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:

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.