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The Decline of Pensions – and What It Means for Retirement Savers?

The Decline of Pensions – and What It Means for Retirement Savers?

June 15, 2023

For many years, pensions were a common feature of retirement planning. These defined benefit plans promised workers a fixed income in retirement, typically based on years of service and salary history. However, over the past few decades, the number of employers offering pensions has declined significantly. According to the Pension Rights Center, only about 18% of private-sector workers are covered by a traditional pension plan today, compared to about 35% in the 1990s.


So why does the decline of pensions matter for retirement planning? Here are a few key reasons:


Increased Responsibility for Retirement Savings: With the decline of pensions, workers are increasingly responsible for funding their own retirement. This means they must save more and invest wisely to ensure they have enough money to support themselves in retirement. For many workers, this is a daunting task, and it requires careful planning and budgeting throughout their working years.


Greater Market Risk: Without the safety net of a pension, retirees are more exposed to market risk. This means their retirement income is subject to fluctuations in the stock market and interest rates, which can be unpredictable and volatile. This makes it more difficult to plan for retirement income and creates more uncertainty around retirement planning.


Longevity Risk: As life expectancy continues to increase, retirees face the risk of outliving their retirement savings. This risk is especially pronounced for those without a pension, as they must rely on their own savings and investments to support themselves throughout their entire retirement.


So, what can workers do to address these challenges and plan for retirement in the absence of a pension? There are a lot of ways to approach this, but the main key is that instead of getting a pension from an employer, you have to take your retirement savings and ‘make’ your own pension. Here are a few ideas: one option is to focus on building a diversified retirement portfolio that includes a mix of investments, such as stocks, bonds, and real estate. Another option is to consider alternative sources of retirement income, such as Social Security, annuities, or rental income from investment properties.


Ultimately, the decline of pensions highlights the importance of taking an active role in retirement planning and seeking out professional advice to ensure your retirement goals are met. By being proactive and strategic in your retirement planning, you can still achieve financial security and enjoy a comfortable retirement, even in the absence of a traditional pension.