I’m talking about the kind of old-fashioned pension that many of our mothers, fathers, and grandparents received — a “defined-benefit” pension, which provided employees with a guaranteed lifelong income as they grew old in retirement.
Why did the system collapse? A million reasons, including the rise of 401(k)s, which allowed employers to shift risks from themselves onto employees. (To be fair, some employees liked the idea of managing their own investments.) The Employee Retirement Income Security Act of 1974 (ERISA), designed to safeguard set-aside funds, unexpectedly persuaded some ( by some, I mean damn near all of them) companies to stop offering pensions at all.
In short, companies shifted the onus of financial responsibility from themselves to the employee and even made them responsible for funding it. Sure, the company usually participates to some degree with matching funds, and the government kicks in too by deferring taxes until you take the money out…at your highest tax bracket rate.
If you believe your personal tax rates will be higher in the future, converting to a ROTH IRA can be a smart choice. Take the tax bite now at a lower rate than you’ll pay in the future and forget about Uncle Sam moving forward. Either way, you go, you still have to be a responsible and intuitive steward of your investments. And even in doing so, you still have to dodge all the arrows coming at you…Inflation, Fed Monetary Policy, fiat money, market volatility, and myriad other unknowns the future will throw at us.
My Flux Capacitor is in the shop so I can’t take us back in time. However, I do have an idea that can help bridge the gap between the old and the new that can take one of the unknowns out of the equation…How much your account will be worth in the future.
A Senior Life Settlement has an element of “Pensionality” to it if I may coin a phrase. It has a defined benefit. You know in advance what the payoff is the day you buy it. A life settlement is a life insurance asset-backed security. Life insurance has a defined benefit…the face amount is printed right on the contract. Your cost to own it is less than the face amount. The spread in between is your profit margin.
If you like the idea of taking market volatility and the specter of all the things that may (or may not) happen out of your financial future way of life, taking control of your own private pension might be worth a look.