When does “volatility” become “normalcy”? The headlines certainly lean that way: Rising inflation rates, energy prices that swing wildly from one week to the next, heightened interest-rate volatility related to geopolitical risk.
For workers who can now glimpse retirement on the horizon, these headlines are no longer just background noise. After all, the current market volatility (that now seems so commonplace) can easily determine how long they’re forced to work, the standard of living they’ll be stuck with once they do retire, and even if they’ll outlive their retirement savings.
The numbers aren’t painting an encouraging picture: Years of elevated prices have eaten into the purchasing power of the workers closest to retirement and who have the least time left to make it up. As for Gen Xers, those born between 1965 and 1980 (and now entering their retirement years), their savings fall well short of what they’ll need. In its most recent analysis, the National Institute on Retirement Security found the median household holds only about $40,000 in private retirement accounts.
These workers were the first to enter the workforce after the shift to 401(k)s and other defined contribution plans, and they’ve now lived through several economic downturns and wage stagnation. This current market volatility is the last thing they need as they start making real plans to retire.
Once a sturdy part of the three-legged stool of retirement, defined-benefit-style income streams are thankfully regaining their importance in this less-than-stable global economy.
Why retirement timing has become a high-stakes gamble
Timing your retirement is challenging enough, but when you add in market downturns, inflation spikes, interest rate uncertainty and rising health care costs, the cracks of a retirement system that relies so heavily on individual savings accounts start to really show.
The biggest issue may come down to simple bad luck, as Ariel McConnell writes for the National Public Pension Coalition:
“Market timing is one of the biggest reasons why 401(k) savings are inadequate. A worker who experiences a downturn early in their career may have decades to recover. A worker who experiences that same downturn right before retirement may not.”
Known as sequence-of-returns, this risk of your retirement coinciding with negative market returns can quickly deplete your retirement savings and do irreparable damage to your retirement security for the long term. It might even mean delaying retirement, which depending on your health care needs (or those of your spouse) might not even be an option. It’s a clear example why individual account balances alone were never designed to be the single answer to retirement.
The pension comeback: Driven by workers, employers and reality
Even the creators and early supporters of the 401(k) admit it was never meant to be the primary retirement vehicle for workers, and that the initial predictions they used to tout the plan early on were too optimistic.
On the flip side, public sentiment is much more on the side of pensions. In a 2024 study by the National Institute on Retirement Security (NIRS), a whopping 83% of respondents say all workers should have access to a pension “so they can be independent and self-reliant in retirement.” The study also found that 75% of Americans believe pensions equal a more secure retirement.
Dan Doonan, executive director of the NIRS, espoused the benefits of bringing back the pension in a 2024 address to the U.S. Senate Committee on Health, Education, Labor and Pensions:
“Individualized 401(k)s were never intended to replace pensions; they were meant to be a supplemental vehicle. We’re expecting 401(k)s to do a job they weren’t designed for. … If we are serious about rebuilding retirement security for Americans, increasing pension coverage must be part of the retirement equation.”
Indeed, the tide may be turning: In late 2023, IBM announced that, effective January 2024, it would replace its 401(k) corporate match with an automatic retirement benefit account (RBA), a type of pension, as it officially reopens its traditional defined benefit plan (which had been frozen since 2008). I can only imagine more companies will follow their lead, especially as the shift not only helps workers but also makes good business sense. In fact, a J.P. Morgan Asset Management study reported that a corporate pension plan “offers the most cost-effective mechanism to finance retirement benefits for employees.”
The UAW made restoring defined benefit pensions a central demand in its 2023 negotiations with the Big Three automakers. The ratified contracts stopped short of that, landing on richer 401(k) contributions instead, but the demand itself put the question back on the bargaining table in a way it had not been for years. A growing number of states are likewise looking to restore pensions for public employees, primarily because they see the retention benefits such a restoration would bring.
None of this means a pension is simple to run, of course. Defined benefit plans demand disciplined, sustained funding, and that obligation is precisely why so many single employers froze theirs. But that’s the argument for pooling rather than the argument against pensions. When hundreds of cooperatives participate in one multiple employer plan, they share the funding discipline, the actuarial expertise and the investment oversight that no single co-op would want to shoulder alone. For a co-op weighing how to offer real retirement security without taking on risk it cannot or does not want to absorb, that distinction is the whole ballgame.
The bottom line? Defined-benefit income streams protect workers from the kind of market volatility we’re seeing now (and that will always be just around the corner), while providing a predictable cash flow — a “paycheck for life” that can offer invaluable peace of mind.
After all, feeling secure in your retirement should not depend on whether your retirement date happens to fall during a bull or bear market, or whether your crystal ball tells you the coming inflation rate or health care costs. If we’ve learned nothing else from this unpredictable economic landscape, it’s that market volatility is precisely why defined-benefit plans like RetireMint are so crucial.
