Sears Holdings Employees: Will You Outlive Your Money?

But Sears Holdings employees need to be proactive about protecting their retirement by implementing robust budgeting and prudent expense management, says Patrick Ray of The Retirement Group, a division of Wealth Enhancement Group. And starting early can make the most of those strategies work for you - so your savings last into your retirement years, 'she said.'

Retirees from Sears Holdings companies should take stock of their spending and make adjustments to protect their financial future, says Brent Wolf of the Retirement Group of Wealth Enhancement Group. Talking to a financial advisor early may help you create a customized plan that will help extend the life of your retirement funds.

In this article we will discuss:

Factors critical to the longevity of your Sears Holdings retirement savings: how much you need, how long you need it to last, and how you spend it.
Strategies to make your savings last - major and minor changes to your spending.
Retirement risk & opportunity management - financial stability.

Aren't You Outliving Your Money?

Figure out how much money you need to retire before you quit Sears Holdings. The biggest fear for retirees is whether their retirement savings will last - will they run out of money? Social Security isn't a guaranteed source of retirement income as it once was, and people generally do not want to depend on public assistance or their children in retirement.

Whether you will run out of money depends on several factors. What you have saved for your Sears Holdings retirement, how long you want your savings to last and how quickly you spend your money are just a few of the topics covered. You're better off tackling these issues when you retire to preserve your retirement nest egg. But if you're approaching retirement and still unsure whether your savings will last, there are some things you can do late in the game. The following are ideas to help you not to outlive your money.

Tips for Making Your Savings Last.

You might stretch your retirement savings by changing your spending habits. You can live with modest changes to your spending habits if your Sears Holdings retirement savings are far below your projected needs. Even little amounts of money can add up if you save them and earn a decent return.

Change Your Spending Habits.

For our Sears Holdings clients really worried about running out of money, you may have to drastically change your spending to make your savings last. Changes you might consider making include:

Consolidate any outstanding loans to cut your interest rate or monthly payment. Try home equity financing. Consider a reverse mortgage if your mortgage is paid in full. Moving to a cheaper home or apartment cuts down on housing costs. Still owing on a mortgage? Consider refinancing if interest rates have dropped since you took the loan. Sell your second car if it is only occasionally used. Find cheaper insurance. You might be amazed how much you can save a year (and more over a few years) by switching to low-cost insurance policies that still offer the protection you want. These are the two areas where you may save most - premiums can jump dramatically with age and declining health. See your insurance professional. Put your kid in or transfer to a cheaper college (a state university instead of a private one), for example.

This is especially good if the cheaper college is known to be good and accredited. You might save big in two or three years.

Minor Changes to Your Spending Habits.

Remind our clients from Sears Holdings that small changes can make a big difference. You might be surprised how quickly your savings add up once you write down a budget and make a few small changes to your spending habits. For our Sears Holdings clients with minor concerns about making their retirement savings last, simple changes to your spending habits may fix that problem. Some ideas for adjusting your spending patterns.

Purchase only the auto and homeowners coverage you need. For instance, cancel collision insurance on an older vehicle and self-insure instead. This won't save you a bundle, but it does. But if you do have an accident, the premium you saved could be gone in a flash. Shop for the best interest rate whenever you need a loan. Switch to a low-interest card. Transfer the balances to lower-interest cards and then cancel the old accounts. Eat dinner at home and carry 'brown-bag' lunches instead of going out. Purchase a clean used car instead of a new car. Pay only for the magazines and newspapers you read instead of full price at the newsstand. Reduce utility and other household costs wherever possible. Use your local library instead of buying or renting books and movies. Spending plan avoid impulse buying.

Manage IRA Distributions Carefully

For our Sears Holdings clients trying to stretch their savings, you might want to withdraw money from your IRA as slowly as possible. It will also preserve the principal balance and allow your IRA funds to grow tax-deferred as you age and retire from Sears Holdings. But for our Sears Holdings clients you start taking required minimum distributions (RMDs) from traditional IRAs (but not Roth IRAs) after age 70½ (age 72 if you turn 70½ after 2019). You'll pay 50% tax on the difference if you don't withdraw at least the minimum.

Note: Required minimum distributions for defined contribution plans (except Section 457 plans for nongovernmental tax-exempt organizations) and IRAs have generally been suspended through 2020.

Caution When Spending Down Your Investment Principal.

You cannot expect to live off the earnings in your investment portfolio and retirement account forever. You might have to start drawing on the principal eventually. These Sears Holdings clients should not spend too much too soon. It's an easy temptation when you first retire from Sears Holdings - especially if you travel a lot and buy things you could not afford during your working years. So a good rule of thumb is to spend no more than 5% of your principal in the first five years of your retirement from Sears Holdings. To quickly chip away at your principal, you won't make enough on the remaining principal to last you through the later years.

Portfolio Review

And your investment portfolio will probably be among your biggest retirement income sources. This means that your level of risk, the investment vehicles you choose and your asset allocation should be appropriate for your long-term goals. You don't want to lose your investment principal but you do want to lose out on inflation, too. Checking your investment portfolio is essential when assessing the longevity of your nest egg.

Continue to Invest For Growth.

Traditional wisdom says retirees should put safety first. For this reason, many people in retirement sell all their investment portfolios to fixed-income investments such as bonds and money market accounts. But this ignores inflation effects. You actually lose money if your investment return is not keeping up with inflation.

Your allocation should become more conservative with age but you should still keep at least some of your portfolio in growth investments. Some financial professionals suggest you follow this simple guideline: The percentage of stocks or stock mutual funds in your portfolio should equal about 100% minus your age. Thus, at age 60 your portfolio might be 40% stocks and stock funds (100% - 60% = 40%). Of course, how you apply this guideline depends on your risk tolerance and other personal factors.

The Basic Rules of Investment Remain in Effect in Retirement.

While your investment portfolio will probably change once you reach retirement age, you should still follow the rules of investing. Diversification and asset allocation remain important as you transition from accumulation to use.

Caution: Asset allocation and diversification cannot provide a profit or cover a loss. No investment strategy is guaranteed to work. All investing involves risk, including principal loss.

Laddering Investments

Laddering involves spreading the maturities of your investments out so they do not all mature at once. You can ladder any deposit, loan or security with a maturity date - bonds for example.

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And laddering may reduce interest rate risk.

Interest rates fluctuate among many factors. They are, therefore, mostly unpredictable. The biggest benefit - whether you use it to ladder a cash reserve or to portfolio invest - is reducing interest rate risk. Laddering investments reduces interest rate risk because you will invest at different times and at different interest rates. So you should probably not be snagged with below-market interest rates forever.

A single large deposit or investment that matures during an interest rate slump will give you two bad choices for reinvestment. Keep it in a low-interest savings account until rates rise or roll it over at the current low rate. Yet we caution our Sears Holdings clients that a rebound of interest rates later could keep you locked into that low rate forever. Breaking your investment into smaller pieces and laddering maturity dates avoids this situation.

How Do You Do It?

For your very first laddering attempt, you will need a few term deposits (e.g., certificates of deposit) or securities with specified maturity dates. Initial terms on each investment should be different lengths and you should plan to hold them until maturity. That sets your staggered maturity dates. So you might buy three different certificates of deposit - one for three months, one for six months, and one for nine months. You should also reinvest as your CDs mature so you can keep the maturity dates staggering, or laddering. Keep your laddering strategy intact and redeposit each maturing investment for a new term.

Long-Term Care Insurance

An unexpected catastrophic injury or debilitating disease that forces you into a nursing home can undo your best-laid financial plans. Whether you take out a long-term care insurance policy that covers nursing home care, home health care, adult day care, respite care or residential care depends on your individual needs. For our Sears Holdings clients who are buying such a policy, you'll need to pick the right time. Except for any chronic condition that increases your risk for long-term care, there is generally no reason to start thinking about it before age 50. It usually makes sense to buy such a policy before age 60.

Will Medicare Cover Any Long-Term Care Expenses You May

Sources:

1. Reddick, Chris. 'How to Effectively Save for Retirement in Sears Holdings Companies.' Chris Reddick Financial Planning, LLC, www.chrisreddickfp.com .

2. 'Sears Holdings and Large Company Employees.' Warren Street Wealth Advisors, www.warrenstreetwealth.com .

3. 'Retirement Strategies | Guide for Employers.' ADP, www.adp.com .

4. 'Employee Retirement Plans.' Morgan Stanley at Work, www.morganstanley.com .

5. Forbes Finance Council. 'Planning for the Future: Four Changing Retirement Trends.' Forbes, 13 Nov. 2018, www.forbes.com/sites/forbesfinancecouncil/2018/11/13/planning-for-the-future-four-changing-retirement-trends .

How does the Sears Holdings Pension Plan differentiate between normal retirement, early retirement, and late retirement options for Kmart participants? In what ways do these options influence the retirement planning process for employees of Sears Holdings, and what specific considerations should Kmart employees be aware of when choosing one of these retirement paths, particularly in relation to their vested status?

Differentiation of Retirement Options: The Sears Holdings Pension Plan offers distinct options for normal, early, and late retirement. Normal retirement is available at age 65 or after five years of plan participation, whichever is later. Early retirement can be taken from age 55 but before 65, provided the employee is vested, with benefits subject to actuarial reduction unless certain conditions are met (like having at least 90 points, which is a sum of age and years of credited service). Late retirement pertains to any retirement after the normal retirement age, with pensions recalculated to reflect the delay in benefit commencement.

Considering the frozen status of the Sears Holdings Pension Plan, how does this impact the benefits eligibility for Kmart employees, and what implications does it have for their retirement savings strategies? In what ways should current employees factor in this frozen status when evaluating their overall retirement readiness and potential alternatives outside of the company plan?

Impact of Frozen Status: The freezing of the Sears Holdings Pension Plan on January 31, 1996, means that there have been no new accruals of benefits or participants since that date. For Kmart employees, this impacts their benefits eligibility by capping the pension benefits at levels earned up to the freeze date. Employees need to consider this stagnation in benefits when planning for retirement, potentially seeking additional retirement savings avenues to bridge any shortfall.

What are the essential calculations involved in determining the retirement benefits under the Sears Holdings Pension Plan for Kmart employees? Specifically, how do the Career Average Pay and Final Average Pay formulas come into play, and what factors should employees consider when estimating their future retirement payouts?

Essential Calculations for Retirement Benefits: Pension benefits for Kmart employees under the Sears Holdings Pension Plan are calculated using either the Career Average Pay or the Final Average Pay formulas. These calculations take into account an employee's years of credited service and compensation up to the freeze date. Factors like estimated Social Security benefits and specific formulas (such as a deduction based on Social Security benefits under the Final Average Pay formula) play crucial roles in determining the final pension payout.

How can Sears Holdings employees best navigate the process of applying for benefits under the Pension Plan? What specific steps should participants take to ensure their applications are processed correctly, and what important deadlines should they be aware of to avoid any negative consequences on their retirement benefits?

Navigating the Benefits Application Process: To apply for pension benefits, employees must submit a formal application, ideally 30 to 90 days before the intended commencement date. It is crucial to ensure all personal information, including marital status and spouse details, is up-to-date to avoid delays or inaccuracies in benefit processing. Missing application deadlines can lead to postponed benefit payments or unwanted default options.

In what situations can Kmart employees expect to receive a Deferred Vested Pension, and how is the calculation for this pension affected by their previous employment and vesting service? Employees should be aware of the important factors influencing their eligibility and the steps necessary to maintain their retirement benefits after leaving the company.

Eligibility and Calculation for Deferred Vested Pension: A Deferred Vested Pension is available to employees who leave the company after becoming vested but prior to qualifying for retirement. The calculation mirrors that of a normal retirement pension, with possible early commencement reductions. Understanding the timing of benefit commencement and the potential reductions for early start is vital for planning.

How does the Sears Holdings Pension Plan address tax considerations for employees receiving both monthly payments and lump sum payments upon retirement? What tax implications should Kmart participants be aware of, particularly in relation to IRS rules for distributions and potential penalties for early withdrawal?

Tax Implications of Pension Receipt: Pension payments, whether monthly or lump sum, are subject to federal taxes. Monthly benefits are taxed as ordinary income, while lump sums might be eligible for special tax treatments or rollover options to defer taxes. It’s important for Kmart employees to consider these implications and possibly consult with a tax advisor to optimize tax liability.

What are the rights and protections afforded to Kmart participants under the Employee Retirement Income Security Act (ERISA) as they navigate their retirement benefits with the Sears Holdings Pension Plan? How can employees leverage these rights to ensure they are receiving all the benefits to which they are entitled?

ERISA Rights and Protections: Under ERISA, Kmart employees are entitled to certain rights including the ability to appeal denied benefits, access to plan information, and assurances of fair and equitable treatment of their benefits. Leveraging these protections ensures that employees receive all due benefits.

What steps should Kmart employees take to update their personal information to ensure they continue receiving their benefits without interruption, especially in the context of missing participants or uncashed checks? What resources and contacts at Sears Holdings are available to assist with these updates?

Updating Personal Information: Maintaining accurate personal information with the pension plan is crucial for uninterrupted benefit payments. Employees should promptly update changes such as address, marital status, or beneficiaries to prevent issues with benefit distributions or lost checks.

How does the process of transferring between affiliated employers impact pension benefits for Kmart employees under the Sears Holdings Pension Plan? What considerations should be taken into account concerning Credited Service and Vesting Service during such transfers, and how can employees ensure they do not lose any entitled benefits?

Impact of Transfers Between Affiliated Employers: Transferring between Sears Holdings’ affiliated employers can affect pension benefits differently depending on whether the employer participates in the pension plan. It's essential to understand how such transfers impact credited and vesting service accruals.

For Kmart employees seeking more information about their benefits under the Sears Holdings Pension Plan, what is the best way to contact company representatives? How can they effectively communicate their questions or concerns to ensure they receive accurate and timely information regarding their retirement benefits?

Contacting Plan Representatives: Kmart employees seeking clarity on their pension benefits should contact the Sears Holdings Pension Service Center. Effective communication, including prepared questions and necessary documentation, will aid in obtaining accurate and comprehensive information.

With the current political climate we are in it is important to keep up with current news and remain knowledgeable about your benefits.

Sears Holdings Corporation's pension plans were taken over by the Pension Benefit Guaranty Corporation (PBGC) following the company's bankruptcy. The two defined benefit pension plans have been frozen since 2005, meaning no new benefit accruals are added. The plans are underfunded by approximately $1.4 billion, with PBGC assuming responsibility to ensure pension payments continue. These plans cover about 90,000 participants who worked for Sears, Roebuck and Co., and Kmart Corporation. Despite the underfunding, PBGC is expected to cover the vast majority of pension benefits owed under these plans. Participants can manage their benefits and verify information through PBGC's online platform or service center.

Bankruptcy and Store Closures: Sears Holdings emerged from bankruptcy with significant store closures, reducing from nearly 700 stores to less than 25. The company has been liquidating its remaining assets and recently announced more store closures in 2024. The focus is on resolving bankruptcy-related issues and managing the liquidation process effectively (Sources: The Layoff, Yahoo Finance).

Sears Holdings offered both RSUs and stock options before its bankruptcy. RSUs vested over time, providing shares, while stock options allowed employees to buy shares at a fixed price.

Sears Holdings, now part of Transformco, has faced numerous challenges in recent years, impacting its ability to provide comprehensive employee healthcare benefits. The strategic transformations initiated since 2017 aimed to improve operational performance and liquidity, which included measures such as obtaining additional loan proceeds and real estate sales. However, the company's financial struggles and store closures have also led to significant changes in employee benefits, including healthcare. As part of its efforts to stabilize and restructure, Sears has focused on reducing outstanding debt and pension obligations, contributing almost $4 billion to its pension plan since 2005 due to prolonged low interest rates. In 2023, Transformco continued to navigate its financial challenges, which have influenced its healthcare benefits offerings. The company has aimed to maintain basic healthcare coverage for its employees despite ongoing restructuring efforts. This includes providing access to medical, dental, and vision plans, although the specifics of these benefits and any enhancements over the past years have been less prominently highlighted compared to the broader financial strategies and operational changes. The focus on financial stability and cost reduction remains critical for Transformco as it seeks to ensure the viability of its employee benefits programs amid economic uncertainties.