Pensions are becoming more and more of a dinosaur as companies are moving away from them and are replacing them with 401k type plans.
There are multitudes of reason why this shift is occurring but the primary reason is due to the simple fact that pensions are unsustainable.
Pension had their hay day in the 1960s but began to fail opening the door for the government to enter the picture.
The truth is, pensions have been struggling to keep their head above water ever since and outside of government are no longer viable.
The point is that at one time pensions were as common as 401k’s are today but times are changing and if you have a pension there are things you should consider to protect yourself from a financial crisis.
Whether you are drawing a pension now or are planning to draw from one in your retirement, what I will share in this podcast may impact your future benefits.
According to heritage.org, The Pension Benefit Guaranteed Corporation (PBGC), which is similar to the FDIC, did a study and found that for somebody that is promised $24,000 a year in pension benefits, they are insured up to $12,870.
The problem with these insurance plans for pensions is the same problem we have with the FDIC. The FDIC has around $25 billion in reserves, but there’s $9.3 trillion sitting in banks. The insurance cannot cover all the liabilities that exist.
The same thing is true with PBGC. The promise of insurance benefits is not mathematically supported. If PBGC goes insolvent, that $12,870 promise is really only able to cover $1,500 under the insurance benefit.
The concern here is that when you retire and you’re counting on a pension as part of your income, and the system defaults, what do you do?
Studies show that back in 2008 the projected deficit for pensions was $5 million and in 2014, it was $42 billion. From 2008 to 2014 it went from a $500 million deficit projection to a $42 billion deficit.
All of this makes a strong case for accepting lump sum options when they are offered to move the control of your future benefits into your hands.