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Lockheed Martin MST Voluntary Layoff Program

Lockheed Martin MST recently announced the upcoming Voluntary Layoff Program with the goal of reducing the divisional workforce by 1,500 employees.  If you are considering retirement and are eligible for the Voluntary Layoff Program, it may make sense to deeply consider the options.

As with all retirement and transition decisions, there are two main components: the financial aspects and the non-financial aspects.   Often, the non-financial considerations far outweigh any detailed financial analysis.

Financial Considerations

  • Have you reached the savings level where you can comfortably retire the way you envisioned in the past?
  • Do you have major upcoming costs such as college tuition for children that would hurt your early retirement decision?
  • How will this program affect your taxes this year and future income streams like Social Security?
  • If you are not 65 years old, how does this impact your medical insurance coverage?

Non-Financial Considerations

  • Are you truly ready to retire from day-to-day work? What would that look like?
  • Do you have other career ambitions outside of Lockheed Martin?
  • What does your spouse think of the prospect of you no longer working?
  • Are your primary friends retired or still working?
  • If needed, how will you replace the sense of daily accomplishment that work provides?

Start with a Financial Plan

When considering a major life decision, it makes sense to first take a step back and figure out your priorities and long-term goals in life.   The best way to do this from both the analytical and emotional level is to have a comprehensive financial plan in place.  This living document can help frame the Voluntary Layoff Program decision as well as open the discussion for other missed financial opportunities going forward.  Rockbridge is here to help facilitate the discussion and frame the key decisions for you at this critical time in your career.   We are here when you are ready.

If you qualify for the Voluntary Layoff Program and are interested in applying, the following are some key dates to keep in mind:

  • May 11: Final day to submit application for the Voluntary Layoff Program
  • May 26: Employee notified if application is accepted and the applicable exit date
  • June 9: Date majority of the employees will exit the business; additional dates will continue quarterly through June 8, 2017
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Rockbridge Understands You – Lockheed Martin

When evaluating a financial advisor, the most important factor is that they truly understand you as a person and your personal situation.  At Rockbridge, we have a dedicated focus in working with clients that are employees of Lockheed Martin.  Because of this, we already have an expertise in all employee benefits plans and how each one interacts with other benefits such as Social Security.  This allows us to optimize your retirement plan and gives you the reassurance and confidence that you are not leaving anything on the table.

Over the next several weeks, we will be writing our thoughts on different facets of Lockheed Martin employee benefits.  We hope that you are able to take away some new information that will help you better save and be prepared for when retirement comes.  We are always here to answer your questions as they arise.

Lockheed Martin Retirement Plans

As you well know, there are several different pension and retirement programs offered through Lockheed Martin via Voya.  Each one has their own unique benefits and quirks.   In addition, between now and 2020, the retirement program landscape will change with the pension benefits being frozen for all employees.   We will address each of these items in detail to help eliminate confusion regarding terminology and acronyms.

Salaried Savings Plan (SSP) – This is the company’s 401(k) plan.  Employees are allowed to contribute between 1%-25% of their salary with a max contribution of $18,000/year ($24,000/year for employees 50 and over) for 2016.  In addition to the employee contribution which is always yours, the company will match 50% of your contributions up to 8%.  This means that if you put in 8% of your salary, the company with contribute 4% of your salary toward the plan.

Capital Appreciation Plan (CAP) – For employees that are not part of the Lockheed Martin Pension Plan (hired 1/1/2006 or later), the company will contribute an additional 3%-4% of your salary toward retirement savings.   The CAP will transition fully in 2020 to the new Lockheed Martin Retirement Savings Account (RSA) where the employer will automatically contribute 6% of your salary toward retirement.

Retirement Savings Account (RSA) – A new retirement plan benefit that will function for all employees in place of previous pension benefits.  LM will contribute an automatic 2% of your salary to this program from 2016-2019, and in 2020, that percentage will merge with the CAP and increase to an automatic 6%.

Pension Benefits – The LM pension plan was discontinued for new employees starting 1/1/2006.  Beginning 1/1/2016, the LM pension plan has a locked annuity value for your average pay formula.  Any additional raises will not be factored into the pension formula.  Beginning 1/1/2020, the pension plan will stop accruing additional years of service.  On 1/1/2020, the final pension figure will be 100% fixed.

Lockheed Martin Executive Compensation Plans

In addition to the standard employee plans offered, Rockbridge is well versed in the various executive compensation plans available to highly compensated employees.   With each employee having unique supplemental benefits, we plan individually to optimize every available option.   We have detailed experience working with the Lockheed Non-Qualified Supplemental Savings Plan (NQSSP), the Non-Qualified Pension Plan (NQPP), Deferred Management Incentive Compensation Plan (DMICP), Long-Term Incentive Cash and Restricted Stock Bonuses as well as other legacy compensation plans.

How Plans Interact in Retirement

Understanding the complexities of each Lockheed Martin retirement plan is important, but even more critical is understanding how these plans function together with outside assets (brokerage accounts) and pensions (Social Security).   Using advanced planning software, Rockbridge can make sure your hard earned savings are maximized for your goals.

Framing Solutions

Outside of pure investment management, one of the most valuable services that Rockbridge provides is goal and decision framing.   Unlike simple math problems (1+1=2), retirement decisions are a combination of analytical and emotional decisions.   For many retirement questions, there is no right or wrong answer, but Rockbridge can help frame the decisions so that you are able to select the best solution for YOU.  Having an unbiased and objective third party look over your entire financial picture will give you the peace of mind that the transition to retirement will go smoothly.

First Step

The first step forward is always the most difficult.   When you are ready, Rockbridge would be happy to walk you through the path to retirement to make sure you are making the best decisions going forward.  We offer complimentary discovery meetings so that you can get to know us and see if we are a good fit.   We also offer second-look services to see if your current advisor is maximizing all of your available investment resources.   Your life savings and retirement happiness are always worth a second look.

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Market Commentary April 2016

Stock MarketsEquity Market Returns (2) 3 31 16

After January’s rough start, stock markets bounced back nicely in March, bringing most numbers into the black for the quarter.  Domestic Small Cap and International Developed Markets are the exception – down about 1.5% and 2%, respectively.  Notice from the accompanying chart that it was Emerging Markets that led the way, earning nearly 8% for the quarter.  While not nearly enough to bring longer-period returns into the black, it does give some sense of how diversification works.

The uptick in stock returns in March seems to reflect a more or less positive resolution to some of the recent economic uncertainty – commodity prices have rebounded, figures from China appear better than expected and the domestic economy shows signs of continued improvement with fourth quarter GDP numbers revised upwards.  Also, markets have calmed down a bit – daily volatility of the S&P 500 is below average in March.

While certainly dominating the airwaves, markets don’t seem to be paying much attention to the goings on in the Presidential election.  Don’t let expected political environment cloud investment decisions – assessing not only the probability, but also the impact of the eventual election of any of the current contenders, is tricky indeed.

Market prices are based on the future – today’s prices reflect a set of expectations, which may or may not be realized.  Prices are set expecting a positive return.  The possibility for short-run losses, while not expected, is risk.  It’s what we endure to earn the long-run positive returns.  For sure, however, there will be lots of unpredictable ups and downs along the way as the markets digest the news of the day.

Bond MarketsYield Curves 3 16

The yield on the bellwether 10-year U.S. Treasury security fell about 0.5% to 1.8% by the end of the quarter reflecting positive returns in Domestic Bond Markets.  Note the changes in the accompany Yield Curves chart – short-term rates increasing due to the Fed’s tightening, yet rates over longer periods falling.  The Fed can impact short-term rates; the market sets longer-term rates.

We are in the midst of an environment of historically low interest rates.  In fact, as a component of current monetary policy, the Central Banks of Japan and some European countries have begun to charge member banks a negative interest rate to hold reserves.  Also, the market determined rate on five-year inflation protected U.S. Treasury securities is a negative 0.3%.  Yields on the ten-year security have fallen to under 1.8%, which if inflation over the next ten years is expected to exceed 2%, also produces a negative yield.

While this interest rate environment has persisted for some time, markets can be out of whack for extended periods. However, expected deflation over longer periods could make negative yields rational.   Still, I would be hard pressed to argue that negative interest rates are the “new normal” and are here to stay.  Negative interest rates can’t go on forever, and Stein’s Law (Herbert Stein, Chairman of the Council of Economic Advisors in the Nixon and Ford Administrations) tells us that “If something can’t go on forever, it will stop.”

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Would You Rather Visit an Estate Attorney or a Dentist?

I will make the argument here: Most people would rather go to the dentist than get their estate documents (Living Will, Power of Attorney and Health Care Proxy) in order.  Why?  The dentist appointment usually only lasts an hour and does not require any preparation or thought in advance.  In contrast, the estate planning process takes some forethought and a few meetings to complete.  In addition, estate planning makes us consciously aware that we are indeed mortal.

Fortunately for estate documents, once you establish them, you hopefully won’t have to update them for years to come.  My advice is as simple as this:  Pull off the Band-Aid and complete your estate planning.  You will be happier with yourself after the fact.  I can speak from experience.  My wife and I finally finished our estate documents 14 months after our daughter was born.  I made sure to purchase my life insurance by the time she was born, but the estate documents found their way to the bottom of the pile of life’s paperwork.

I wanted to share our experience in hopes that it will encourage you to finalize your own estate plan.  What at first seems like a daunting task is really not all that bad or time consuming.  Hopefully after reading, you will feel confident to act.

Why do I need to create/update my estate documents?

The main reason for visiting an estate attorney would be to direct your decision making and assets in the manner you prefer if you become incapacitated or pass away.

When do I need to create/update my estate documents?

Estate documents are usually created around a life event.  The definition of life event is quite wide, but it could include marriage, divorce, new child/grandchild, retirement, financial windfall, etc.

What are the primary roles you need to name in your estate documents?

Guardian – a person appointed to take care of minor children if you were to pass away

Executor – a person who is capable and will carry out your wishes

Power of Attorney – someone who is able to act on your behalf in legal and financial matters

Health Care Agent – someone who will act on your behalf for medical decisions if you are unable to make them.

What work do I need to do in advance?

For families with children, the biggest issue will be selecting a guardian for your children.  Please don’t let this decision paralyze you and prevent you from finishing your estate documents.  Think about the important decision, but then realize that you can always change your wishes at a future time.  In this case, a good plan now is better than a perfect plan in the future.

What was the process like with the attorney?

My wife and I have a fairly simple estate, so we were able to get everything completed in the course of two meetings.  The first meeting took approximately one hour and was an introduction to the process.  We discussed many of the different topics in this article and thought about what-if scenarios.  We were able to make most of the role appointment decisions in the meeting.  About two weeks later, we received a package in the mail with all draft estate documents for us to review.  Once reviewed, we had a final meeting to review and sign the paperwork to make the documents official.

What does it cost?

The completion of most basic estate documents range from $500 to $1,000.  This price range would cover the majority of people.  If your financial or family life is more complicated, this price could be higher.

Why should I visit a real in-person attorney?

With technological advances, there is always a temptation to use a lower-cost online service such as LegalZoom.  Although these solutions could make sense, I feel that it is worth the extra cost to work with a local attorney who knows your situation and can help guide you through difficult questions.  With such important decisions, this is not the area to skimp on a few hundred dollars.  The in-person service also makes the official signing with witnesses and notaries a much easier process.

Hopefully this summary will serve as a reminder of cause to act so that your final wishes are protected in the future.  If you would like, Rockbridge would be happy to give you an attorney referral for someone we have worked with in the past.

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Tempted to Trust Your Gut? – Another Reason to Commit to a Disciplined Strategy

“The three worst words of stock market advice:  Trust Your Gut.”  That was the headline of a recent article by Jason Zweig in The Wall Street Journal, reporting on a new academic study.  Dr. Robert Shiller of Yale, who won the Nobel Prize in economics in 2013, has been surveying investors about their expectations since 1989.  Dr. Shiller and two colleagues (Goetzmann and Kim) recently released a draft of their analysis of “Crash Beliefs From Investor Surveys”.

The study supports the idea that investor beliefs are heavily influenced by what recently happened, and the effect of bad news is reinforced by how it is reported in the media.  As Zweig says, “the investors’ forecasts regularly look more like aftercasts – simple projections of the recent past into the future.”

Zweig goes on to note that institutional investors are little better than individual investors at predicting the future of markets.  In the two years leading up to the financial crisis in 2008, the majority of financial professionals thought the chances of an imminent crash were nil, and then they turned maximally pessimistic in February 2009, when the market was near bottom and about to make a significant recovery.

This study seems particularly relevant in the context of what has happened so far in 2016.  As market values dropped as much as 10% early in the year, pessimism continued to build.  Optimism returned as markets recovered, and we ended the first quarter in the black.  We all feel better, even though the real world hasn’t really changed much.

The recent analysis by Dr. Shiller and his colleagues seems to suggest once again that investors are not very good at predicting the market, and their emotions tend to reflect what just happened, which is not helpful in predicting the next turn. This phenomenon may be explained by the ways our brains are hardwired to work, but allowing behavioral biases to affect investment decisions can be detrimental for professionals as well as non-professionals.

Conclusion:  Do not trust your gut when it comes to investment decisions.  Take the emotion out, and avoid decisions based on a prediction of the future.  Instead, develop a strategy that reflects an appropriate level of risk, and stick with it.  Our job as an investment advisor is to help develop that strategy and to reinforce our mutual commitment, especially when recent events and emotion try to weaken our resolve.

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