Healthcare Provider Update: FedEx's healthcare provider is primarily Cigna, which partners with the company to offer health insurance solutions to its employees through a range of plans, including High Deductible Health Plans paired with Health Savings Accounts. In 2026, FedEx employees may face significant healthcare cost increases, mirroring a broader trend across the nation. With the expected elimination of enhanced ACA premium subsidies, some workers could see their out-of-pocket premium costs surge by over 75%. Coupled with the anticipated double-digit rate hikes from major insurers and rising medical expenses, the financial burden on employees is poised to escalate sharply, potentially impacting their overall healthcare affordability. Click here to learn more
After leaving FedEx, it can be difficult to save for retirement, and it can be equally challenging to use those savings prudently. How much can you withdraw annually from your savings? This is an important issue that many of our FedEx clients frequently ask, and with good reason: if you withdraw too much, you risk running out of money, but if you withdraw too little, you may lose out on a comfortable FedEx retirement.
The '4% rule' has been the most prevalent guideline for over 25 years. This rule suggests that a withdrawal equal to 4% of the portfolio's initial value, with annual adjustments for inflation, is sustainable over a 30-year retirement period. This guideline can assist FedEx employees in establishing a savings objective and providing a realistic picture of the annual income their savings could generate. For example, a $1 million portfolio could generate $40,000 in the first year, followed by inflation-adjusted withdrawals.
Over the years, the 4% rule has generated substantial debate, with some experts contending that 4% is too low and others arguing that it is too high. Due to the allegations, we believe it is necessary to analyze both the original and most recent research regarding the 4% rule with our FedEx customers. The rule's creator, financial expert William Bengen, believes it has been misconstrued and provides new insights based on recent research. Determine whether he is right.
Original research
Bengen published his findings for the first time in 1994, after analyzing data for retirements from 1926 to 1976 — a total of 50 years of data. He considered a hypothetical conservative portfolio consisting of fifty percent large-cap equities and fifty percent intermediate-term Treasury bonds held in a tax-advantaged account and rebalanced annually. In the worst-case scenario, retirement in October 1968, a 4% inflation-adjusted withdrawal rate was the greatest sustainable rate. This marked the onset of a prolonged bear market and high inflation. All other retirement years featured higher sustainable rates, with some exceeding 10%.[1]
Obviously, no one can predict the future, which is why Bengen proposed a sustainable rate based on the worst-case scenario. Based on a more diversified portfolio of 30% large-cap equities, 20% small-cap stocks, and 50% intermediate-term Treasuries, he later increased it to 4.5%.[2]
New research
Now that we comprehend Bengen's original research, we'd like to examine a more recent analysis conducted with FedEx clients. Bengen published new research in October 2020 that attempts to project a sustainable withdrawal rate based on the valuation of the stock market and inflation (the annual change in the Consumer Price Index) at the time of retirement. Theoretically, when the market is expensive, it has less potential for growth, and it may be more difficult to sustain increased withdrawals over time. Lower inflation, on the other hand, results in lower inflation-adjusted withdrawals, allowing for a higher initial rate. A first-year withdrawal of $40,000 becomes $84,000 after 20 years with a 4% annual inflation increase, but only $58,000 with a 2% increase.
Bengen used Shiller CAPE, the cyclically adjusted price-earnings ratio for the S&P 500 index devised by Nobel laureate Robert Shiller, to measure market valuation. The price-earnings (P/E) ratio of a stock is the share price divided by the stock's 12-month earnings per share. For instance, if the price per share of a stock is $100 and its earnings per share is $4, the P/E ratio would be 25. The Shiller CAPE is calculated by dividing the total share price of S&P 500 equities by their 10-year average inflation-adjusted earnings.
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5% Rule?
Bengen utilized historical data once more, this time for over sixty years of retirement. Bengen discovered a correlation between market valuation and inflation at the time of retirement and the utmost sustainable withdrawal rate by analyzing retirement dates from 1926 to 1990. Historically, rates ranged from as low as 4.5 percent to as high as 13 percent, but the scenarios that supported high rates were rare, involving extremely low market valuations and/or deflation rather than inflation.[3]
Since the Great Recession, the United States has experienced low inflation and high market valuations for the majority of the last 25 years.[4-5] Bengen found that a 5% initial withdrawal rate was sustainable for 30 years in a high-valuation, low-inflation scenario at the time of retirement.[6] While this is not a substantial deviation from the 4% rule, it does suggest that retirees could make larger initial withdrawals, particularly in an environment with low inflation. However, when inflation is significant, withdrawals should decrease.
A caveat is that the market's current valuation is extremely high: At the end of 2020, the S&P 500 index had a CAPE of 34.19, a level only attained (and surpassed) during the late-1990s dot-com boom and higher than any of Bengen's research scenarios.[7] His range for a 5% withdrawal rate is a CAPE of at least 23 and an inflation rate between 0% and 2.5%.[8] (Inflation in November 2020 was 1.2%.)[9] Bengen's research suggests that a 6% withdrawal rate may be sustainable if inflation is 5% or less and market valuation falls to near the historical mean of 16.77. Alternatively, if valuation remains high and inflation exceeds 2.5%, the utmost sustainable rate could reach 4.5%.[10]
FedEx employees must remember that these projections are based on historical scenarios and a notional portfolio, and there is no assurance that their portfolio will perform similarly. FedEx employees must also keep in mind that these calculations are based on annual withdrawals adjusted for inflation, and you may choose not to increase withdrawals in certain years or use other criteria, such as market performance, to make adjustments.
Although there is no guarantee that working with a financial professional will improve investment performance, a professional can evaluate your objectives and available resources and help you consider appropriate long-term financial strategies, such as your withdrawal strategy.
We would like to remind our FedEx clients that all investments are subject to market volatility, risk, and principal loss. Investments may sell for more or less than their initial cost upon sale. The timely payment of principal and interest on U.S. Treasury securities is guaranteed by the federal government. Treasury securities' principal value fluctuates with market conditions. They may be worth more or less than the amount paid if not held to maturity. Allocation of assets and diversification are techniques used to manage investment risk; they do not guarantee a profit or guard against investment loss. Rebalancing requires the sale of some investments in order to purchase others; the sale of investments in a taxable account may result in a tax liability.
The S&P 500 index is an unmanaged collection of stocks that is representative of the U.S. stock market as a whole. The performance of an unmanaged index is not indicative of any particular investment's performance. Individuals cannot invest in an index directly. Past performance is not indicative of future performance. The actual outcomes will differ.
Conclusion
Imagine you are on a road trip, driving through unfamiliar terrain. You come across a fork in the road, with one path leading towards a beautiful and scenic destination, while the other path looks rocky and uncertain. The decision you make at this juncture could have a significant impact on your journey and your ultimate destination. Similarly, retirement is like a fork in the road of life. One path leads to a comfortable and enjoyable retirement, while the other path could lead to financial difficulties and hardship. This article provides guidance on how to navigate this fork in the road, with tips on how to save and invest wisely, how to plan for unexpected events, and how to ensure a comfortable retirement. Whether you are a FedEx worker looking to retire or an already existing retiree, the information in this article is pertinent to you and will help you make the best decision for your retirement journey.
1-2) Forbes Advisor, October 12, 2020
3-4, 6, 8, 10) Financial Advisor, October 2020
5, 9) U.S. Bureau of Labor Statistics, 2020
7) multpl.com, December 31, 2020
What are the implications of the Funding Target Attainment Percentage for FedEx Corporation employees, and how does it impact the security of the pension benefits offered by FedEx Corporation? This question seeks to explore the nuances of the funding target attainment percentage as reported in the annual funding notice, examining how this metric not only reflects the financial health of FedEx Corporation's pension plan but also how it affects employee confidence in future benefit payments and retirement planning.
Funding Target Attainment Percentage: The Funding Target Attainment Percentage for FedEx Corporation indicates the degree to which the pension plan is funded. A percentage of 101.33% for 2022 suggests that the plan has sufficient assets to cover its liabilities, providing security for employees' pension benefits. This high percentage likely increases employee confidence in the stability and reliability of their future pension payouts, essential for long-term retirement planning.
How does the merger of the FedEx Freight Pension Plan into the FedEx Corporate Employees’ Pension Plan influence the benefits currently available to FedEx Corporation employees? This question aims to delve into the practical changes that may arise due to this merger, assessing whether it aligns with employee expectations regarding their pension benefits and how the transition process is managed by FedEx Corporation.
Merger of Pension Plans: The merger of the FedEx Freight Pension Plan into the FedEx Corporate Employees’ Pension Plan appears to have been strategically managed to maintain benefit stability. Despite increasing liabilities by 5.3%, the merger was structured to ensure no negative impact on the benefit amounts payable to participants from either plan, preserving the expected pension benefits for all affected FedEx Corporation employees.
In terms of investment strategies, what measures does FedEx Corporation implement to ensure that its pension plan investments align with the long-term liabilities expected to be paid out to retirees? This question encourages an exploration of the investment policies in place, examining the asset allocations and risk management strategies that FedEx Corporation employs to ensure sustainable funding for its pension obligations, which could potentially include detailed analyses of stocks, debts, and alternative investments.
Investment Strategies: FedEx Corporation employs a diversified investment strategy across equities, fixed income, and alternative investments, aiming to meet long-term pension liabilities. This approach, which includes both active management strategies and the limited use of derivatives, is designed to generate returns that exceed market indices, thus ensuring adequate funding of pension obligations.
What options do employees of FedEx Corporation have for accessing their pension plan statements, and how frequently are these statements generated? The focus here is to understand the communication strategies employed by FedEx Corporation regarding pension benefit statements, including technological access points and the importance of these documents for employee financial planning.
Pension Plan Statements: FedEx Corporation provides annual pension plan statements through their Retirement Service Center, available electronically each fall. Employees can access their statements online or request them if notifications are not received, ensuring transparency and aiding in personal financial planning.
How are contributions to the FedEx Corporation Employees’ Pension Plan determined, and what role do excess contributions play in the plan's overall funding strategy? This question aims to educate employees about how the company balances mandatory contribution levels with potential excess contributions, exploring how these factors interact to influence the plan's solvency and employee benefits.
Contributions to the Pension Plan: Contributions to the FedEx Corporation Employees' Pension Plan are calculated to meet at least the minimum legal requirement and potentially include voluntary excess contributions. These excess contributions can help manage the plan's funding level and ensure its solvency, benefiting overall pension security for employees.
What types of benefits are guaranteed under the Pension Benefit Guaranty Corporation (PBGC) for FedEx Corporation employees, and what limitations exist that employees should be aware of? By focusing on the guaranteed benefits, this question prompts a discussion on the security of specific benefits provided by FedEx Corporation and highlights limitations, allowing employees to understand their rights fully.
PBGC Guarantee: The Pension Benefit Guaranty Corporation guarantees certain types of benefits for FedEx Corporation employees, such as pension benefits at normal retirement age and most early retirement benefits. However, there are limitations, such as exclusions for benefits without vested rights and recently increased benefits, which employees should be aware of to fully understand their pension security.
In what ways does the FedEx Corporation plan to adjust its pension funding strategy in light of changing federal laws that impact pension obligations? Employees are encouraged to consider how legislative changes influence corporate policies surrounding retirement benefits and the proactive strategies FedEx Corporation might take to remain compliant while ensuring the security of employee pensions.
Adjustments to Funding Strategy: FedEx Corporation is likely to adjust its pension funding strategy in response to legislative changes affecting pension obligations, such as those introduced by recent acts adjusting how pension liabilities are calculated. This proactive approach aims to ensure compliance with new laws while continuing to secure the financial health of the pension plan.
What are the steps that FedEx Corporation employees must take if they are considering retirement, particularly in how to navigate the pension plan and gain access to their benefits? This question aims to provide clarity on the retirement process, ensuring that employees are equipped with the necessary information regarding required documentation, timelines, and points of contact within FedEx Corporation.
Steps for Retirement Planning: Employees considering retirement should contact the FedEx Retirement Service Center to navigate their pension plan benefits. This process involves understanding necessary documentation, timelines, and available support, facilitating a smooth transition into retirement.
How does FedEx Corporation plan to manage potential funding shortfalls in the pension plan, and what mechanisms are in place for notifying plan participants should such an event occur? Employees would need to understand the proactive measures put in place by FedEx Corporation to address funding-related challenges while also knowing what this means for their benefits.
Managing Funding Shortfalls: In the event of potential funding shortfalls, FedEx Corporation has policies in place to manage such situations, including strategic contributions to mitigate shortfalls. The company maintains transparency with plan participants about funding levels and any significant changes affecting the pension plan.
For those seeking more information about their pensions and retirement options, how can FedEx Corporation employees contact relevant departments, and what resources are available for assistance? This question provides an opportunity for employees to familiarize themselves with contact points such as the FedEx Retirement Service Center, emphasizing the importance of open communication channels for addressing inquiries related to their pensions. Feel free to consult the provided document for more in-depth exploration of these topics.
Contacting for Pension Information: FedEx Corporation employees seeking more information about their pensions or retirement options can contact the FedEx Retirement Service Center. This center provides essential resources and support, ensuring employees have access to all necessary information regarding their retirement planning.
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