Pensions have evolved to self directed retirement planning
I grew up in steel country in Western Pennsylvania. I was born in 1960 towards the end of the baby boom. My father was a refugee from Europe after WWII, and my grandparents on my mother’s side were European immigrants that settled in Western PA in the early 20th century because jobs were plentiful in the steel mills.
Growing up I could see a large steel mill smokestack out of my bedroom window. Steel mills were the lifeblood of the community. “Everyone” worked there until they didn’t. I graduated high school in 1978, and there were already “chinks in the armor.” Just a few short years later, most steel mills were shuttered.
One of the steel mills lasting legacy’s? Lifetime income in the form of a pension. Don’t get me wrong, and many companies collapsed along with many a pension fund. Many workers & retirees took concessions, but the reality of it all was after 30 or 40 years working in the steel mill, many men and women received a gold watch and a lifetime income pension.
Since the advent of the 401(K) in 1978, defined benefit pensions have been in decline. According to a March 2018 report from the US Bureau of Labor Statistic’s only 17% of private sector workers have a defined benefit pension plan, down from 35% in the early 1990s. While as many as 75% of workers in the public sector (State, Federal employees, etc), receive a defined benefit pension plan.
So what can be done with this dilemma? Is there anything available to fill this gap of retirement income? Many workers receive a defined contribution plan (401(K), 403(b), etc) from their employer. For those who have been “good savers” whether, in defined contribution plans, self-directed IRA’s or just about any other savings vehicle, they now have a tremendous option at their fingertips.
When we get to retirement, we should seek to strive for the elimination of risk, the safety of principal and lifetime income. A huge concern for many of us is something I call longevity risk. What if we outlive our savings? What if we need long term care? Many of these issues can be addressed with what I call a “Private Pension.”
Many workers are creating their own “Private Pensions” by converting their lifetime savings, 401(K)’s and other accounts to a Fixed Indexed Annuity. Top-notch insurance carriers issue these 21st-century products.
A Fixed Indexed Annuity is a hedge against market risk with a zero floor, and the opportunity to connect the account value to various indexes for growth. Longevity protection is achieved by adding an income rider that creates a “PRIVATE PENSION” for life. This Private Pension can be extended to their spouse too. Others have other living benefits that can help with Long Term Care expenses and even terminal illnesses.