Pension Payments and Retirement Income Trends

It used to be that only surviving soldiers were guaranteed an income to enjoy in their later years, a concept introduced during the first century B.C. by rulers of the Roman Empire. The idea of companies helping workers put money away for retirement didn’t exactly catch on with the rest of the workforce until the 19th century.

In the mid-1800s, some larger cities offered disability and retirement benefits to police, firefighters and other public sector employees. It wasn’t until 1875 that American Express created the first private pension plan in the U.S. to provide income for retired workers and those with disabilities.

At that point, the concept spread rapidly, with about 200 pension plans adopted by larger corporations by 1926. Defined benefit plans grew to cover 26.3 million private sector workers by 1970, which represented 45 percent of all private sector employees.1 Then, those numbers began to drop with the introduction of the defined contribution plan.

Today, only 15 percent of private sector workers and 75 percent of state and local government workers participate in a traditional pension plan. 2 According to the U.S. Bureau of Labor Statistics, there are a couple of options for how to receipt pension benefits. One is through a series of monthly payments over time. The second is a lump sum paid out all at once.

In the end, the amount of money may end up being about the same, if you consider that the lump sum invested for a conservative return (say 4 percent) would be the equivalent to a lifetime of payments over the same number of years it was invested, given assumptions about life expectancy and investment returns.3

A lump-sum payout gives retirees a bit more control over the distribution of those assets, but the tradeoff may be a greater risk of running out of money. If you’re interested in ways to take a portion of your retirement assets and benefit from the guarantee of a reliable income stream, we can share strategies on how to do so using insurance products, such as annuities.

Interestingly, the more people understand their financial options, the better off they tend to be. New research indicates that workers who know more (as measured by financial wellness assessments) tend to have higher contribution rates to employer-sponsored retirement plans.4

Fortunately, the idea of educating workers on financial matters is spreading quickly. Today, more than 80 percent of U.S. employers offer some type of wellness program and offering financial wellness programs is on the increase. There’s even better news: Financial wellness is also associated with better sleep, reduced stress and higher productivity.5

If you don’t participate in a company-sponsored retirement plan, you may in the near future. A recent survey found that 21 percent of corporate HR professionals report their companies now automatically enroll current employees in their sponsored retirement plans (although workers have the ability to “opt out” if they want). While auto-enrolling new employees is not a new trend, automatically enrolling current employees who have not been participating in the plan now is.6

Our firm assists retirees and pre-retirees in the creation of retirement strategies utilizing investment and insurance products. Advisory services offered through B.O.S.S. Retirement Advisors, a Registered Investment Advisory firm.. Insurance products and services offered through B.O.S.S. Retirement Solutions. To see a list of services please visit us at bossretirement.com/services.

This content is provided for informational purposes only. It is provided by third parties and has been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed. The information is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation.We are not affiliated with any government agency including the Social Security Administration.

1 Liz Davidson. Workforce.com. June 21, 2016. “The History of Retirement Benefits.” http://www.workforce.com/2016/06/21/the-history-of-retirement-benefits/. Accessed July 15, 2016.
2 William J. Wiatrowski. U.S. Bureau of Labor Statistics. June 2016. “You’re getting a pension: What are your payment options?” http://www.bls.gov/opub/btn/volume-5/pdf/youre-getting-a-pension-what-are-your-payment-options.pdf. Accessed July 15, 2016.
3 Ibid.
4 The National Association of Plan Advisors. May 31, 2016. “Report: Contributions Climb with Financial Wellness.” http://www.napa-net.org/news/managing-a-practice/industry-trends-and-research/report-contributions-climb-with-financial-wellness/. Accessed July 15, 2016.
5 Lou Carlozo. U.S. News & World Report. May 19, 2016. “How Companies Invest in Financial Wellness.” http://money.usnews.com/investing/articles/2016-05-19/how-companies-invest-in-financial-wellness.
6 John Iekel. National Tax-deferred Savings Association. July 7, 2016. “Nuanced Changes in Retirement Benefits, Study Finds.” http://ntsa-net.org/News/Browse-Topics/Inside-NTSA/Article/ArticleID/6470. Accessed July 15, 2016.