The Disappearing Pension Plan: Identifying the Risks and How to Avoid Them


Once upon a time, the American dream was fairly simple to quantify. A person would go to high school or college, get a job with a big business or agency of their state or the federal government, and work there for 30 or 40 years. They would buy a house, pay it off, and retire with guaranteed income and health insurance for the rest of their lives. For most Americans, this is a vision of the past.

Over the past decade, thousands of American companies and institutions have shifted from their defined benefit pension plans to unsecured defined contribution plans like the 401 (k) and 403 b). With an aging workforce, such a development has saved companies huge amounts of money by removing the requirement to fund large corporate bonds. retirement, especially in times of declining interest rates and stock market volatility. According to Edward Wolff, professor of economics at New York University, "Things are not going well for retirees with the collapse of defined benefit plans. It was a piece of the puzzle that kept retirees afloat. In 20 years, the only people in these plans will be government employees. "

This trend has forced employees to become their own fund managers. Unfortunately, the average worker is unfortunately not prepared to take on the responsibility of such a task. Most 401 (k) and 403 (b) plans limit the investment choices available to plan participants. With few exceptions, an employee can only access this money if they change jobs or retire. Although they occasionally attend employer-sponsored educational workshops, defined contribution plan providers typically do not provide investment advice, leaving it to the discretion of the employer. employee to make important investment decisions on their own. People find themselves responsible for managing their greatest asset and making sure it lasts for the rest of their lives.

With interest rates at historically low levels, huge swings in stock and commodity markets, mounting inflation pressures, and steadily rising health care costs, what? Does a person have to do? When a person reaches the preservation and distribution phases of their investment life, it is essential that their investments are structured in such a way that they minimize or eliminate portfolio losses and position their portfolio for guaranteed income streams. that cannot be lost. With over 10,000 Baby Boomers turning 65 every day, the insurance industry has recognized the challenges inherent in the new economic reality we live in and created a multitude of choices and choices. options for people to create their own “guaranteed” retirement plans. Structuring of these guaranteed income streams should be done with the assistance of a qualified financial professional, such as a registered investment advisor.

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