Retirees, This Is Not Your Father's Retirement Plan: Constructing The 2015 Fill-The-Gap Portfolio

Dec. 25, 2014 12:19 AM ETARCC, COP, LUMN, DB, ED, EPR, PEAK, MAIN, MO, O, RAI, STON, SUI, T, VGR, VZ261 Comments
George Schneider profile picture
George Schneider
23.53K Followers

Summary

  • Defined benefit pensions are a thing of the past.
  • Not planning for our retirements; what were we thinking?
  • We can dig out of this gaping hole and fill in the gap.

The percentage of workers covered by a traditional defined benefit [DB] pension plan that pays a lifetime annuity, often based on years of service and final salary, has been steadily declining over the past 25 years. From 1980 through 2008, the proportion of private wage and salary workers participating in DB pension plans fell from 38% to 20% (Bureau of Labor Statistics 2008; Department of Labor 2002).

Defined Benefit, Defined Contribution, What's the Difference?

DB pensions are tied to employers who, consequently, bear the responsibility for ensuring that employees receive pension benefits. In contrast, Defined contribution retirement assets such as 401ks and IRAs are owned by employees who, therefore, bear the responsibility for their own financial security. This might sound scary, but it doesn't have to be.

From 1940 to 1960, the number of people covered by private pensions increased from 3.7 million to 19 million, or to nearly 30% of the labor force, according to the Employee Benefit Research Institute, or EBRI, and by 1975, 103,346 plans covered 40 million people, or close to 60% of the labor force.

Thanks to New Deal policies and companies' initiatives in the '30s to ensure that workers' pensions were safe, at least two generations grew up under the assumption that if they had a job with an established company, a retirement plan would help pay future bills. Many of today's workers' parents and grandparents left the workforce with some type of employer-provided income-from the time they retired until their death.

Pension plans have been declining since 1984: In 1983 there were 175,143 plans, but in 2008 there were only 46,926 plans. And so today, very few of us have our father's retirement plan and the security that came with it.

Why save for retirement? I'd rather buy a shiny new car.

Keeping

This article was written by

George Schneider profile picture
23.53K Followers
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Disclosure: The author is long ARCC, ED, MO, SUI, COP, EPR, O, T, CTL, RAI, VGR, MAIN, STON, VZ. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

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