How Common Are Pensions?

Shawn Plummer, CRPC

Chartered Retirement Planning Counselor

Prevalence of Pensions

Pensions, once a mainstay of retirement planning, have become less common. They have been largely replaced by other retirement accounts like 401k and 403b plans. However, deferred annuities are emerging as a personal alternative to pensions.

Related Reading: If I Move My 403b Into A Certificate Of Deposit (CD), Will There Be Any Charges Or Penalties?

Decline of Pensions

Pensions, or defined benefit plans, were widespread, especially in the mid-20th century. They provided retirees with a guaranteed income based on their salary and years of service. Over the past few decades, these plans have become less common for several reasons:

  1. Cost to Employers: Maintaining pension plans is expensive for employers, particularly with increasing life expectancies.
  2. Flexibility and Control: Newer plans like 401ks offer more control to employees over their investments.
  3. Economic Shifts: Changes in the economy and the move towards more transient workforces have made traditional pensions less feasible.

Rise of 401k and 403b Plans

401k and 403b plans are now the norm for retirement savings. They are defined contribution plans where the benefit depends on contributions and investment performance. Key features include:

  • Employee Control: Employees choose how to invest their contributions.
  • Employer Match: Many employers match a portion of employee contributions.
  • Tax Benefits: Contributions are often made pre-tax, reducing taxable income.

Deferred Annuities as a Personal Pension Alternative

Deferred annuities are gaining popularity as a way to create a pension-like income stream. They work by:

  1. Accumulation Phase: The individual makes contributions over time.
  2. Annuitization Phase: The account is converted into a stream of payments, mimicking a pension.

Conclusion

While traditional pensions are less common, deferred annuities and plans like 401k and 403b fill the gap, offering flexibility and control. Each option has its advantages and can be tailored to individual retirement goals. For a personalized approach to retirement planning, contact us today for a free quote.

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Shawn Plummer, CRPC

Chartered Retirement Planning Counselor

Shawn Plummer is a Chartered Retirement Planning Counselor, insurance agent, and annuity broker with over 14 years of first-hand experience with annuities and insurance. Since beginning his journey in 2009, he has been pivotal in selling and educating about annuities and insurance products. Still, he has also played an instrumental role in training financial advisors for a prestigious Fortune Global 500 insurance company, Allianz. His insights and expertise have made him a sought-after voice in the industry, leading to features in renowned publications such as Time Magazine, Bloomberg, Entrepreneur, Yahoo! Finance, MSN, SmartAsset, The Simple Dollar, U.S. News and World Report, Women’s Health Magazine, and many more. Shawn’s driving ambition? To simplify retirement planning, he ensures his clients understand their choices and secure the best insurance coverage at unbeatable rates.

The Annuity Expert is an independent online insurance agency servicing consumers across the United States. The goal is to help you take the guesswork out of retirement planning and find the best insurance coverage at the cheapest rates

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