Posted on 07 August 2012
By Mark Miller
Remember the pension? Back in 1975, fully 88 percent of private sector workers covered in a workplace retirement plan had one. Now that number is closer to 30 percent. And unless you’re in the public sector, the only option for workplace retirement benefits is enrolling in your company’s 401(k)-type plan, which lays the responsibility for retirement squarely on you—and exposes your savings to the vagaries of the stock market.
That’s a one-two punch that has left many ill-prepared for retirement: Poverty rates among older Americans are rising, especially among those who make it to an advanced age. Fifteen percent of Americans over 85 had income below the official government poverty line in 2009, according to the Employee Benefit Research Institute. Women, who tend to live longer, have double the poverty rates as men.
The slow-motion vanishing act of those traditional pension plans, which provide workers with monthly checks that last from retirement until death, means that many Americans will need to find other ways to boost guaranteed income in retirement—essentially, creating a “personal pension” with a portion of retirement assets. To encourage people to do just that, the federal government has recently proposed a host of regulatory changes to help pension-less Americans turn their 401(k) assets into monthly checks.
A key objective is to make a relatively new kind of annuity called a longevity policy a more prominent option in workplace retirement plans.
I examine the trend in the new issue of AARP The Magazine.