***UPDATE: Pension plan options are changing for you! Contact us and we’ll help you make the most of your options.
In this 4 part video series, Certified Financial Planners and Advisors, Ryan and Gabe, cover the components of the Arch Coal Benefits package and all of the factors to consider for planning your retirement. Click the list icon in the top right corner of the video to view all 4 videos or jump around to different videos.
Strategic Retirement Plans is neither endorsed by nor affiliated with Arch Coal.
What does it take to retire with Arch Coal?
So, you work at Arch Coal and want to know, “What does it take to retire?” We get these questions a lot from our current and prospective clients.
“What goes into the pension plan?”
“The pension was frozen a few years back, how do I handle my 401k?”
“Is there any health insurance benefit for me in retirement?”
Let’s dive deeper into some of these questions.
One of the topics we wanted to dive into was pensions. Arch Coal had a pension they froze back in 2019, there is a lot of folks who haven’t done anything yet with their pension. There are basically two routes, one is to lump-sum the money out that can transfer over to an IRA that you manage yourself. Or, you can acquire a monthly annuity as a guaranteed stream of income based off of you and your beneficiary’s life expectancy.
Which option is better: Lump Sum or Monthly Annuity?
There are several of our clients who didn’t make a decision a couple years ago when the pension was frozen. The good news is that the pension is still out there and available to you. One of the questions we often get is, “should I take a lump-sum or should I take a monthly-annuity”. We want to help walk our clients through the options.
The difference between those two is mainly that taking a lump-sum means getting a cash-value out of the pension. For example, maybe the lump-sum is a couple hundred thousand that you turn and have professionally managed to create a monthly stream of income. A benefit to this method over monthly annuity is that if you were to die early, that money is yours and can go to your future generations. Whereas, the monthly annuity is a paycheck that ends with you and your beneficiary. Following the deaths of you and your spouse, that stream of income ends. For each of our clients and prospective clients we have to take a look at the big picture in order to determine which option is going to be most beneficial.
There is a lot that goes into the decision about pensions, it isn’t black and white. The decision is per client, per circumstances, and varies with the benefits of the individual plan. If you have questions about any of this, that is what we’re here for, feel free to reach out at Strategic Retirement Plans.
Medical Insurance in Retirement
The next topic we want to explore deeper is medical insurance in retirement. If you work for Arch Coal and are younger than age 65, meaning you don’t yet qualify for Medicare, there are a few solutions to look at. One of those is “Cobra”, meaning you extend coverage for 18 months after you no longer have coverage through Arch Coal. This method gives an HRA (Health Reimbursement Account) benefit that’s usually about $290 per month/per individual. Qualification for this is dependent on factors like when you started at Arch. Cobra is a solution for 18 months. If you don’t qualify for that, we’ve also looked at Obama Care planning as well as different health shares that are out there. As you cross the finish line where you hit age 65, you are eligible for Medicare.
Health reimbursement accounts, or HRAs, will go to cover any of these qualified medical insurances. If you choose Cobra it will help with that. However, if you want to use the Affordable Care Act (Obama Care) it will not help cover that. These things are always changing. Lots of changes occur in the oil, gas, and coal industry, so companies are changing benefits and insurances with the times.
Picking the right insurance plan, not the easiest plan
When we look at Arch Coal’s medical insurance, a common mistake we see is people picking Cobra only because it’s the easiest option. That choice might end up costing them $1000 per month depending on how many participants they have. Sure, they’re getting reimbursed $290 per participant but they’re still paying out of pocket $600-700 per month. They’re probably better off going to the exchange and projecting what their income is going to be for Obama care. A lot of times we see premiums lower with subsidized health care than those choosing Cobra and using the HRA account.
If you choose Obama Care, be cautious. You need to be very smart with income if you’re getting subsidized health care with Obama care. If you accidentally go over by only a couple pennies, you could have a huge fine at the end of the year. This is why we work with each client individually because situations change based on what the client’s income is going to be.
Is a 401k a good investment come retirement age?
Traditionally, Arch Coal funded a pension for most of its workers. As things have evolved in retirement planning, the 401k has become more prevalent. The 401k is one of the best benefits that Arch offers for its employees. Like any other employer, Arch offers this as a contribution match from Arch. No matter what, we always say to put in enough money to get that employer contribution. It’s essentially free money. We’ve always said it’s a 100% return on your investment, guaranteed. The thing we have an issue with is people wanting to keep the money in the 401k where they’ve kept it for years instead of rolling it out to be managed professionally.
Is leaving your money in the 401K at retirement age a good idea?
There are some issues with leaving your money just in a 401k come retirement age. You are probably in some sort of retirement date fund. Is that too much risk? Too little risk? There are some good investment options inside of Arch, but they’re limited. A much better option is to do a 401k rollover where there’s no tax consequences to the client, but at that point, the money is being professionally managed. We have a much broader investment portfolio than 20-30 positions comparable to what you’d have with the limited amount at Arch.
Most 401k plans are designed to get the job done in the first three-quarters of one’s working career. Meaning, they have many different funds at this point so that you can be aggressive in stocks, while sticking close to indices like the S&P 500. This, in turn, brings down risk as you come closer to retirement age. As retirement approaches, we’ve found that you need a better portfolio that is well diversified. 401k plans don’t have enough opportunity. Rolling it over, however, allows us to use the money to diversify into a much better portfolio for retirement.
Another concern we hear from clients is “I want to keep working but I’m almost 60”. Starting at 59.5 years of age, you want to do something called an in-service withdrawal, even while working, it allows you to roll the money out and have it become professionally managed to leverage your money in a way tailored to you.
We’ve found that your investment mindset changes when you step into retirement. Markets are emotional, and you don’t have that job that has been providing a paycheck like clockwork. You now depend on social security and your portfolio as income. You need to have good options that are going to last.
Complimentary appointments to discuss further
If you have made it this far you’ve seen us discuss: the pension, health insurance, and the 401k. These decisions are specific to each individual. We offer complimentary “discovery-appointments.” This is where we can get to know you and you can get to know us. We can discuss and work through some of these hard topics. We’ve touched on a lot of the specifics to the Arch Coal Retirement plan, but there is so much more that goes into building out a great Retirement plan. If you’re interested in that, we recently did a webinar where you can learn about what it takes to retire, how much money you need, and some good questions we bring up to think about. Most importantly if you have questions, we would love for you to reach out and we can setup a complimentary appointment with you.
Strategic Retirement Plans is neither endorsed by nor affiliated with Arch Coal.