Do You Really Need a Pension?
Before you can answer that question, you should first ask if you’re actually prepared for retirement overall. If you haven’t thought about this before, you’re not alone. According to a GOBankingRates survey, 64 percent of respondents expect “to retire with less than $10,000 in their retirement savings accounts.”
To make matters worse, 48 percent of Americans admitted that they don’t care about saving for retirement. That mentality is dangerous for you and your family and the wrong mindset to have when it comes to retirement. After all, how can you answer vital questions like:
What kind of lifestyle do you want?
If you don’t have the funds to live comfortably, then you may have to continue to work well into your golden years.
Where will you live?
If your mortgage is paid off, this may not be a concern. However, just because you own your home, you still need to keep up on expenses like property taxes and utilities. If those expenses are more than what you’re making, you may be forced to relocate.
Having to sell and relocate when that is not your plan or desire can be rough. Relocation may even mean you aren’t as close to your family or your social circles.
How much will you spend on needs each month?
Additionally, you’re still going to have to account for clothing, transportation, and groceries — to name just a few. If you don’t have enough money coming in, you may not be able to afford these essentials.
Have you taken into account healthcare costs?
There’s no way around healthcare costs. It’s going to cost a small fortune to address healthcare costs later in your life. It’s estimated that couples need an outrageous $275,000 in retirement to pay their medical bills.
How much do you have leftover for activities like travel?
While pleasure funds like something for travel will vary from person to person, you should have something set aside so that you can enjoy your golden years. Your retirement years might be lounging by the beach, seeing the world, or becoming a solid golfer.
In short, planning for retirement isn’t something that you should ignore. Having enough savings will guarantee you a recurring income and peace of mind. And, having a pension plan can help you achieve both.
To assist you in making a pension plan decision, you should first weigh the pros and cons.
The Advantages of a Pension Plan.
Without question, the biggest perk of a pension plan is that it’s in your employer’s hands. Regardless if you’re a government employee or in the private sector, that means you do not have to take money out of your hard-earned pay to contribute to the plan — unlike a 401(k).
Moreover, a pension plan means that you’re protected from investment risks. If the market tanks or the company goes belly up, your employer will have to cover the money lost. Talk about peace of mind!
The other advantage of a straight-forward pension is that this is a simple way to have an income for life. As long as you work a specified amount of years, you know exactly how much you’ll receive in guaranteed payments when you retire. That’s going to make budgeting and planning a whole lot easier.
The Disadvantages of a Pension Plan.
Are pension plans perfect? Of course not. They also have flaws that you should take into consideration.
One concern is that you have zero investment control. Your employer determines where to invest your money. So, if the stock market goes through the rough, you may not be able to capitalize on that, meaning that you can’t grow your pension with market gains.
Pensions are also difficult to access. That may not be on the top of your mind. But, what if you have an emergency? Too bad. Your pension stays with your employer until you retire.
Most importantly, we need to address the elephant in the room. Many pension plans will probably run out of funds.
Even though the benefits of pension plans are guaranteed by the federal government’s Pension Benefit Guaranty Corporation, there is a pension crisis. How bad is it? Well, it’s expected that the PBGC multiemployer fund will run out by 2025.
Additionally, more and more organizations are shifting to alternatives like 401(k)s.
The Verdict on Pension Plans.
Before you throw in the proverbial towel on pensions, the AARP stresses the importance of pensions. In addition to providing a guaranteed monthly income for life, they’re an efficient use of taxpayer funds. And they have the ability to boost local economies.
Also, people want them — whether in the public or private sector. In fact, roughly nine out of ten Americans believe that all workers should have a pension plan.
Above everything else? Pensions are greatly needed — of that, there is no doubt.
“The traditional and best approach to achieving retirement security consists of a pension, Social Security, and individual savings,” notes the AARP. “Your pension helps you to maintain a middle-class standard of living, and retirement savings provides important supplemental income for unforeseen expenses.”