The following is misleading‼️
Outliving your retirement funds is a much stronger possibility in today’s day and age because life expectancy has increased over the past 80 years and is projected to continue growing. A factor that’s further exacerbating this headwind is the fact that people can no longer count on pensions and Social Security funds to provide a foundation for their retirement. Social Security trust funds are going to be reduced by 2033. Pensions have become a thing of the past thanks to the Revenue Act of 1978, which allowed companies to offer 401(k) plans, shifting the responsibility of saving for retirement primarily from the employer to the employee.
Kiplinger
Let’s look at facts:
- Not even half of private sector workers ever had a defined benefit pension. They were largely confined to industrial and manufacturing unionized organizations where long job tenure was common
- Life expectancy has increased but hardly equally across the population. The poor, certain minorities and ethic groups have not benefited equally.
- Pensions didn’t go away because of the Revenue Act of 1978 and the 401k section of the IRC. They declined because of new accounting rules, heavy regulation, unpredictable costs and the changing workforce
- Social Security is not going to be reduced in 2033.
- For todays workforce- and for many years in the past – a traditional pension has little value
- For workers with a 401k, the burden for retirement savings is not shifted solely to them. 98% of such plans include an employer contribution as well.
I have a pension. The pension plan I have was established in 1911. My pension is based on nearly fifty years with the same company. There are very few people like me. The plan was closed to new workers in 1995.
The key to the value with a traditional pension is years of participation because plan formulas reward longevity. That longevity does not and never did exist except in a few industries.
Staying with one employer typically does not last more than five years. Even if vested at five years and accumulating several such pensions it won’t amount to much. More than 44% of 401k plans have immediate vesting and the number is growing.
QUINNSCOMMENTARY 
2 decades ago, Social Security was running a surplus so there was no need to do anything. 2010 was the year the trust fund had to chip in. Since the trust fund is just an IOU, there has been no urgency in rushing to pay. The time will come soon enough.
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The trust fund has operated the same since the start of SS. Excess revenue was used to purchase special Treasure bonds which currently pay the Trust $60 billion a year in interest.
Not sure what “just an IOU” means. That’s like saying the $1.1 trillion in U.S. debt Japan hold is just an IOU.
Where else could the reserve be invested to get 100% guarantee and interest?
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The 60 billion per year interest comes out of this years budget. That is part of the huge interest cost of previous borrowing that everyone is now concerned about. The cashing in of bonds does reduce the bonded indebtedness however. The IOU statement is just that. If Japan holds 1.1 trillion in treasury debt then that is an IOU from us to them.
Everybody gets caught up in the trust fund sideshow but we have to come up with current dollars to pay recipients monthly.
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Yes it does. All interest payments are an expense, but there is nothing unique between a bond IOU to you, me or a country or the Trust. Most benefit payments now consume incoming revenue, the rest from bond redemption.
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I agree.
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There was always a need to continuously update funding based on changing conditions. It should be done every year or so and there would no crisis.
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Next to public workers, trade unions are a big source of pensions. Carpenters, plumbers, truck drivers, etc. Workers move from job to job but keep their pensions through their unions. International Brotherhood of Electrical Workers have some of the sweetest pensions out there. Including retiree healthcare.
However, wait for it…
“Biden Devotes $36 Billion to Save Union Workers’ Pensions
The money comes from last year’s Covid-19 relief package and will avert cuts of up to 60 percent in pensions for 350,000 Teamster truck drivers, warehouse and construction workers and food processors.”
New York Times, Dec. 8, 2022
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Because the unions and industries in the Taft Hartley plans mismanaged or failed to adequately fund the promises and some of the employers were in trouble too.
Not unlike Social Security which is not adequately funded.
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My company’s pension plan was frozen in 2006 and replaced with a 401k. I retired after 30+ years with this company (including 15 years in the pension plan). My pension is minimal, BUT I did very well with the 401 due to aggressive savings/investing and the company match. I worked with a lot of smart people, but many did not understand the importance of maximum saving on their part to make the most of the 401.
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You’re right they don’t understand and don’t pay attention, but the important point is that the 401k can work quite well for most people if they maximize the value and pay attention to investment choices- don’t take loans, don’t take early withdrawals and always rollover to new plan or IRA when changing jobs- and obtain the max of an employer match.
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Social Security is not going to be reduced in 2033. Has something changed and I missed it? Everything I have read has noted the “trust fund” would be depleted around 2033 and would result in a cut (based on current laws) of 22-23% in Social security payouts. I enjoyed the article, and this is one of the rare occasions where there might be a point warranting further discussion.I agree with your analysis otherwise.
Smith Smallwood
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Well, do you really think any politician is going to risk the wrath of 60 million plus voters and cut their current and near future benefits? I don’t.
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Thats the way you and I think; we are in agreement, but these are very strange times. I can’t afford to take for granted that they will take care of this issue. Perhaps the political situation will improve and the Social Security issue will be resolved in due time.We continue to hope. Smith Smallwood
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What can you expect in an article from a guy who is a financial advisor and who makes his living from assets under management. I do scan through Kiplinger each month through my library app but I always take into account where the author stands before reading.
Pensions are a godsend for those who have them but it seems they are less and less except for public sector workers. Social Security is the most valuable resource for middle and lower class workers. Retirement savings are important but most don’t have enough accumulated to live on without Social Security and Medicare.
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401-k plans give workers tremendous mobility and freedom–I know a number of younger workers who move from company to company because of a greater challenge, more money, and stock options. 401-k goes with them or becomes an IRA.
Brother Quinn is right that Social Security is going nowhere–it will be there for my two children because politicians will not let it implode. Many of the suggestions made by Mr. Quinn and others will be adopted, most likely at midnight. But it has lots of life left after 2033 in my opinion.
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Agreed
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There has been a shortfall in Social Security revenue for number of years. The shortfall has been made up by using so called US treasuries in trust that were purchased as collateral when Social Security was running a surplus in the past but used then to pay for general fund shortfalls.
There’s a number of financial obligations that are coming to a head because they are not sufficiently funded including Medicare and Social Security. A common denominator is funding for the older people.
I wonder how Congress is going to balance the needs of the younger generations with the needs of the older generation? It’s going to be very contentious!! (Hint: the young will be more favored).
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When I was young and working my payroll taxes helped fund asS and Medicare for my parents and grandparents and now my children are help to fund my SS. I am also helping the trusts by paying income taxes on 85% of my SS benefits.
The only problem with the system is that Congress has not done its job for at least two decades by not adjusting the funding. All this could have been avoided if both programs AUTOMATICALLY adjusted to assure full funding regardless of what Congress does.,
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