The Myth of Vanishing Retirement

I read an article on Gawker the other day claiming that millennials will never be able to retire. It cited the likelihood of Social Security dissolving and the lack of pension plans as reasons that the system is rigged. If you’re interested, go read it. It’s short, but not nearly as charming as anything on our blog. Just come back. I’ll miss you…

Before you call your parents in a panic, or start selling your plasma, be aware that the system is not rigged. The system has evolved. If Social Security disappears, that’s 12.4% of your income that could end up back in your pocket. Pension plans don’t just take all of the money that’s set aside for employees and invest it. That money also has to pay the company that manages it. It has to pay an actuary to do a lot of expensive math to figure out exactly how much to put into the plan. And, on top of that, it has to cover the insurance that makes a pension plan a guarantee in the first place. These expenses are the main reason that companies have decided to forgo defined benefit plans in favor of giving employees control of their retirement.

The money set aside for pension plans doesn’t just go away. The responsibility of handling it has changed. With that responsibility comes a potential for a higher return. Pension plans need to be able to guarantee benefits for their employees, and so they invest in safer securities. Low risk often equates to low reward.

The real danger to your retirement is your own inaction. People, like the author of that Gawker article, and the legions of commenters, don’t see the potential in these generational changes.  The reality of this change doesn’t get communicated as often as the potential negative consequences. People aren’t likely to read an article about how they need to do a little more with their money. They’re much more likely to read an article blaming shortfalls on something out of their control.

Retirement is still in the cards. You have more flexibility in when to retire than ever before because you aren’t tied to the same company until you’re 65. You are in control of your own destiny.