Monday, December 31, 2012
I've been working for the past 20 years, since I was 15 years old and had my first real gig as a part-time sales associate at Lady Footlocker.
In my two decades of working for pay, I've never, ever had the luxury of being at an employer that gave me any sense of built-in security or financial protection for the long haul. And I've had some pretty nice jobs at some well-revered employers.
However, through the years, on multiple occasions, my father has made references to "getting a good job with a pension." He's doled out these words of widsom as advice, common sense and part of any thinking person's plan for the future. As a now-retired Baby Boomer and the up-and-coming beneficiary of all sorts of entitlements that may not be around when I qualify for them (such as Social Security and Medicare), I've taken his utterances in this vein with little more than a grain of salt.
Because pensions have gone the way of acid-washed jeans, jelly shoes and big teased and sprayed bangs.
But what is a pension? It is a defined benefit in which an employer promises to pay a specified monetary amount upon retirement that is calculated based on the employee's earnings, tenure on the job, age and other potential factors.
Let's juxtapose this with the 401(k), which many of us are probably familiar with and participate in on our jobs. The 401(k) is a defined contribution (note: not benefit) plan that working employees may contribute pre-tax dollars to, up to IRS-defined limits each year. Sometimes the employer matches employee contributions up to a certain amount, typically from 2-5 percent of the employee's annual salary. This is known as the employer match, though many companies offer 401(k) plans without matching at all.
People like my father may be among the last generation to receive pensions. According to Bankrate.com, in 1984, 24.2 million individuals were enrolled in a traditional pension. Today, that number has been sliced by more than half to fewer than 11 million these days, according to the Employee Benefit Research Institute.
Around the early-mid-2000s, the pension debacle began getting more attention. For example, more companies began seeking relief from their pension-promising responsibilities. United Airlines was one of them: "Imagine being with a woman for 31 years and having that relationship shattered one day to find out you've been lied to and cheated," said Jedynak, a customer service agent at Chicago's O'Hare International Airport since 1974. "You're going to ask yourself, were you a fool? Why didn't I see it coming?"
Such employees have found their planned pension dollars being converted to typical 401(k) plans. And companies aren't the only ones seeking relief from pension promises - the unfunded pension liailities of government at the local, state and federal levels have been written about extensively. Every state in the Union is in the hole when it comes to fulfilling their pension promises to its employees.
What has become an unsustainable situation for government and corporations has become an equally tenuous one for workers who 1) thought they would be able to count on their pensions and 2) believed they would one day be able to get a job with a pension or believed that 401(k)s were an apt replacement for a pension.
There have been a number of critiques written about 401(k)s. They rely heavily on the investment options available within a particular plan; they count on the ability of laypersons who are not well-versed in finance to make very serious decisions about their contributed dollars; any gains or losses are at the mercy of the market; an employer may choose to discontinue employer matching at will; and there are shadowy fees (not transparently disclosed) tied to 401(k)s.
And it takes a lot of scrimping, saving and sacrificing to make a 401(k) have any hope of performing like a pension. Take this from The Finance Buff: "It takes about 15-20% of your pay to get to the level a typical pension plan once paid. If you want to achieve the same level of retirement income, you will need to target the contributions at 15-20% of your pay, counting your employer match.
The Vanguard report says that including employer match, employees with an income between $50k and $100k should save at least 12% of income; 15% of income if the income is over $100k. Given the uncertainty over Social Security and salary growth, I would bump these numbers up by a few percentage points."
So, the truth is that there are no certainties or assurances in married working mothers working full-time anymore. And if some would argue otherwise, I guess we could all agree that there are certainly fewer, at least. So we assume not only the tax burden, but also the sole responsibility of paying for current living expenses while saving for a not-so distant retirement 30-40 years away. All this in the midst of a workplace culture that is unfriendly, if not toxic, to modern families (limited to no flexibility; stereotypes about women, especially mothers; and much more).
I have started to think that the best ways to save for the future are:
1) Get out of debt.
2) Buy property (and rent them out as the value increases).
3) Be entrepreneurial.
What do you think?