Pensions--The Not So Good Old Days

I'm starting to see in a lot of magzine articles and on-line e zines writers bemoaning the death of the "traditional" pension.  First a word on the "Good Old Days."  They weren't.  We just tend to look backwards and filter out all the bad stuff and pine for the simpler times.  Times like World War II, the Cold War, Vietnam and Charles Manson.  Plus looking back at he good old days is a sure sign of advancing senility.

Back to pensions.  The writers tend to dwell on the positives like a guaranteed check every month resulting in a steady stream of income.  Everything is easy with the money direct deposited at your local bank.  No fuss, no bother. 

Not really because 1) the money isn't guaranteed.  It is a benefit, not a right.  Or your company can go out of business and you are screwed.  Well, not totally but the responsibility goes to some government agency that is going to cut the benefit.

2)  Most pensions are not tied to inflation.  Some are but mostly in the public areas like teaching, municipal workers, and the post office.  Inflation will eat you up if you are not a mail carrier.

3)  The pension will be a percentage of your last several years salary at the company.  Percentages vary but let's assume 60% which is pretty rich but will work.  So you are 30 and have a pension.  Fast forward to age 65 and you will get 60% of your salary--the salary you made 30 years ago.  Might pay the phone bill.

4)  Pensions were based on your staying with the company.  Like a long time.  Try ten years.  When I first started out, my company gave a pension after you had been there ten years.  I left at nine and a half.  Before I left I went to friend (later became CFO) and asked his opinion if I should stay to qualify for the pension.  He said the present value of the pension in 30 years was ZERO.  And he was right.  I left.

5)  If you left before you were vested you got nothing.  In fact, vesting used to be called cliff vesting.  Leave one day before the vesting period and your pension goes over the cliff.

6)  Because pensions are not portable.  Your new company could care less how long you toiled at the old company.

So much for the good old days.

So what is a girl to do?  Easy.  Find a company with a 401(k) with a great match, like $2 to $1, and plow every nickel you can into that plan.  Invest in index funds and sit back. 

The future isn't guaranteed, obviously, but if the market does what it has done for the last 100 years you will have a lot of cash.  More than the pension. 

So watch out for the good old days.

Comments

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[spencer]

Your point 3 is internally inconsistent. If your pension is a function of your salary in your final years of work what you made 30 years ago does not matter.

It looks like you deliberately wrote it so as to create a false impression.

[EC]

I have to agree. My father worked for a large corporation who had the reputation of laying middle-aged people off when they got close to being vested--so the pension was worthless. Long after he left, people started filing age discrimination lawsuits about it.

Just recently, I was talking to someone who worked at K-Mart for many years. She and a group of other workers were given the choice of retiring and taking their pensions, or going down to part-time. Amongst her group, the monthly pensions ranged from $15 to less than $100. $15 a month? That's a slap in the face!