Pension Trends
In the mid-1990’s, I was a non-traditional student at UWSP majoring in economics while working a full-time job as a Corrections Officer and building a personally owned real estate portfolio with my husband. The success of buying, renting, and selling properties intrigued us to want to learn more about other types of investing. We both actively participated in our employer sponsored retirement plans and saw other opportunities for building a net worth outside of personally owned real property.
After getting to know me and what made me tick, my academic advisor, Professor Jacobsen, told me that I should be a personal financial advisor. He told me how people needed help guiding their financial decisions and what the future was likely to hold. He said that in twenty years, the picture will look even different when baby boomers would be retiring, adding that most of them will not have a pension. He went on to explain the complexities people would face when they would need to make their own decisions on how to turn their 401(k)s and IRAs into lifetime retirement income. Professor Jacobsen was right. That “twenty years” went by fast and boy, did the world of retirement planning change! In 1999, 40.1 million Americans in the private sector were covered by pension plans (1). Data from the Employee Research Benefit Institute shows that in 2022, 12.01.million Americans in the private sector took part in a pension plan (2) . Why the drastic difference?
In a nutshell, replacing defined benefit plans, such as pensions where the end benefit is “defined”, with a defined contribution plan such as a 401(k), where the money that the employer contributes to the plan is “defined”, allows the employer to transfer risk from the company to the employee. Longer life expectancies and increased costs to run pension plans, as well as a recent decade plus of low interest rates affecting the returns, future projections and money that is required to be added to defined benefit plans, has changed the pension picture dramatically. In those twenty two years, we have gone from companies no longer offering pensions to new employees, to freezing pension plans for existing employees, to the trend that we are seeing at the latter part of these two decades, of companies offering buy-out options to participants. From a former job worked in the 1990’s, my husband just so happened to be one of those participants, so the decision was real and personal to us. To be candid, we were not at all surprised when he received his notice, and we already knew exactly what we’d do.
Everyone’s situation is different, and I cannot stress that enough. If you have an important decision to make with your pension, you must analyze how each option you are offered would combine with your personal current and future financial picture. One thing that we all do have in common though, is the economy we live in today. Back in 1999, Professor Jacobsen was right: there would be significant changes to retirement planning and pension trends.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual
- https://scholarship.law.georgetown.edu/cgi/viewcontent.cgi?article=1049&context=legal
- ebri_rsrc_facts-and-figures_011923.pdf
LouAnn Schulfer of Schulfer & Associates, LLC Wealth Management can be reached at (715) 343-9600 or louann.schulfer@lpl.com TheWealthInformationLady.com SchulferAndAssociates.com
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