If it feels difficult to keep up with the things that change regarding retirement, you’re not alone. Even some very fundamental things about retirement have changed in the last 25 years.
Take, for instance, real Social Security benefits. Between 1975 and 1984, the Social Security Administration’s annual cost of-living adjustment averaged a healthy 7.7%.1 During that same time frame, the highest cost-of-living bump was 14.3%, unheard of by today’s standards.
Another substantial change that has continued throughout the past 25 years is that more employers are transitioning from pensions to contribution accounts. Even just 25 years ago, pensions were still fairly common. But in the years since, there has been an acceleration in the shift away from pensions to contribution plans like 401(k)s and 403(b)s.
Additionally, many pension funds are seeking to buy out their beneficiaries. In this process, the pension fund seeks to provide one-time payments through a process called “de-risking.” The benefit for the pension fund is the aforementioned one-time payment, rather than lifetime payments.
While this is certainly a significant shift, many younger workers have access to employer-provided retirement accounts. And, if they don’t, they can work with a financial services professional to set up retirement income tools that simultaneously suit their current needs and their retirement goals. The shift from pensions to contribution accounts is another reminder that changes to retirement planning are inevitable.
Here’s where the changes of the past 25 years get even more concerning to some. Among the changes are fewer companies offering pension plans, fewer younger workers with access to employer-sponsored plans, and finally, fewer younger workers taking advantage of the employer-sponsored plans they do have access to. In fact, only 31% of millennials who have access to an employer-sponsored plan take advantage of it.1 Ultimately, whether you have access to an employer plan or you have to go it alone, it’s important to get rolling with a savings tool long before your retirement.
Many people could benefit from talking with a financial services professional to craft a strategy that adjusts for changes that have already happened and to prepare them for the changes that may be coming.