The haves and have-nots in retirement could be defined by who has access to a traditional pension. Those with an employer-sponsored traditional pension will get guaranteed payments for life, while everyone else must depend on their own saving and investing savvy.
Many people without the comforting stream of steady payments are feeling anger and resentment toward those who do have them. Olivia Mitchell, director of the Boettner Center for Pensions and Retirement Research at the University of Pennsylvania’s Wharton School, calls this feeling pension envy. “Many public sector employees can retire quite young at age 50 or 55 and get their payments for life, often with a cost-of-living adjustment,” she says. “That is just not heard of in the private sector. Public sector pensions are seen by many as something they will never get.” Here are three ways to get over your pension envy.
Find a job with a pension. Some jobs still come with traditional pensions. Almost a third (31 percent) of all workers were offered a traditional pension at work in 2010, according to the Bureau of Labor Statistics. State and local government workers (84 percent), union members (82 percent), and employees at large companies with 500 or more workers (63 percent) are the most likely to be offered a traditional pension. Of course, you’ll have to work at the company long enough to become vested in the plan to receive a payout in retirement. “Having a pension is certainly a nice perk, but I’m not sure I would base my career direction on whether a company has a pension or not,” cautions Jonathan Barry, a partner with Mercer's retirement risk and finance consulting group.
Create your own secure retirement income. Most private sector companies have closed their pension plans to new hires and replaced them with 401(k)s. “Even if you are providing the same amount of value, you are transferring risk from the company to the participant when you change from a defined benefit to a defined contribution plan,” says Barry. “It’s really a transfer of risk from corporations to individuals. It’s up to the participant to figure out how to make the money last for the rest of your life.” Creating a secure retirement income without a pension takes some effort. To help your nest egg grow, try to maximize your retirement savings tax breaks and take advantage of any 401(k) match offered by your employer. You will also need to choose investments that will help your savings keep up with inflation and develop a plan to draw down your assets in retirement. Some people create their own pensions by purchasing annuities that provide guaranteed payments for life.
Maximize the pension you will get: Social Security. Almost all working Americans will be eligible to receive Social Security benefits in retirement, and your payout will be adjusted each year to keep up with inflation. The exact amount you get is calculated based on your 35 highest earning years in the workforce. Taking steps to maximize your salary now could help you get a bigger payout in retirement. You can also boost the retirement income you will receive in your later years by delaying the date you start payments. Your monthly checks will grow for each year you delay claiming between ages 62 and 70.