inflation, Americans


Until about the 1980s, the pension, or defined benefit plan, “was a very, very successful program for people,” said Phil Maffei, head of corporate retirement solutions at insurance company TIAA. “You would get a portion of your income delivered as income for life when you retired.” 

What happened to pensions? 

Pensions can be expensive and risky for companies. Companies fund pensions and decide how to invest and grow them to keep them fully funded. It’s also tricky to predict how much an employer will need to meet their retirees’ pension obligations, especially with people living longer. 

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Pensions also siphon away money that companies otherwise could use for investments that enhance the bottom line. 

Most of the record 4.1 million boomers turning 65 each year from 2024-2027 don’t have pensions, according to Jason Fichtner, chief economist of the Bipartisan Policy Center. The next-oldest generation, called Generation X, may be even worse off. They saved much less and were “the first generation to rely on 401k plans instead of pensions and the next in line to retire,” said Deb Boyden, Head of U.S. Defined Contribution at Schroders, in a statement last December.

In January, online Medicare learning resource center MedicareFAQ surveyed 569 retirees, and 59% said they’re concerned about their finances in retirement. Recent research from Fidelity Investments shows that while young people have recovered their 401(k) losses from 2022’s market volatility, older adults haven’t

Also “the 401(k) plan was really designed to accumulate assets,” Maffei said. “It never was designed to provide income.” What we need to do now is figure out how to turn that money into a lifetime stream of income, he said. 

What went wrong with the defined contribution plan, or 401(k)? 

The jump to 40-year high inflation exposed the fragility of 401(k)s. People struggling to afford everyday necessities dipped into their nest eggs or reduced their contributionsAggressive interest rate hikes further strained household finances, and financial market turbulence deflated 401(k) balances, igniting a wave of retirement worries. 

What is an annuity? 

An annuity is a contract you buy from an insurance company that can guarantee you an income. Some allow regular payouts until you die or for a fixed number of years. 

How much you would receive varies, based on several factors, including age, how much you pay for the annuity, the insurance company, and the interest rates at the time the annuity was bought. Generally, annuities are popular when interest rates are rising or high because you can lock in a higher return. And they’re usually offered when someone’s near retirement, said Tina Wilson, chief product officer at retirement plan provider Empower.

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