• Darryl Rosen

If you don’t have a pension, buy one

Do you ever notice who the happiest retirees are?


The ones with a little extra pep in their step…they seem just a bit happier.


The people with guaranteed pensions, that’s who! The teachers, the firefighters, those fortunate enough to have cash deposited directly into their bank accounts – like clockwork – every month.


Month after month; money they can’t outlive.


This used to be the norm for most of America. After giving blood, sweat and even some tears for 30 years or so, many retirees would receive monthly income. It was known as a defined-benefit pension plan.


Most retirees knew it as peace-of-mind – even if they didn’t call it that.


According to the Bureau of Labor Statistics, just 13% of American currently have a defined benefit pension plan, as compared to 76% in the mid 80’s.


Back then there were fewer decisions for retirees. Life was simpler with a check in the mailbox every month. Some called it “mailbox money…”


Maybe today it would be called a dependable deposit. Something you could count on. Not in the mailbox, but rather as a transfer directly to your Chase account. Don’t even need to leave the house.


Everything changed in the late 70’s when a benefits consultant named Ted Benna discovered a little-known part of the tax code that gave companies a tax break for allowing employees to save some money on the side.


The 401(k) was born.


It took off. Companies ran with it because it was cheaper. The great shift began. The burden for retirement would be transferred or shifted from the employer to the employee. What’s not to love – if you were the employer. It was significantly cheaper. For the employee, the benefits weren’t as clear. The plans could be confusing. Costly.


I read somewhere that 92% of Americans have no clue what costs they pay within their 401(k) plans. Some plans have too many choices for investing money. Others, not enough choices.


When pensions were prevalent, income was all that mattered. Mailbox money didn’t come from when to sell stuff. How to manage the ups and downs in the market. It wasn't based on projected-maybe-down-the-road assumptions.

The 401(k) was supposed to be a savings plan. Incidental. Not a retirement plan but a way to save a few dollars. Incidentally, remember Ted Benna, the creator of the 401(k) concept? He hates it. Calls it a monster.


Now, millions of Americans have their retirement dreams riding on a misunderstanding that their 401(k)s and IRAs are a retirement plan. They’re not.


The American Society of Pension Actuaries says this about the 401(k) plan.


The great lie is that the 401(k) was capable of replacing the old system of pensions!


These days people are left to their own devices.


The pension was a reliable way to put dollars in your checking account. Now, people are forced to make complex financial decisions as they age. It’s a recipe for disaster. With the 401(k) investment choices are important. The sequence of returns in the market is important. Do you want to make complex financial decisions as you age?


If you don’t have a pension, buy one.


Build a financial plan that can withstand the gauntlet of risks that you’ll face over the remainder of your life. Buy guaranteed income for life.


Guaranteed income for life is like a personal “pension plan.” It’s a way to receive periodic payments for as long as you live. The income stream may be level or may be increased annually to hedge against inflation. Income can be designed to last for a minimum number of years or can also be paid through the lifespan of one person or through the lifespans of two people. (Known as joint income.)


With guaranteed income, you are effectively shifting the burden of creating pension-like income to an entity better equipped to handle such risk. In retirement your (hopefully) multiple guaranteed streams of income should combine to be as close to your spending needs as possible. Sometimes you can't get to 100% but that should always be the goal.


The key to SECURiMENT is not the next bull or bear market. Mailbox money or dependable deposits don’t come from following the next great stock picker. It comes from converting a part of your IRA/401(k) to a stream of income.


That’s just the way it works!

 
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