I was struck by the news last week that former Equifax chief executive Richard Smith, who “retired” after a major data breach at the credit bureau was revealed, would get a pension worth more than $18 million.
Equifax said last month that 145.5 million customer credit files were compromised when hackers accessed the company’s computer system. Smith, 57, won’t get his 2017 bonus or a severance payment, but what does that matter? He’ll still reap a fortune in the aftermath of a security breach that could have an impact on consumers for years.
When it comes to Smith’s retirement payoff, it’s hard not to player-hate when you’re worried that in retirement the cost of your health care will bankrupt you before you die. Or that the years you’ve spent sacrificing — so that you could have enough money to live well in retirement — still wasn’t enough.
I know life isn’t fair, but the platinum pensions that CEOs are raking in is just another example of the economic inequity in the United States.
“Many CEOs receive special ‘supplemental executive retirement plans’ that offer benefits well in excess of what the average employee receives,” wrote The Washington Post’s Jena McGregor. “The company typically either makes a contribution to the plan that’s invested or provides a defined benefit that’s set up as an annuity or a lump-sum payment. Such supplemental plans have drawn controversy, with investors asking why executives need to see retirement payments worth $1 million or more each year when they’re already bringing home millions each year in their regular compensation.”
Rosanna Landis Weaver, an executive compensation expert for the nonprofit As You Sow, told McGregor, “The irony is that the people who probably have the most secure retirement are the people who need it least.”
“In Smith’s case,” McGregor reported, “he had worked at Equifax for 12 years and had participated in both the company’s regular pension plan and the SERP for executives, both of which are now closed to new participants, according to the proxy. Nearly all of the $18.4 million value comes from the supplemental plan.”
John Stumpf, the former CEO of Wells Fargo, has a pension valued at $19.9 million. Stumpf was pushed out after it was discovered that Wells Fargo employees had opened unauthorized credit card and bank accounts for millions of its customers.
Los Angeles Times reporter David Lazarus put this pension issue in perspective: “The Institute for Policy Studies estimates that the top 100 CEOs of Fortune 500 companies can expect an average pension check of $253,088 monthly. Let’s underline that: Almost a quarter of a million dollars. Every month. For the rest of their lives.”
Let’s give this issue a historical perspective, too.
As Lazarus wrote this week: “In 1998, about half of all private-sector employers in the United States offered newly hired workers a defined-benefit pension for their retirement. By 2015, that percentage dropped to just 5%.”
And, there’s this: “Nearly all private-sector workers now make do with a 401(k) plan — and the average 401(k) balance is roughly $95,000, which comes nowhere close to what the typical American will require in their sunset years,” according to Lazarus. “By the age of 65, experts say, someone making $75,000 annually should have at least eight times their annual salary socked away, or a minimum of $600,000.”
Here’s some reading that will surely get your blood boiling if you are struggling to live off your pension or don’t even have one: “A Tale of Two Retirements: As Working Families Face Rising Retirement Insecurity, CEOS Enjoy Platinum Pensions.” A key finding of the report from the Institute for Policy Studies: “Just 100 CEOs have company retirement funds worth $4.7 billion — a sum equal to the entire retirement savings of the 41 percent of U.S. families with the smallest nest eggs.”
As contributor Arne Alsin wrote for Forbes, “Long-term investors can no longer afford to be silent — and we need to propose new methods of compensation for the 21st century that cannot be so easily manipulated by financial engineering in the C-suite.”
I like to hear from you. What do you think of the pensions that CEOs and top-level management receive? Send your comments to email@example.com. Put “Platinum Pensions” in the subject line. I’d also love to know who you are and where you live.
Retirement Rants and Raves
I’m interested in your experiences or concerns about retirement or aging. This space is yours. It’s a chance for you to express what’s on your mind. Send your comments to firstname.lastname@example.org. Please include your name, city and state. In the subject line put “Retirement Rants and Raves.”
David Bell from Fort Lauderdale shared his views on worrying about your retirement savings.
“It’s never enough, I think it’s human nature, I swear it’s in our DNA to always want more,” he wrote. “I have saved $805,000 and I don’t have a pension. I don’t think that’s enough money still. I’m afraid of two things and two things only: Running out of that money and the cost of affordable health care. I have run retirement scenarios on an array of different online free retirement calculators, trying to buy in to what they are telling me, and that is at what age I could retire if I wanted to.
“I have always lived by modest means and try not to carry too much credit card debt. I have a baby mortgage at $865 and association fees of $275. That’s pretty much it for monthly debt. So, based on what those retirement calculators are telling me, I don’t need much of that money at all, unless I decide to retire early, before the age of 59½. If I don’t retire early, I won’t need that headache-driven nest egg I have worked so hard to build over the last 31 years. I would say this, crunch the numbers, find out how much money is going to be needed monthly. Include the cost of health care, and what Social Security will contribute. It may turn out that all of that needless worrying about not having a nest egg was just that, needless.”
Jim Richardson of Alexandria is frustrated like so many others who wanted to follow my advice to create a “my Social Security” account in the aftermath of the Equifax data breach.
“After reading about the urgent need to create an online Social Security account, I tried to do so and failed,” he wrote. “When I called the SSA help desk, I learned that you cannot create an account once you’ve frozen your credit bureau accounts, which I’ve already done. Instead, you have to unfreeze them (which ones or all, I don’t know) and try again. Alternatively, you can go in person to a Social Security office (and stand a long time in line) and get a special PIN or other code.”
Yes, it may be a pain to create an account if you’ve already frozen your credit file. But do it anyway. It’s another level of protection.
L.G. from Tucson said she took an early retirement from a federal agency in 2012 at 56. She just turned 62.
“I will be receiving Social Security in November. I worked 28 years as a federal employee and several years before that as a journalist. I started working at 15. I hadn’t planned on retiring early or hadn’t thought about whether I could afford to do it. I hadn’t even looked into how much my federal pension would be! Years before that, I had assumed I may not even need Social Security. I enjoyed my work and colleagues in my career in public affairs, education, and outreach for wildlife/environmental agencies. Then, early outs were offered by our agency,” L.G. said.
Why retire early?
“I retired early to pursue a second career in writing,” she wrote. “I’ve been very nervous at times about whether I can really afford to retire so young. I’ve considered going back to work, at least part time, to supplement my income. I’ve been able to make it, with income left to save, which is important to me. When I retired, I had $320,000 in a government 401(k) fund, and about $40,000 in Roth IRAs, and $30,000 in cash. I didn’t start saving in the 401(k) until after I had worked for about 15 years. I felt I couldn’t afford it. Then, on the advice of a friend, I maxed out on the contributions, had some of it in stocks, and it grew. I didn’t miss the money. I wish I had started earlier, but I’m glad for those funds. I was fortunate not to lose money in the crash of 2008. I had put all of the 401(k) funds into government bonds because they were low-risk.
“For me, Social Security is part of a three-legged stool. I absolutely need it. I’ll be receiving $1,744 a month. My pension is $1,554. I started distributions from my 401(k), which I’m reducing this year to make that money last 30 years. I got rid of all debt more than 10 years ago. I pay a credit card off in full each month. I bought a house this year, my first one, so that I wouldn’t have to keep paying higher and higher rent. My mortgage is $650. I think I’ve made good decisions. My IRA is down to $16,000. I have $11,000 in cash, and my 401(k) is now $260,000. I used some of these funds to pay off a car and to pay $10,000 down on the house.
“Still, I wonder if I’ll have enough income in the long term. I would have received $2,400 a month in Social Security had I been able to wait until 66. I felt it was better to take it now.”
“Retiring early is risky, but I’m very glad I did it,” she wrote. “I published my first book, and continue to explore ways to help others and pursue my writing career. I think it’s important to revisit finances and make changes if need be. Also, to change other things in your life that may not be working. Flexibility is good.”
Newsletter Comments Policy
Please note it is my personal policy to identify readers who respond to questions I ask in my newsletters. I find it encourages thoughtful and civil conversation. I want my newsletters to be a safe place to express your opinion. On sensitive matters or upon request, I’m happy to include just your first name and/or last initial. But I prefer not to post anonymous comments (I do make exceptions when I’m asking questions that might reveal sensitive information or cause conflict.)
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