Bring Back Pensions!

No surprise here -- a recent study from the National Institute on Retirement Security shows that a lot of people are worried about retirement, especially in the wake of 2008's roughly 40% market drop. Even many of our trusted dividend-paying, blue-chip companies have let us down in the past year:

Company

Recent Dividend Yield

1-Year Return

AFLAC (NYSE: AFL  )

3.9%

(57%)

AT&T (NYSE: T  )

6.5%

(31%)

Deere (NYSE: DE  )

2.8%

(54%)

General Electric (NYSE: GE  )

10.2%*

(61%)

Merck (NYSE: MRK  )

6.5%

(39%)

PepsiCo (NYSE: PEP  )

3.5%

(26%)

Dow Chemical (NYSE: DOW  )

4.6%

(66%)

Data: Yahoo! Finance.
*GE has announced cuts in future dividends, but those cuts are not yet reflected in the published yield.

(Remember, though, that you shouldn't judge a company by a one-year performance, and this was far from a typical year. Still, the table above is a great reminder why we should never sink all our savings into a single investment -- even if it's our employer's stock.)

What we want
The report accompanying the survey explained that when it comes to retirement plans, Americans want:

  • Portability. Many of us will likely have several jobs before retiring.
  • Employer contributions. It's hard to expect employees to be able to fully fund their own retirements. (This can also be a boon for employers, since offering generous contributions can attract and retain employees.)
  • Benefits for surviving spouses.
  • Regular income that can't be outlived.

That last item caught my attention, because it's essentially calling for a pension. Pensions were standard retirement benefits for many, if not most Americans a generation or two ago. Traditional pensions are technically known as "defined-benefit" plans, offering a specific reliable payout that's expected to be paid for the rest of your life (and perhaps your spouse's, if you choose). With pensions, employers carried the risks and responsibilities, having to ensure that they'd be able to meet their obligations to employees.

A brief history
In the past decade or two, we've seen pension after pension fall by the wayside, replaced by 401(k) "defined-contribution" plans, where the amount contributed into the account is specified, but the ultimate value and payout is not -- it will depend on the performance of the underlying investments. Thus, the risk and responsibility has shifted from employer to employee.

Employees have to make smart allocation decisions for their plans, and contribute enough to them to ensure a healthy sum upon retirement. One key problem here is that few Americans have learned enough about investing to make good choices. Indeed, many are not even saving and investing enough, thus setting themselves up for gruesome retirements. The survey notes that only about half of all people with 401(k)s think they'll save enough to retire.

Pension nostalgia
Most Americans seem to agree on one solution to this problem: It would be nice to have pensions again. Fully 87% of those surveyed believed that "all workers should have a pension so that they can be self-reliant in retirement."

I confess that I like the idea, too. I've often thought that we'd be better off with guaranteed incomes that were sufficient to meet living expenses -- even if that meant higher taxes. Some people might grumble, arguing they'd do better saving on their own -- but on the whole, many people would be better off.

Don't count on it
For now, we're still stuck with our measly 401(k) plans, the trickles we expect from Social Security, and the carnage that remains in our brokerage accounts. Are we doomed? Not necessarily. There are still steps we can take to improve our futures.

We could save and invest more -- the sooner, the better. (Your earliest invested dollars can grow the most). And we can find the most promising places for our investments, too.

Above all, we just need to become better informed about all our options. For example, do you know that you can more or less build your own pension via lifetime income annuities? They can offer you a guaranteed income -- for life. See? There's hope!

If you'd like to salvage your retirement in this brutal environment, and get recommendations for promising stocks and mutual funds for your golden years, I encourage you to try our Rule Your Retirement newsletter service free for 30 days. I think you'll like what you see.

Frustrated with your 401(k)? Even if your employer's plan isn't the greatest, you don't have to give up your dreams of a happy retirement.  Get the tips you need to turn your retirement savings around in our special report, "How to Make the Most of Your 401(k)" -- just click here for instant free access.

Longtime Fool contributor Selena Maranjian owns shares of PepsiCo and General Electric. PepsiCo is a Motley Fool Income Investor recommendation. Aflac is a Motley Fool Stock Advisor pick. Try our investing newsletters free for 30 days. The Motley Fool is Fools writing for Fools.


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 27, 2009, at 8:43 PM, DoWeUnderstand wrote:

    It is very sad but we have screwed the younger generation by dropping pensions and then increasing their college costs, their housing costs and their retirement cost with 401Ks that may or may not be worth anything when they retire.

    If I were much younger, I would fight for pensions because that is the only way they will be able to retire before they die of old age. I am embarrassed with what we have done to our young. We all should be ashamed

  • Report this Comment On April 27, 2009, at 8:55 PM, scorp99cam wrote:

    I disagree, in a flattened world where we compete with people for jobs worldwide pensions are too expensive for employers. Otherwise we end up with failing companies, like all automakers. I wish I got a pension, but I know those days are long gone, and unfortunately most industries know this except for governments. Now we will watch as taxpayers bail out underfunded city/county/state/federal pensions in the future. That is what we should be embarassed about.

  • Report this Comment On April 28, 2009, at 1:37 AM, dgmennie wrote:

    The only reason employees today have ANY benefits at all is because at least some of them in the not-to-distant past bargained collectively (and successfully) with corporate management. Yes, in some cases, the employees got more than the companies could afford. But more typically the bargaining process set REASONABLE boundaries on hours, wages, working conditions, vacations, and medical coverage. Gross exploitation such as child labor, starvation wages, and unpaid overtime were eliminated.

    Right now we have the ridiculous situation whereby municipal workers (police, firefighters, teachers, and a host of administrative hangers-on) get overly-generous compensation and retiremenmt benefits extracted (literally at the point of a gun) from local taxpayers. These same taxpayers, most of whom are NOT on the public payroll, have no such financial cushion themselves, yet are REQUIRED to feather the municipal employees' nest.

    Thus the concept of collective bargaining, once a powerful weapon that did much good for a vast numbrer of workers in the private sector, has become a corrupt tool in the hands of municipal labor organizations. Instead of taking on the vast wealth and political power of the big players in the US economy, municipal labor is aligned directly against today's struggling and disorganized middle-class homeowner and wage earner.

    Yes, bring back pensions . . . FOR EVERYBODY! But do not permit municiplal employees a special retirement subsidy and a host of other goodies largely paid for by those who have no possible expectation of enjoying a similar cushion during their golden years.

  • Report this Comment On April 28, 2009, at 10:17 AM, dr5000 wrote:

    The 401K system is fine. If you want a pension look at GM. The way to have a 401k and turn it into a pension is to use the new variable annuities. They have lifetime income guarantees as well as automatic guaranteed increases in the value that income can be taken from. These annuities guarantee 5% for life as well as spousal income. Some even will allow a higher income for nursing home or long term care. I suggest you look at Prudential, Transamerica, Sun Life.

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