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The Takeaway: Future 401(k)s Will Look More Like Old-School Pensions


More 401(k) plan sponsors are offering to pay benefits in a form that guarantees a set level of monthly income, regardless of how long you live. And more employers are beginning to offer these plans,  Time's Dan Kadlec reports. "Before long your 401(k) may look a lot more like your dad's pension," writes Kadlec.

That's a good thing. Traditional pensions that pay a set monthly income to retirees, based on their wages and length of service, were once the foundation of retirement. Along with Social Security, this benefit covered the bulk of a retiree's fixed costs until death.

These days, however, only one in three workers under 35 are eligible for even greatly reduced pension benefits. And only 8 percent of all workers say a pension will be their main source of retirement income. Instead, most rely on tax-deferred 401(k) and IRA plans-that is, if they contribute to any retirement plan. A recent survey found almost half of working-age Americans aren't contributing to a plan at all.

Yesterday, I mentioned a poll that found Gen X and Y workers wish they had more access to pension-style retirement accounts. And they soon will-sort of. According to the 2012 BlackRock Retirement Survey, one in five employers plan to introduce new investment options-including but not limited to annuities-that would, effectively, make 401(k)s work more like traditional pension plans. Nearly all workers believe their 401(k) plan should have a guaranteed income option and  75 percent employers believe its their responsibility to provide one, BlackRock found.

This represents a seismic shift in thinking," writes Kadlec. "Just a few years ago, employers were reluctant to even consider annuity-like options. They were seen as too conservative; 401(k) plans were meant to build assets over the long haul. But as 401(k) plans emerged as the prime source of savings for most workers, this view softened. The 401(k) plan, once the gravy, is now the meat and potatoes of retirement security.

According to a Transamerica survey  Redefining Retirement: The New Retirement Readiness,  43 percent of American adults believe retirement security should be a priority for the next president and congress.

Wednesday Quick Hits:

  • Former Secretary of State Henry Kissenger was given a "full pat-down" by TSA agents at LaGuaria Airport, Washington Post notes. Agents didn't seem to recognize the 85-year-old Nobel Peace Prize winner, but were concerned by his wheelchair.
  • Suzanne Somers has a new book called Bombshell: Explosive Medical Secrets That Will Redefine Aging. Say what you will about its subject-largely, hormone replacement therapy-but the 65-year-old author/actress does have an inspiring outlook: "My age is my asset," she says. "My wisdom and perspective makes living more enjoyable and understandable. My health is perfect, my energy is unstoppable, I like the way I look, I like the way I feel, and I like that sex is an important part of my life experience."
  • And in Long Island, an estranged husband and wife (they separated last year after 32 years of marriage) are running for the same seat in the New York State Assembly.
 Photo: Karen Beard/Blend Images/Corbis
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