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| Creating your own Personal Pension can provide you dependable, growing income. |
Are you as prepared as you think?
According to your parents and grandparents, things were always better “back in my day.” While this might not be the case in every scenario, if they're talking about retirement, chances are they're right.
There has been an undeniable shift in the way companies handle their contributions to employee retirement. It's not just the farewell dinner and the gold watch we don't get anymore, although that tradition has certainly fallen out of common practice. The differences between the retirements of yesteryear and those of today are more serious—and unfortunately, often detrimental to the retiree.
The cultural effects of career-hopping
For several generations, the status quo for the typical American career path remained unchanged. People, for the most part, got a job either in the family profession or upon graduating college (or high school, if they weren't able to attend or afford college). Once they had a good job, they’d stay until retirement—often putting in 30 years or more at the same company.
However, as businesses became more competitive, there were shifts on both the employer and employee sides. Employers began to focus more on recruiting top talent, while employees started valuing higher personal satisfaction over longevity. Switching jobs in search of greener pastures has become commonplace.
During this shift, the traditional pension plan has suffered and in some cases been completely abolished.
The new face of pension plans
When lifetime of loyalty was the standard, employers offered attractive pension plans as part of a benefit package to attract and retain strong employees. For the most part, these plans were simple: Once you'd worked for the company a certain number of years, you'd continue regularly receiving a percentage of your salary when you retired. The longer you worked for the company, the greater the percentage.
These plans required little or no investment on the part of the employee. Because the brunt of the financial responsibility for a traditional pension plan falls on the employer, this option was far less attractive for businesses when short-term employment became the norm.
Enter the 401(k).
Introduced in the early 1980s, this alternative to pension plans was billed as having the potential to yield greater returns than a set pension while affording the employee the benefit of taking their account with them when they found a better job. The 401(k) retirement plan allows employees to contribute as much or as little to their retirement fund as they desire, and the account earns interest over time through an investment of the employee's choosing.
The first and most obvious drawback to this is the part about employee contributions. While pension plans were actually invested and paid out by the employer, 401(k)s are simply money that you've already earned, which is set aside for retirement. These plans, known as Defined-Contribution or Defined-Comp, have put the burdon of investment choice not on a professional Advisor, but on the client. What used to be the job of a department of professionals becomes your responsibility, saving the company money all along the way.
From the corporate family to every person for themselves
In today's job industry, traditional pension plans are virtually nonexistent and when they are found they are woefully underfunded. Companies offer 401(k)s, IRAs, TSAs, and other income-dependent, interest-bearing retirement savings plans to offset the higher turnover rate—and to increase overall business profits, since these types of retirement “plans” are now what employees expect.
In any case, once you've retired, you're no longer the company's concern—you'll have to sink or swim on your own. It's important to understand the retirement investment options that are available to you in this more independent model, and make sure you're prepared to handle the burden of retirement through a plan that guarantees income throughout your golden years.
You can probably plan on buying your own gold watch, too.
To get more information on how Monolith Financial Group can help you plan for your Personal Pension give us a call (916) 367-6430
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