The shifting retirement burden

KJ: Long gone are the days of our grandparents where they worked for a company for 30 years and received a pension for 20+ years in retirement. The chart from JP Morgan below shows the change in landscape of retirement options for employees. Basically a pension (that provides a regular income stream) is represented by the “Defined Benefit” line, and the 401(k)/403(b) plans we have all come to learn to love would represent the “Defined Contribution” line.

JP Morgan Defined Benefit Vs. Defined Contribution Historical Chart

Why the shift?
The short answer is: it’s less risky and less expensive for companies to offer defined contribution plans over defined benefit plans. More and more, companies have been shifting away from their open-ended liability of pensions to a more defined liability offered by a defined contribution plan. In layman’s terms, defined benefit plans require the company to be responsible if there is a shortfall in contributions and/or investment returns over time. With a defined contribution plan, however, what the company contributes to your account is the extent of their promise, so any future earnings, growth, and accumulation to provide for your retirement is up to you. Without getting into all of the differences between the two, the bottom line is the employee is more and more responsible for making sure their own retirement savings is sufficient to provide for their retirement income.

You’re responsible for your destiny
Now more than ever it is more important to rely on yourself and your savings to generate income for retirement. With Social Security in question too, if you don’t build it yourself, you may not have much (if anything) to fall back on. Kind of scary, right? I think it’s both scary and empowering at the same time because it allows you to focus on what you can control yourself and make adjustments as needed instead of just hoping someone else can or will take care of it. Chances are that professional advice in navigating this more complex world will be ever-more important, so don’t feel bad if you can’t handle it yourself! Seek the advice of a professional when needed.

AJ: Our generation has an incredible opportunity to shift perspective on the future by relying only on our own work ethic and ability to intelligently leverage the experience and knowledge of financial professionals to define our individual well-being. Proactively planning for your future, regardless of income or profession, ensures that the person most interested in your long-term success (you) is protected.

KJ: While it’s definitely a shift from the recent past, it’s a more empowering future to know your decisions and actions today will directly affect what you hope to accomplish in tomorrow’s world – however distant that tomorrow may be!

    How do you feel about this shift in responsibilities?
    Are you prepared to make the decisions you need to stay on track?
    Tell us how you make it work.

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