Axios reports that, increasingly, companies are doing away with pensions. As a result, younger adults are unlikely to have pensions, putting their retirement security at risk. Most probably, they will rely heavily on Social Security.
Millennials and members of Generation Z are at greatest risk of not having adequate retirement savings. Pensions give workers guaranteed income in retirement. But, most companies today do not want to assume the cost of pensions, which provide defined benefits–guaranteed annual income. Pensions put the companies at risk if the stock market drops or retirees live long lives. Instead, companies may offer defined contribution plans, which do not guarantee a fixed amount of income each year.
To avoid financial risk, companies are selling people’s pensions to insurance companies, putting workers’ savings at risk instead. If the insurance company fails or a person’s benefit was not calculated correctly, the person loses.
Only 81 of the Fortune 500 companies offered a pension plan in 2017. Twenty years ago, 288 offered a pension plan. And many pension funds today do not have the funding they may need to pay out what they are supposed to pay out.
Retirement savings accounts, including 401(k) plans come with no guarantees and often with fees. They provide less security than pensions, as they fluctuate with the stock market. If the stock market drops, 401(k) plans are likely not to generate the income expected.
Some people buy annuities. But they have costs and risks as well. The most cost-effective way to promote retirement security is by strengthening Social Security.
Here’s more from Just Care:
- Don’t count on 401(k) annuity investments for retirement security
- Free pension help and 401 (k) plan help
- Beginning at age 70.5, you must withdraw money from your retirement accounts
- Nearly half of older households have no retirement savings
- Beware of steep premium increases on long-term care policies