On this episode of Saving the American Dream, we’re talking about pensions. Our parents and grandparents relied on these quite a bit, but they’re not as popular these days with companies. 

“The status of the American pension plan is practically extinct unless you’re a government employee,” said Michael. “People are living significantly longer, which has been a driving force of why pensions have gone away.”

About 4% of the private sector still offers pensions, which is down from 60% in the 1980s. So, how are people saving for retirement these days?

If you are a 65-year-old married couple today, there’s a 50% chance that one of you is going to live past the age of 94. So, if you retire at 65, you need to plan on having income for 30 years, at least.

It takes a savings rate of 20% consistently and systematically of your gross income through time to position yourself to have enough capital for retirement down the road. And then once it comes closer to the distribution phase of your retirement, you need to likely create your own guaranteed income sources

It’s good for retirees to have all of their monthly expenses or regular monthly expenses covered by guaranteed income. It takes a lot of pressure off the rest of their retirement assets and can open those up for other goals.

Listen to the full podcast or use the timestamps below to jump to a specific section.

Navigating the Show

[1:10] – Pensions becoming extinct

[4:12] – Other sources of income

[9:00] – Inflation

[10:32] – Pension buyout

[12:12] – Savings adjustments

“People are living significantly longer, which has been a driving force of why pensions have gone away.”

– Michael Schulte