New Update: Rising Oil Costs are Affecting Retirement Plans. Will you be impacted?
Navigating Retirement: Annuities vs. IRA Withdrawals for Digital Realty Trust Employees
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Oil prices between $50 and $120 per barrel with 80% annualized volatility have created ripple effects throughout the economy over the past six months. Operating costs for commercial properties and the macro channel of interest rates and cap rate compression create meaningful exposure to sustained oil price volatility. Digital Realty Trust employees building estate plans should recognize that oil-driven market volatility can create favorable timing for gifts of depreciated assets or trusts funded during temporary valuation dips. A financial advisor can help you build strategies that maintain progress toward retirement goals through periods of energy-driven economic turbulence.
There are just a couple of things almost all Digital Realty Trust retirees need when they hit retirement: predictable income and protection against a cluster of risks, which include longevity risk, performance risk and sequence-of-returns risk.
In the past we have seen retiring Digital Realty Trust employees utilize the "4% rule," where retirees take annual withdrawals start at 4% of the entire portfolio and increase with inflation. They then keep the remainder of the portfolio with at least 50% invested in equities. Based on historical data, this would give a Digital Realty Trust retiree about 30 years of retirement income.
As the economy constantly changes, a number of factors may force prospective Digital Realty Trust retirees to revisit the 4% rule. It may be worth considering annuities as an alternative.
As life expectancies increase, Digital Realty Trust retirees need to prepare for expenses over a longer time frame. In the past we would plan for a 15 to 20 year retirement, but now we need to prepare for a 30 to 35 year retirement. What is available to assist meeting the 35-year time frame?
The annuity strategy can assist with a few of the pitfalls we see in the 4% rule. For example:
If you need $50,000 per year in retirement and need that for 30 years, you may need $1.2 million in fixed income at a 3% interest rate. BUT if you look to fund $50,000 for 30 years, you can cover that expense with $800,000 by choosing the annuity option.
The other pitfall with the 4% rule is that it may not reflect a client's risk tolerance. When you are accumulating assets, you can afford more volatility and can take on more risk than when in the retirement and withdrawal phase after leaving Digital Realty Trust.
Also, should we see a drop in the market, you would be able to reduce your income using the 4% rule, which you cannot do if you choose an annuity option.
As you plan your transition from Digital Realty Trust into retirement, understanding the company's benefit structure can help you make more informed decisions. According to publicly available information, Digital Realty Trust does not maintain a traditional defined benefit pension plan, making your 401(k) plan and personal savings the primary vehicles for retirement income. Digital Realty Trust does not appear to offer a formal retiree healthcare program, so healthcare coverage planning before Medicare eligibility at age 65 is an important consideration. We encourage you to review your Summary Plan Description (SPD) or speak with Digital Realty Trust's HR or benefits team for the most current details.
What type of retirement savings plan does Digital Realty Trust offer to its employees?
Digital Realty Trust offers a 401(k) retirement savings plan to its employees.
Does Digital Realty Trust match employee contributions to the 401(k) plan?
Yes, Digital Realty Trust provides a matching contribution to employee 401(k) contributions, subject to certain limits.
What is the eligibility requirement for employees to participate in the Digital Realty Trust 401(k) plan?
Employees of Digital Realty Trust are eligible to participate in the 401(k) plan after completing a specified period of service.
Can employees of Digital Realty Trust choose how their 401(k) contributions are invested?
Yes, employees of Digital Realty Trust can select from a variety of investment options for their 401(k) contributions.
What is the maximum contribution limit for the Digital Realty Trust 401(k) plan?
The maximum contribution limit for the Digital Realty Trust 401(k) plan aligns with the IRS limits, which may change annually.
Does Digital Realty Trust offer a Roth 401(k) option?
Yes, Digital Realty Trust offers a Roth 401(k) option, allowing employees to make after-tax contributions.
What happens to my 401(k) account if I leave Digital Realty Trust?
If you leave Digital Realty Trust, you can either roll over your 401(k) balance to another retirement account or leave it in the Digital Realty Trust plan, subject to the plan's rules.
Are there any fees associated with the Digital Realty Trust 401(k) plan?
Yes, there may be administrative fees associated with the Digital Realty Trust 401(k) plan, which are disclosed in the plan documents.
How often can employees change their contribution amounts in the Digital Realty Trust 401(k) plan?
Employees of Digital Realty Trust can change their contribution amounts at designated times throughout the year, as outlined in the plan guidelines.
Does Digital Realty Trust provide educational resources for employees regarding their 401(k) plan?
Yes, Digital Realty Trust offers educational resources and tools to help employees understand their 401(k) plan options and investment choices.
For more information you can reach the plan administrator for Digital Realty Trust at 120 Kearny St, Suite 800 San Francisco, CA 94104; or by calling them at (415) 738-6500.
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