Where Have all the Pensions Gone?

Published on August 30, 2017

To People Who are Already Retired.

Company pension plans are quickly becoming a thing of the past and are not available to millions of American workers. However, those who are already retired are enjoying their traditional pensions from days gone by. This was reported in a recent article on Bloomberg News which stated that current retirees are living much better than previously thought.

A new paper by two U.S. Census Bureau researchers checked survey responses about retirement income, using a Social Security Administration database of 2012 tax filings and other earnings data. The researchers wanted to check what older Americans are reporting (or understanding what qualifies as) their income. Turns out, they are underestimating that amount by a lot because they are not including retirement benefits in their reported income. According to the report:

• The median U.S. household 65 or older earned $44,400 in 2012, which is 30 percent higher than the median given in the census’s Current Population Survey from that year.
• The original survey found that 9.1 percent of Americans 65 and older were living below the poverty line, but the new study puts their poverty rate at a lower 6.9 percent.
• Just 44 percent of the older survey respondents reported retirement income; however, tax filings and other data show that it’s actually 68 percent who are getting retirement income.

The most popular retirement benefit among older Americans is the traditional pension which is received by 56 percent of households ages 65 and older. Following the pensions are withdrawals from individual retirement accounts by 32 percent of older households. Only around five percent took money directly from 401(k)-style defined-contribution plans.

Even though many people think of the distributions from pensions and retirement plans as savings rather than income, economists and tax collectors generally consider that money part of your income (especially since the funds may include your employer’s contributions and also include investment gains as well as your personal savings contributions).

Therefore, once that money is factored in, it turns out many older Americans are better off than had been assumed. Because this new study defines income more broadly, it finds the newly retired are doing better than previously thought, with a milder decline in post-work life income thanks to those pensions and retirement plans. This is not to say it’s a totally rosy picture for everyone but the new study does find poverty rates are reached more slowly than reported before.

Plus, the study discovered that people are less reliant on Social Security benefits than previously suggested as well.

Wealth gap between generations

That’s all pretty good news. Now here’s the bad news: It is now five years past that 2012 data and the economic realities for today’s workers, especially younger ones, are changing quickly—and not necessarily for the better. Remember, those traditional pensions are drying up or are facing financial difficulties meeting their obligations. So younger workers who are trying to save are likely doing so via workplace 401(k) plans or individual retirement accounts.

However, the economy has not fully recovered in all areas of the country nor in all industries, so they are dealing with stagnant wages and the after-effects of two major stock market crashes since 2000. Although the median wealth of Americans 62 and older increased by 40 percent in just a generation, a St. Louis Federal Reserve analysis found that from 1989 to 2013, the typical net worth of younger families declined sharply: down 31 percent for middle-aged people and down 28 percent for young families (under the age of 40). This points to a widening wealth gap between the country’s old/retired population and younger workers.

When the going gets tough, the tough open a self-directed IRA

For those people who are still working and still trying to shore up those retirement reserves, a self-directed retirement plan can be a great way to do so. Without traditional pensions being available, savvy investors who like to make their own investment decisions and who know and understand certain alternative assets, are turning to self-direction to build their financial future.

These plans may include real estate, precious metals, commodities, equity funding, and many more nontraditional investments that are not allowed in typical retirement plans. You can open a Traditional or Roth IRA; if you are self-employed or a business owner, take a look at self-directed SEP or SIMPLE IRAs for you or your employees. Self-directed retirement plans enjoy all the same tax advantages as regular plans. The plans are maintained by full service custodians like Next Generation Trust Company, which provides full transaction support and account maintenance, and holds the assets on behalf of the account.

Want to know more? Download our free white papers, check out our informative videos, or contact Next Generation Trust Company to get quick answers to your questions about self-direction as a retirement wealth-building strategy. Contact us to discuss your self-directed retirement road map at Info@NextGenerationTrust.com or 888.857.8058.