July 15, 2021 - At the height of pension popularity in 1983, roughly one-third of every employer offered a pension as an incentive to reward company loyalty.

Generally, the longer one worked, the greater an employee's expected retirement income of fixed, guaranteed monthly cash flow which they could never outlive.

According to statistics compiled by the U.S. Dept. of Labor, today only about 6.5% of employers still offer traditional defined benefit (DB) pensions as most have shifted to defined contribution (DC) plans like 401(k)s.

While employers promoted the transition to 401(k)s and similar DC plans as a positive change to give employees more control over their own future, it's hard to ignore their less noble reasoning:

DC plans are less expensive for companies to administer; and,

They shift the burden of saving and investing to the employee.

In short, employers were not altruistically motivated in bringing about this shift.

While many, maybe even most, have done well over time contributing to their DC plans during their working lives, not everyone comes out better off during retirement when compared to traditional pensions.

Some cannot afford to contribute to their plans regularly during their working lives.

Others choose model portfolios inconsistent with their risk tolerance and fare poorly in the end.

Among those most adversely affected were those who chose to retire at the advent of the Great Recession while overexposed to equities.

Between market risk and the temptation to overspend, the chance that a retiree will outlive their retirement account should not be discounted.

The S&P 500 has returned an average of 7.87% since 1928.

While life expectancy in the United States at birth is only 79.1 years (46th place out of 193 countries), this figure jumps to 84.5 years once age 65 is attained.

If you make it to age 80, life expectancy increases to 89.7 (women) and 88 (men). Make it to 90 and statistics suggest you have another 4-5 years of longevity. A bit longer if you're married.

A 4% safe withdrawal rate, once considered standard in the financial planning community, has recently been called into question as too risky.

In a national happiness survey in Great Britain, 76% of respondents reported satisfaction, more than any other single group.

Similar surveys have yielded similar results.

Conclusion? Statistically, you can expect to enjoy a long retirement and doing so with guaranteed income flowing will make you happier.

Failure to recognize the impact of sequence of returns risk, among the many other very real risks retirees face, can be especially detrimental to one's retirement health in a declining market.

One solution to increasing your retirement happiness and security while reducing the risks associated with it lies in building your own "pension" using fixed deferred and immediate annuities.

Although routinely eschewed by financial advisors who specialize in assets under management, annuities offer something no other financial planning product can.

Consider this recent quote for a 62-year-old single male who is considering dedicating $100,000 of his $500,000 401(k) toward creating his own pension-like future income plan.

In exchange for $100,000, he buys:

An immediate 10% credit toward his income account ($10,000);

His income account then grows at a guaranteed rate of 7.0% per year; and,

At age 73 when he plans to initiate his lifetime income, he will receive

5.05% ($10,927) of his accumulated value ($216,386) for life.

In summary, he receives close to the historical S&P 500 market gain each year (minus the risk) and can expect a systematic withdrawal rate of over 5.0% (25% better than the generally accepted safe withdrawal rate referenced above) for life.

Any remaining death benefit in this example will be based on investment elections and experience but from a purely guaranteed income perspective, this is tough to beat.

Worth mentioning: By dedicating a portion (20%) of his retirement savings to this safe withdrawal option, two important objectives are accomplished:

1) He can absorb a little more risk with the remainder of his retirement portfolio; and,

2) The impact of any catastrophic losses is minimized.