generate the best growth and rate of return possible. By doing so, the company doesn't have to put in as much cash each year for the pension fund to meet its obligations. This is why, during boom times, some funds were "100% funded" or "over-funded," and companies had years where they didn't have to pay into the funds.
PerfInit is correct that there is a formula that pension funds use to determine the monthly payment for each recipient. However, there's another formula, and that is the one used to determine how much the company must contribute to the total fund each year. That formula uses stock market growth/contraction to determine how much a company must pay to meet its obligations, and is spelled out under the tax code.
During the economic downturn that began in 2000-2001, as the market declined, the rate of return dropped, and corporations had to kick in more to keep the pensions funded. As the economy got worse, the amount of money required to keep pensions properly funded kept growing, and eventually crippled a number of corporations, including airlines.
But, the basic info above about 401(k) plans is accurate. A good financial planner will tell you that you should put in 15% of your income to your 401(k) or do a solid mix-and-match with a Roth IRA. There are tax advantages to both. With a 401(k), the money you put in from your paycheck comes out pre-tax, so if you have a monthly income of $3000 and put in 15%, you will only get taxed on $3000-450=$2550. You will pay taxes on the withdrawals when you retire. With a Roth IRA (or a Roth 401(K), if one is offered [and if it is, you should jump on it]), you put the money in after taxes, but you won't pay taxes on it when you retire.
With a 401(k), you can take the money with you if you leave or the company goes broke, though some will require a vesting period, meaning that you only get to keep the company contributions if you stay for a certain period of time. Pay attention to that, because it can add up.
My advice (I have a background in economics) is that you always put at least 15% of your check in starting from Day One. You'll take home less now, but you'll have more later. As for having less now, you will get used to it, since that will be your "new normal." Talk to enough people, but especially regional pilots [and especially captains], and you will find out that many have so little saved for retirement that they are totally screwed. Some don't even realize it.
Remember, we have to retire at 65. Working beyond that is not an option. Further, you are working now for two "lives," the working life between now and when you retire, and the "retirement life," which might be 25-30 years long. If you want to make $200,000 a year in retirement in 30 years, you need a 401(k) with a balance of $4,000,000 earning 5%, or one of $2,000,000 earning 10%. Any worse than that, and you start dipping into the principle, which will start a downward spiral.
PerfInit is correct that there is a formula that pension funds use to determine the monthly payment for each recipient. However, there's another formula, and that is the one used to determine how much the company must contribute to the total fund each year. That formula uses stock market growth/contraction to determine how much a company must pay to meet its obligations, and is spelled out under the tax code.
During the economic downturn that began in 2000-2001, as the market declined, the rate of return dropped, and corporations had to kick in more to keep the pensions funded. As the economy got worse, the amount of money required to keep pensions properly funded kept growing, and eventually crippled a number of corporations, including airlines.
But, the basic info above about 401(k) plans is accurate. A good financial planner will tell you that you should put in 15% of your income to your 401(k) or do a solid mix-and-match with a Roth IRA. There are tax advantages to both. With a 401(k), the money you put in from your paycheck comes out pre-tax, so if you have a monthly income of $3000 and put in 15%, you will only get taxed on $3000-450=$2550. You will pay taxes on the withdrawals when you retire. With a Roth IRA (or a Roth 401(K), if one is offered [and if it is, you should jump on it]), you put the money in after taxes, but you won't pay taxes on it when you retire.
With a 401(k), you can take the money with you if you leave or the company goes broke, though some will require a vesting period, meaning that you only get to keep the company contributions if you stay for a certain period of time. Pay attention to that, because it can add up.
My advice (I have a background in economics) is that you always put at least 15% of your check in starting from Day One. You'll take home less now, but you'll have more later. As for having less now, you will get used to it, since that will be your "new normal." Talk to enough people, but especially regional pilots [and especially captains], and you will find out that many have so little saved for retirement that they are totally screwed. Some don't even realize it.
Remember, we have to retire at 65. Working beyond that is not an option. Further, you are working now for two "lives," the working life between now and when you retire, and the "retirement life," which might be 25-30 years long. If you want to make $200,000 a year in retirement in 30 years, you need a 401(k) with a balance of $4,000,000 earning 5%, or one of $2,000,000 earning 10%. Any worse than that, and you start dipping into the principle, which will start a downward spiral.
07-26-2014, 02:53 PM
#7
Gets Weekends Off
Joined APC: Jun 2014
Position: 737 FO
Posts: 360
I didn't say it was easy, and I'm not saying everyone can squirrel away as much as they'd like. BUT, having said that, if you do it from your first day, then you won't know what you're missing, because you will never have seen it.
Further, if you do the math on putting away 15% of your gross vs. paying taxes on ALL of your gross, you'll find that the numbers are not that far apart. The reality is, a certain amount of money is coming out of your paycheck no matter what. You might as well get as much of it back as you can.
The trick is to not put it off for long...the money you put away young has a lot more value than what you put away later. It's quite possible that $2500 put away now would be worth $26,000 at retirement (using 35 years of growth, NO other contributions, and a growth rate of 7%), while $16,000 put away in your last year will be worth $16,000.
Is it always easy? No. Necessary? Absolutely. Most of us can find a place where we're wasting money that could easily be diverted to savings (Starbucks, beer, you name it). At the very least in Year 1, you should put in enough to get the full company match. That's free money.
Further, if you do the math on putting away 15% of your gross vs. paying taxes on ALL of your gross, you'll find that the numbers are not that far apart. The reality is, a certain amount of money is coming out of your paycheck no matter what. You might as well get as much of it back as you can.
The trick is to not put it off for long...the money you put away young has a lot more value than what you put away later. It's quite possible that $2500 put away now would be worth $26,000 at retirement (using 35 years of growth, NO other contributions, and a growth rate of 7%), while $16,000 put away in your last year will be worth $16,000.
Is it always easy? No. Necessary? Absolutely. Most of us can find a place where we're wasting money that could easily be diverted to savings (Starbucks, beer, you name it). At the very least in Year 1, you should put in enough to get the full company match. That's free money.
07-26-2014, 02:59 PM
#8
Gets Weekends Off
Joined APC: Jul 2013
Posts: 4,664
Originally Posted by deltajuliet
I'm just starting my career with the regionals, but it's never too early to educate yourself and start planning for the future. So with that in mind, I was hoping someone might be kind enough to shed light on retirement plans. I'm completely unfamiliar, so please explain without excluding basic definitions or concepts, because I probably don't know them.
A Funds and B Funds - I've heard of these, but what are they? Pensions? How does a pension differ from a 401K? How does a 401K work? Which of these can be taken if the airline goes bankrupt or the economy tanks? I'm full of questions, but every answer will be much appreciated.
Thanks!
A Funds and B Funds - I've heard of these, but what are they? Pensions? How does a pension differ from a 401K? How does a 401K work? Which of these can be taken if the airline goes bankrupt or the economy tanks? I'm full of questions, but every answer will be much appreciated.
Thanks!
Originally Posted by OnCenterline
Remember, we have to retire at 65. Working beyond that is not an option.
Originally Posted by rickair7777
To my knowledge the best you'll get out of any regional is a 401k with a very low match...something to fool employees into thinking their retirement is taken care of, but nowhere near enough to actually retire on.
07-26-2014, 03:07 PM
#9
Gets Weekends Off
Joined APC: Jun 2014
Position: 737 FO
Posts: 360
Originally Posted by John Carr
Originally Posted by OnCenterline View Post
Remember, we have to retire at 65. Working beyond that is not an option.
In the 121/1st class usage world, mostly true. But your statement ISN'T an absolute. Things and times change, but there's been airline guys retire and go into corp/frac gigs that still pay a decent income. NOT everyone, but guys do it.
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