INVESTMENT OUTLOOK : BEYOND THE TRADITIONAL : Retiring Soon? : Experts Offer Tips for Employees With Pensions

Working on your investments can take on special complications if you face retirement in the near future.

Barring winning the lottery or hearing that your Aunt Minnie just left you part of Maui, ensuring retirement stability has become increasingly difficult.

Few Americans in their 30s or 40s plan to rely on Social Security for their retirement. And Congress legislated the individual retirement account into near-uselessness for married couples with adjusted gross incomes exceeding $50,000 and single taxpayers making more than $35,000. Wage earners making more than those amounts can no longer make tax-deductible IRA contributions.

That leaves workers who have some type of company pension plan with few choices. And a decade of restructuring has left many a pension plan amid the rubble of formerly stalwart U.S. companies.

Employees retiring in the next decade should ask questions now to understand what benefits they will be entitled to. For those whose golden years will begin in the next century, now is the time to lay the groundwork for a happy and leisurely retirement.

Pension experts offer several tips that apply to many employees.

First, advises Jack Marsteller of Hewitt Associates in Los Angeles, try to project your pension income, even if retirement is several years away .

For workers at large companies, this income is usually as follows:

* Social Security: Call (800) 234-5772 between 7 a.m. and 7 p.m. to find out what you will receive. The monthly payments are higher at age 65 than at 62, and higher still if you put off your retirement until you are 70.

* Defined Benefit Pension: This is the traditional pension that many big companies offer. In most cases, the company contributes money to a general retirement pool. The amount contributed is based on an estimate of the funds needed to pay retirement benefits (the defined benefit) of the current work force. It depends on employees’ ages, their length of service and certain actuarial factors.

To determine how much income you can expect during retirement, ask your company for its formula. Companies generally take an average of the last three or five years of salary. Then the company multiplies the employee’s number of years of service by some predetermined percentage. The resulting percentage is then multiplied by the average salary to determine the annual pension.

For example, let’s say the employee has worked 20 years at the company and that the company uses 1.5%. Multiplying those comes to 30%. Assuming that the employee’s average salary in the last five years is $100,000, the employee’s annual pension will be 30% of that, or $30,000. But be advised: In many cases the amount of that pension is then reduced by subtracting a portion of your Social Security benefits.

There has been growing concern about the safety of these pensions because the government agency that protects the money, the Pension Benefit Guaranty Corp., has reduced its investigations and reviews in recent years in a shifting of priorities. In addition, some pension plans have been looted by unscrupulous corporate officials, usually after a takeover.

Although most pensions are still safe, according to the government, consultants recommend that employees be especially vigilant if their company is restructured, and that they report any unusual transactions involving pension funds to the agency at (202) 778-8800.

* Defined Contribution Plan: Under this plan, an employer contributes each year to an employee’s individual account based on a formula; for example, in a typical profit-sharing plan, an employer may contribute up to 15% of an employee’s salary each year.

Defined contribution plans may also include company stock ownership and 401(k) savings plans. A large number of companies will match any employee contributions into 401(k) plans.

Projecting how much you’ll get from this plan is more difficult because it depends on what investments you’ve chosen for the contributions. Donald Pfaff of the Los Angeles office of Mercer-Meidinger-Hansen, a benefits consulting firm, says the two most common investment options--other than company stock--that are offered employees in defined contribution plans break down according to risk.

The first option is a fixed-income fund. This can include money market funds, corporate and U.S. Treasury bonds, and guaranteed investment contracts typically offered by insurance companies. This is the most conservative investment option. They are safer but have a lower long-term expected return than riskier investments.

The second option is a stock fund. “This is your high roller,” says Pfaff, “whether you are in blue chip stocks or over-the-counter. There is more risk but greater expected return.”

As you get closer to retirement, you should shift more of your defined contribution investments toward the fixed-income option.

After you have projected your retirement income based on the above, how do you know you will be able to live on it?

As a general rule, the experts say, your retirement income should approach 60% to 80% of your pre-retirement income. (Presumably, you should be able to live on less because commuting, wardrobe costs, taxes and other expenses will be reduced.)

As you look to retirement, Jane Ciabattari, author of a book on employment strategies for workers, “Winning Moves,” advises: “Know your rights.”

For example, she says, “The Age Discrimination in Employment Act makes it illegal for any company to force you to retire. And benefit plans cannot discriminate against older employees, especially when companies are financially troubled.”

Consultants emphasize that retirement should not be approached casually.

“People live a long time these days,” says pension expert Emily Andrews of the University of Rhode Island. “If you retire at 62, as many people do, you could be looking at at least 20 years of retirement.”