Pining for Pensions: We Want Them, Even When They Leave Us Wanting

A new study shows that half of Americans would love the stability of a pension instead of a volatile 401(k). But other research reveals that pensions have problems of their own these days.

Pining for Pensions: We Want Them, Even When They Leave Us Wanting Photo (cc) by pedrosimoes7

For working Americans disappointed with the performance of their 401(k) retirement plans, the appeal of a good old-fashioned pension is alluring – even to those workers too young to remember what they are.

That’s the surprising result of a new survey of more than 1,000 workers by Ipsos Marketing. Says Ipsos Senior Vice President Peter Saracena…

When we asked respondents if they wish they had a pension, half said yes, even among those aged 25-34. This was surprising considering how far removed this younger generation is from the days of defined benefit/pension plans.

But is it really that surprising? As we’ve reported just this summer, the hidden fees in 401(k) plans can cost you more than $100,000 over your working life. Also, one of the big appeals of 401(k) plans is the “employer match,” which could add 50 to 100 percent extra to your plan. But during the depth of the recession, one study showed that 8 percent of employers froze their contributions and only recently announced they’d reinstate them.

Then there are the volatile investment results themselves. Even younger workers don’t have the stomach for watching their 401(k) plans fluctuate, says Saracena: “Whether they hit the job market 10 years ago or two years ago, younger Americans have experienced market bubbles bursting first-hand, which has seriously eroded their confidence in the equity markets. So, it’s a smart and rational response to want something safe and secure now.”

But are pensions really any safer? Recent research by the Kellogg School of Management at Northwestern University suggests that state-sponsored pension programs in as many as 31 states are headed for financial disaster by 2030. Associate Professor of Finance Joshua Rauh predicts those plans will rack up $3 trillion in unfunded liabilities – and taxpayers will be forced to make up the difference.

“Even if states uniformly eliminated generous early retirement deals and raised the retirement age to 74, the unfunded liability for promises already made would still be more than $1 trillion,” Rauh says.

The problem, Rauh says, is that “more than half of the liability is owed to people who have already retired, and the idea of large outright cuts to current retirees is not under serious consideration.”

So is it any wonder that the Ipsos study also found that young workers aren’t confident they’ll have any retirement money when their time comes? Of those 1,000 adults surveyed, “48 percent believe they will not have enough money to maintain their current lifestyle in retirement.”

Concludes Saracena: “The ramifications of this market dynamic on the investment choices Americans will make over the next 30 to 40 years is only now coming into focus. And, make no mistake, even the younger generation is very realistic about their prospects for retirement, especially when you find that only 4 percent of them believe that Social Security will provide enough income to live in retirement.”

Solution? Stay involved – keep saving – keep investing

The retirement savings problem – from under-performing 401k plans, to pension plans promising more than they can deliver, to the uncertainty of social security – is one that affects every American. Whether you’re Republic or Democrat, already retired or just starting out, what we all have to do is closely follow the problem as well as the proposed solutions. Just as important, we need to take a lesson on self-reliance from the Greatest Generation – they learned that life wasn’t fair, and as a result lived beneath their means, featured their own retirement nests…and emerged the wealthiest generation to every live.

Bottom line? If you’re not concerned about where your retirement income will come from, you should be. And if you are, you should be living below your means, eschewing debt, setting aside at least 10 percent of your income and investing well so those savings work as hard for you as you do for them. And, of course, being a regular at sites like this one, because helping you with these things is the entire reason we’re here.

Michael Koretzky
Michael Koretzky @koretzky
Journalism is a profession of highs and lows. I've covered the 1988 Democratic and Republican national conventions, two space shuttle launches and one landing, and a jazz festival in Istanbul. Then again, ... More

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