Don’t Rely on Traditional Pension Benefits

Posted on 07. Apr, 2006 by in Saving & Investing

If you’ve followed the news at all during the past few months you have no doubtedly seen how major corporations have frozen pensions and taken retirement benefits away on a whim. However, a recent study by the Retirement Confidence Survey states that too many Americans remain confident in their company’s pension plan – even though the facts present a gloomy retirement outlook.
According to the survey, many workers are counting on traditional pension plans to pay their bills in retirement, even though such plans are fast disappearing. Only 40% of working couples currently are covered by pension plans, but nearly two-thirds of surveyed workers — 61% — expect to get income from such a plan in retirement!

So what can you do when you find your pension gone after 20 years of loyalty? One option is to set up your own pension. Financial services companies are quickly creating investments that behave a lot like a pension. The WSJ reports that one of the first to jump on the bandwagon was MetLife Inc., which in 2004 rolled out Personal Pension Builder: You pay now for assurances that you’ll receive a steady monthly check in retirement. A 40-year-old putting away $3,000 a year would get $10,200 a year starting at age 65.

Companies are hoping to tap into worries among some investors that either they’ll outlive their savings, or that the markets could shift, eroding a nest egg built up in mutual funds, 401(k)s or other retirement investments. However, the biggest question investors should ask themselves is if the financial services company through which you have set up a pension plan will even be around in 40-50 years when you retire – and that’s a big IF.

It’s also important to realize that there are important differences among these products. And, compared with mutual funds, they are more complex, offer less flexibility and transparency and come with more restrictions. If you are interested in setting up your own pension be sure to ask your friendly neighborhood accountant or financial advisor to discuss all of the intricacies.

One Response to “Don’t Rely on Traditional Pension Benefits”

  1. David Tananbaum

    10. Apr, 2006

    Traditional Pensions are alive and well. The major problem we have today are the Politicians.. they all want to be Actuaries and seek to impose a political settlement into a scientific profession. I have made 2 major proposals to the White House. One relating to Social Security ( a non partisian Pension Commission) a in which President Bush recognized in his last State of the Union Address without the provision of Enrolled Actuaries on the Commission, and the other on Pension Funding which provides for IRS and the Pension Benefit Guarantee Corporation entrance into the picture when a plans funding ratio falls below 100%.

    You can view the proposals on I extend an invitation to link to

    David J. Tananbaum
    Enrolled Actuary

    Founding Member: American Society of Pension
    Proefssionals and Actuaries

    Member: American Acedemy of Actuaries

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