Pension plans debate

[JonFrum]

Brett636, I agree with everything you've said. But what you've said is based on the assumption that the retiree and spouse die at a relatively early age. What happens if you and your spouse live on into your late 80s, 90s, or even beyond 100. Maximum life span is currently about age 115. What do you do if your 401(k) is exhausted when you are 79, or 83, or whatever but you're still alive and kicking? This huge worry, that you will outlive your money, is a major reason defined benefit pension plans were invented. They pay benefits until you (and your spouse) die, no matter how long you live.

Unlike a 401(k), a defined benefit pension plan is insured. The insured level of benefits isn't adequate. But it's something, compared to nothing in a 401(k).

 

[brett636]

How long we live is one of those uncertainties in life that is difficult to plan for which is why I believe in saving as much as you can as often as you can. A 401k can become its own personal defined benefit plan if it is large enough, and it doesn't stop growing once you begin drawing on it but it is one that can be passed on to family where current defined benefit plans cannot. If one could save up $1 million(for any average saver this is attainable) and invest it in something conservative that earns a mere 5%/yr. thats $50k/yr in income. Plan accordingly and someone can live on those funds without touching the principle. The nice thing about true defined benefit plans is just what you stated is that it cannot get wiped out or exhausted through an unplanned life event or poor financial planning, but the plans themselves will be exhausted as they are currently being run telling me they need to be re worked in ways that won't make a lot of people happy. Most people who draw from defined benefit plans like our pensions look toward them as their main source of income when the reality is it needs to be a part of a diverse number of income sources. Those who plan ahead will be the retirees out on the golf course every day, those who don't will be the ones happily exclaiming "Welcome to walmart!"

 

[brett636]

I would also like to add that these defined benefit plans were made with the intention of sustaining someone who is in the last few years of their life. When Social Security was enacted the average American rarely lived past their late 60s so 65 was set as the retirement age. Now its not uncommon for someone to live well into their 80s and 90s forcing the system to pay out more than was taken in by that individual. Our pension funds in most areas allow someone to retire and remain so for longer than they worked for the company if they retire early enough in their life. It has created a perilous situation for those of us who are still decades away from retirement as the finish line for it will most likely be pushed further ahead because the benefit payments have drained the funds of the money contributed for us. Honestly some sort of individual pension plan system seems like a better idea with an income replacement insurance plan as a backstop if those individual pension funds get depleted. Being in my late 20s I have already accepted that I will not have the same early retirement opportunities that my current older coworkers enjoy simply because I know the money won't be there for me. Therefore its imperative that I do what is necessary to insure that I won't have to work into my 70s just to draw a meager pension and still have to work part time elsewhere. Personal responsibility is truly the key to a comfortable retirement.