November 4, 2020
The old days of working at the same company for 30 years and retiring with a company pension are just about over.
Today, very few companies offer pension plans and those that do are finding those plans in peril.
Most modern workers must learn to plan their retirement without a pension. Luckily, there are still great financial tools for your retirement strategy, and workers who save diligently and prepare well can still look forward to a well-funded retirement.
Disappearing Pensions and the Rise of the 401(k)
A company pension was commonplace a few decades ago. In exchange for hard work and service for somewhere around 30 years, a company would provide you with a guaranteed income stream during your retirement.
Many Americans enjoyed a comfortable and secure retirement with a pension. Coupled with their social security benefits, they lived fairly well in their golden years.
The reason pension plans are going the way of the wind has many factors, including changes in workers’ behavior, longer life expectancies, and rising costs for employers.
A study by the professional services firm Towers Watson found that from 1998 to 2013, the number of Fortune 500 companies offering pension plans dropped 86 percent, from 251 to 34.1 Couple that with the Revenue Act of 1978, which allowed for the creation of 401(k) savings plans, and you’ll have a good view of the modern retirement landscape.
How to Retire Without a Pension
The company pension isn’t coming back, so what can workers do to secure a retirement like their parents and grandparents had?
Here are a few retirement planning tools that every worker can put to good use.
Take Full Advantage of Your Company 401(k) Plan
If your company offers a 401(k) retirement plan, make sure you’re taking full advantage of it. Here are a few ways to maximize your 401(k) plan.
- Make the match: If your employer offers matching contributions, don’t leave the match on the table. Contribute the required percentage to collect the most you can.
- Get fully vested: Make sure you are fully vested before you make any employment changes. Your contributions to a 401(k) will always be yours, but to keep 100% of your employer contributions, you must be fully vested.
Open a Roth IRA
A Roth plan is funded with taxed income. The upside is that you won’t pay taxes when you take it out. If your 401(k) contributions are maxed out, a Roth could be a good savings vehicle for you.
Consider an Annuity If you like the idea of a guaranteed income stream, consider an annuity. An annuity is an insurance product, so most of the time it isn’t invested. In exchange for a lump sum of money, an annuity will pay a guaranteed monthly income stream.
Talk to a Trusted Financial Professional
Pensions are all but gone. This means today’s workers must be more involved in how they create a strategy for their retirement. There are many great retirement savings tools. Talk to a trusted financial advisor to understand and learn how you can make sure your retirement income is going to be there when you need it.
This article is for informational purposes only and is not intended to promote any certain products, plans, or strategies for saving and/or investing that may be available to you.
“Pensions Are Taking the Long, Lonely Road to Retirement,” Lou Carlozo, U.S. News and World Reports, Jul 20, 2015, https://money.usnews.com/money/personal-finance/mutual-funds/articles/2015/07/20/pensions-are-taking-the-long-lonely-road-to-retirement